If you’re older, you may not have life insurance any longer. Maybe you took out a term life policy and it expired. You decided you’re in a good place financially, so you don’t need to pay the premiums for another policy.
That’s a great position to be in.
But then you get older, and life happens. You realize you don’t have the money for your loved ones to cover your final expenses.
What can you do?
There’s a policy called final expense life insurance. It’s a life insurance policy strictly for people over age 50 and just for final expenses. Here’s everything you should know about it.
What is Final Expense Life Insurance?
Final expense life insurance, as the name suggests, is for final expenses only. It’s a policy for elderly people to take out to cover their final expenses. This includes things like your funeral, cremation, burial, or even your final medical expenses.
It’s a permanent life insurance policy which means it lasts for your lifetime – it doesn’t expire, but you must pay the premiums. It’s not a policy that will leave your loved ones with a financial legacy, but if you’ve already taken care of that and just need funds to cover your final expenses, this could be a good option.
Final expense insurance isn’t for hundreds of thousands of dollars or millions of dollars like regular life insurance. Keep that in mind, as you decide if final expense insurance is right for you.
How Does Final Expense Life Insurance Work?
Final expense life insurance works a little differently than most other life insurance policies. It starts with an application like all other policies, but the similarities end there.
You don’t need a medical exam for final expense insurance. You can apply for one of two types which will determine the next steps:
- Simplified final expense insurance – Simplified insurance means you answer some medical questions and if you answer ‘no’ to these questions honestly, you get coverage. The questions are about any chronic or terminal illnesses you may have. It’s important to answer the questions honestly otherwise it’s insurance fraud.
- Guaranteed final expense insurance – Guaranteed insurance means anyone can get approved. There aren’t any medical questions or exams. If you apply and meet the age requirements, you qualify even if you have a terminal or chronic illness, but it costs more since the insurance company takes a higher risk.
There’s another thing you should know about final expense life insurance.
It has a waiting period.
If you apply and are approved today, you won’t get full coverage for 2 years from today. This means if you died between today and 2 years from now, your beneficiaries would not receive the payout amount of your insurance policy. They would only receive a return of the premiums you paid to that point. Some companies also pay a small bonus, such as 10% of the amount you paid.
How Much Coverage can you Get?
This is another area final expense insurance differs from any other life insurance policy. The coverage amount is limited to your final expenses – usually around $20,000. Policies generally range from $5,000 – $50,000, but the average person gets around $20,000 in coverage.
How much coverage you get depends on what you need it for and what you can afford. Since final expense life insurance policies are basically guaranteed and they are high risk since they are for a generation that is closer to dying than not, insurance companies charge higher premiums.
How do you Qualify for Final Expense Life Insurance?
This is the nice part about final expense insurance.
It’s easy to get.
You qualify based on your age and what you can afford. If you apply for a simplified insurance policy, you’ll answer some health questions too. If not, you qualify based on your age and need.
If you must answer questions, you’ll come across questions such as:
- Are you currently hospitalized or in a chronic care facility?
- Do you have congestive heart failure?
- Do you or have you ever had cancer or heart disease?
- Do you have dementia or Alzheimer’s disease?
Every insurance company has different questions they ask, but they all center around these ideas – do you have any chronic or terminal illnesses that put you at a high risk of death?
Is Final Expense Life Insurance Expensive?
Because final expense insurance is for seniors who are typically on a fixed income, the premiums are affordable, but you should still pay close attention to make sure you can pay them.
On average, seniors pay $75 – $115 a month for final expense insurance. Your premiums depend on your gender, age, and the coverage amount. The younger you are (no younger than 50), and the more health questions you can answer, the lower the premiums you’ll pay.
Focus on the features the insurance offers your loved ones upon your passing, as that’s the number one reason you will buy it.
What can your Beneficiaries do with Final Expense Life Insurance?
Despite its name, there aren’t any rules stating what your beneficiaries should do with the payout from your finale expense insurance. Common uses include:
- Paying funeral and burial costs
Most people use the money for your final arrangements including the wake, funeral, casket, mass, and any other final expenses. If you pre-arrange your services, you’ll know how much your loved ones will need. If not, consider that the average funeral costs $10,000.
- Cover medical debt
Most people have high medical bills near their end of life. If you have responsibility for the bills after insurance, it will come from your estate. Your loved ones can use the payout from your insurance to cover the cost of the medical bills though, without hurting your estate’s value.
- Payoff consumer debt
If you’re leaving behind a large amount of consumer debt, your loved ones can use some of the money from the final expense insurance to pay it off. Even if you have money set aside for your final arrangements, but not enough to cover your debt, a final expense insurance policy may be in order to help your loved ones cover it all.
The Pros and Cons of Final Expense Life Insurance
Pros
You can get the policy no matter your health
You don’t need to be in good health go get approved. You won’t pay higher premiums if you are in poor health either. Anyone within the age range can get the policy to cover their final expenses.
You can get a policy with a low coverage amount
Most people looking for final expense insurance need $20,000 or less in coverage. It alleviates any financial stress their loved ones experience to cover their final expenses but doesn’t cost a lot for you.
Provides everyone with peace of mind
You can live the rest of your life with peace of mind knowing you have your final expenses covered and you won’t leave your loved ones without enough money. It also provides peace of mind for your loved ones knowing they can honor your final wishes.
Cons
Has low death benefits
You can’t rely on a final expense policy to provide your loved ones with a legacy. Yes, it covers your final expenses, but nothing else. You can’t rely on it to make up for lost income or to support children in their adult years, for example.
The waiting period is long
If you die within 2 years of getting the policy, your loved ones get nothing but a return of your premium. While it’s better than nothing, it can still feel like wasted money if you die within two years and since no one can predict what will happen in the future, it’s a risk everyone takes.
It can be misleading
If you work with a new insurance agent or one that isn’t trustworthy, you could get taken advantage of, buying more insurance than you need. You may not fully understand the policy either, which can be frightening for your loved ones when they go to use it but it’s not what they thought it was.
Key Takeaway
Final expense insurance is for seniors over age 50 that don’t have a policy or money set aside to cover their final expenses. It’s easy to qualify for and is often affordable, but you should understand its limits too.
