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Final expense life insurance is a type of insurance specifically designed to cover end-of-life expenses, such as funeral costs and outstanding debts. Unlike traditional life insurance policies, final expense insurance does not require a medical exam for approval, making it accessible to a wide range of individuals. However, it’s important to understand the details and limitations of this type of insurance before deciding if it’s the right option for you. Bankrate’s insurance editorial team explores what final expense life insurance is, how it works and alternatives that may be more suitable for some people’s needs. Whether you’re looking to secure your end-of-life expenses or considering options for a loved one, understanding the nuances of final expense insurance can help you make an informed decision.

What is final expense life insurance?

So what is final expense insurance? Like a traditional life insurance policy or whole life insurance, you pay into final expense life insurance as long as you live. When you pass away, the predetermined amount of money that your policy is worth — also known as the death benefit — goes to your beneficiaries. Notably, the death benefit will not change during the life of the policy and the premium is fixed to the amount you agree to initially.

Unlike most whole life policies, a final expenses policy is insurance that does not require a medical exam. At most, you might fill out a health questionnaire. The underwriting process is short, and in some cases, you can have a policy in effect almost immediately.

Most people qualify for final expenses life insurance policies, which typically have lower premiums (but comparatively higher than other policy types for the same death benefit amount). The death benefits are relatively low for final expense policies — usually enough to cover funeral expenses alone. However, the beneficiary is free to use the death benefit in any way they choose, an added benefit that may make final expense insurance worth it.

What are the steps involved to get a final expenses life insurance plan?

Securing a final expense insurance plan is often a straightforward process.

  1. Start by assessing your needs and expenses that may arise upon your death. This could include funeral costs, medical bills, legal fees or any other debts.
  2. Once you understand the potential costs, begin shopping around for policies. Compare several different providers and plans, considering the premiums, death benefits and the company’s reputation.
  3. Once you’ve selected a plan, you’ll fill out an application, which usually includes questions about your health and lifestyle.
  4. After submitting your application and receiving approval, you’ll begin paying your premiums to keep the policy active. Remember, it’s crucial to keep up with your payments, as failure to do so could result in a lapse of your policy.

What are some final expenses?

End-of-life expenses can be costly. Often, family members are unaware that funerals can cost tens of thousands of dollars. A few costs that people may forget to consider include:

  • Funeral home expenses: Funeral homes — which can organize everything from the embalming, casket, liner, limo, hearse, visitation and more — typically charge thousands of dollars for their services. The final cost will depend on what options a family chooses, but the median funeral cost is $7,848, according to the most recent data from National Funeral Directors Association.
  • Embalming: Embalming typically costs an average of $775. You can avoid this charge if you wish to cremate your loved one or bury them immediately.
  • Reception costs following the memorial: Your preferences dictate the cost of the funeral reception. Some families spend a few hundred dollars on food at home, while others rent out event spaces for thousands of dollars.
  • Casket: Perhaps the largest end-of-life expense, caskets typically cost between $2,000 and $10,000, while burial vaults cost an average of $1,572.

All told, funeral costs add up quickly. Final expense policies allow your loved ones to focus on grieving rather than worrying about funeral bills.

Does final expense insurance cover outstanding debts?

While final expense insurance is primarily designed to cover funeral and burial costs, it’s important to note that the beneficiaries can use the death benefit however they see fit. This means that if there are outstanding debts, such as credit card debt, a car loan or a mortgage, the death benefit could be used to settle these liabilities. However, the relatively low death benefits associated with final expense policies might not be sufficient to cover substantial debts. If you have significant financial obligations, you may want to consider a life insurance policy with a higher death benefit.

How much does a final expense policy cost?

If you’re considering purchasing a final expense policy, you may be wondering how much your premiums will be. Generally, premiums for final expense policies are affordable as the death benefit is often low. Final expense premiums typically come in at under $100 a month. Of course, the premium you pay will depend on several personal factors, including:

  • Age: The older you are, the more your policy will cost. After age 80, it might be more challenging to find a final expense policy.
  • Gender: Because women statistically live longer than men, their costs may be lower.
  • Health: You will not have to complete a health exam to qualify for final expense insurance. However, you will typically have to answer a few questions about your health on the application. Final expense insurance is not intended for those who are terminally ill. In some cases, you may qualify for a guaranteed issue life insurance policy, which covers high-risk individuals with serious health issues, but is also more expensive.
  • Smoking habits: If you are a smoker, it puts you into a higher risk pool, which will likely increase your premium.

Together, these factors will influence the amount you pay for final expense insurance. Everyone is different and their insurance premiums reflect those differences.

Does final expense insurance offer flexible payment options?

Final expense insurance policies typically offer a certain level of flexibility when it comes to premium payments. The most common payment schedules are monthly, quarterly, semi-annually and annually. These options allow you to choose a payment plan that fits your financial situation best. However, it’s essential to keep in mind that missing a payment could potentially lead to a lapse in your policy. It’s crucial to select a payment option that ensures you can consistently meet your premium obligations.

What are some alternatives to final expense insurance?

Final expense insurance is one option for anyone who wants to ensure that their funeral costs are covered. This coverage is typically inexpensive and easy for your beneficiaries to access after your death.

But final expense insurance may not be the best option for everyone. For example, those who have a terminal illness may find it difficult to purchase a policy at a reasonable rate because they are in a high-risk category.

High-net-worth individuals may also find final expense insurance less beneficial because other investment opportunities could yield a higher rate for the money.

However, you may also want to explore additional policies that offer benefits final expense policies do not. These options include:

  • Term life insurance: Term life is insurance that you pay into for a period of years — usually 10, 20 or 30 — which pays a death benefit for as long as the policy is in force. The amount of the death benefit is usually much higher for term life, but may not be much more expensive than final expense insurance. One drawback to term life is that once the policy term expires, beneficiaries cannot receive the death benefit.
  • Permanent life insurance: If you prefer a policy that stays in force throughout your lifetime, permanent life insurance, such as whole life, is an option to consider. This insurance is generally more expensive than term or final expense insurance, but in return, it offers a cash reserve component that can grow over time. As a result, the payout your beneficiaries receive is typically high. As long as you pay your premiums, your beneficiaries will receive the death benefit.
  • Investments: Another option is to set aside $10,000 or more in a relatively liquid investment allocated for funeral expenses. You will likely want to make sure your heirs can access the account quickly after your death so they can plan your funeral and burial.
  • Pre-pay options: If you would like to maintain control over what happens after you die, it is also possible in some states to pre-pay for your funeral costs by working with a favored funeral home. This way, you can choose your casket and even plan your memorial service. The drawback is that you cannot know all the factors that will come into play before you die — such as the funeral home going out of business.

Frequently asked questions

    • Not all insurers offer final expense insurance, so finding inexpensive final expense insurance involves a few steps. First, you’ll want to research final expense offerings from various insurance providers and see how they compare. Online comparison tools can be particularly helpful in this process. Once you’ve found a carrier you feel fits your needs, consider working with an independent insurance agent who can provide insights into different policies and help identify the most cost-effective options. It’s important to assess your specific needs and choose a policy that aligns with them.
    • Final expense plans fall under the umbrella of whole life insurance, and they remain effective indefinitely, provided the premiums continue to be paid. The policyholder can enjoy the benefits of these plans throughout their lifetime, as long as they consistently stay on top of their premium payments.
    • Your smoking habits can significantly impact your final expense insurance premiums. This is because smokers are often seen as being at a higher risk due to their typically shorter lifespans, resulting in heftier insurance rates. This holds true even if you’ve only smoked a few cigarettes in the past year, as any recent smoking activity will subject you to these higher rates.

      Although final expense insurance isn’t as stringent in its health requirements as other types of insurance, engaging in any form of tobacco consumption, such as chewing tobacco, vaping or cigar smoking, could potentially drive up your insurance costs, depending on the specific guidelines of your insurance provider.

    • Final expense insurance policies, being a subset of whole life policies, do typically build cash value over time — though at a slower rate. The cash value accumulates on a tax-deferred basis and can be accessed by the policyholder during their lifetime. However, it’s important to remember that any cash value withdrawn will reduce the death benefit, and if the policy is surrendered, the policyholder will receive the cash value and not the death benefit. Furthermore, loans against the policy will accrue interest and typically reduce the death benefit as well, potentially leaving less for your beneficiaries.