Planning for expenses is important. In the event of a family member's death, many unforeseen expenses arise that can be unsettling for those left behind. A final expense insurance policy can help families prepare for the event so that they don't have to pay for things like a funeral or burial.
When it comes to making a decision regarding which policy will work best, it is helpful to know what coverage is available and what options a person has.
How Does Final Expense Insurance Work?
There is a simple process to apply for final expense insurance. Contact a trusted carrier or licensed agent who can walk you through the steps and answer any questions you may have.
If you apply for a final expense policy, you will not have to deal with submitting to a medical exam or allowing the insurance company to look at your medical records. You will have to answer some questions regarding your health. Because of the health questions, not everyone will be eligible for a policy with coverage that begins on day one.
For individuals with optimal health, death benefits will be eligible to start immediately. For individuals who have certain health conditions, coverage is set to start after a 24-month waiting period. If a death occurs before the 24-month waiting period, some premiums will be refunded. Health conditions that would require a waiting period include:
- People with Alzheimer's or dementia
- People who have suffered a heart attack within the last 12 months
- People who have suffered full-blown strokes within the last 12 months
- People who have undergone heart surgery within the last 12 months
- People who have undergone surgery for a circulatory problem within the last 12 months
- People who have suffered from chest pains (angina) within the last 12 months
- People who have suffered a diabetic coma within the last 24 months
- People who have a life expectancy of 24 months or less
- People who have been diagnosed with cancer
- People undergoing dialysis treatments
- People who are currently being cared for in a hospital, nursing home, skilled nursing facility, or hospice care
- People who have had a transplant or have been recommended to have one
The main purpose of final expense insurance is to provide for your dependents after you die (specifically for burial expenses). However, there are other instances when this kind of coverage might prove useful, including:
- You have very poor or no health insurance and do not have enough money to pay medical bills
- You need money to cover funeral expenses
- You need to pay off outstanding debts, including credit card debt or mortgage payments
How Much Do You Need for Final Expenses?
The average cost of a funeral now resides around approximately $9,000, and average household expenses can range up to $3,000 a month. Considering that a family will take some time to make adjustments after the death of a loved one, a 3-month estimate of expenses will help you determine the best outcome for your family financially.
A family’s expenses can include housing, utilities, transportation, food, and insurance fees. Added with the unforeseen cost of burial expenses, a family unit can be looking at an initial out-of-pocket expense of $12,000 for the first month.
Most final expense policies have lower payouts than typical life insurance policies and can pay anywhere between $1,000 and $5,000. Those monthly premiums will be in the lower range, as opposed to death benefits of $12,000-$50,000. If, however, you have a higher amount of insurance coverage, then more money will be available to your survivors.
When Should I Buy a Final Expense Insurance Policy?
You can get through the last years of your life without worrying about what will happen after you pass away if you have final expense insurance.
When people are 50-55 years old, this is usually when they buy this type of policy. At about this age, overall health starts to deteriorate, and it’s best to get a policy while you are still able to lock in a good rate.
Accordingly, you will want a guaranteed income of at least $1,000 per month for as long as possible so that either these kinds of problems do not occur, or they can be delayed. Final expense insurance is definitely an option worth considering, provided that you meet the normal age requirements necessary to apply, regardless of any pre-existing conditions that might otherwise prevent others from getting approved.
What Can You Use a Final Expense Policy For?
A final expense plan can help cover burial costs and other expenses for your family.
Funeral costs can quickly add up and leave someone with a financial burden and many outstanding life expenses. According to one life insurance company, average funeral costs will go up to $18,300 by 2030. Some families choose to take on these financial obligations by using credit card debt or borrowed money to cope with their expenses. They could also consider low-cost burial options, but that may not be in alignment with their wishes for their loved one’s passing.
Families that prepare with a final expense insurance plan in place will be able to manage their grief without the stress of having to arrange funeral expenses to be paid. Death benefits can be paid directly to your beneficiary, who may or may not use it to help pay final expenses. A final expense insurance plan can work as a supplement to an existing life insurance policy.
Keep in mind that any pre-existing conditions are covered by most policies but may have restrictions if the condition causes death within two years of the coverage date. An insurance agent will likely ask questions while reviewing your application and conduct a free consultation for the best price and quality.
For seniors who don't qualify for other types of life insurance, final expense insurance would be the next best option for providing burial expense coverage.
Final expense life insurance is not meant for everyone, but there are advantages for some. If you have certain circumstances, final expense insurance might be right for you.
Shopping for a Final Expense Plan
This type of insurance is usually a good option for people who can't get other types of insurance. The lower coverage amounts make it more affordable than term life insurance policies. When you lock in your monthly premium, it will stay the same for the entire policy. You won't have to worry about having your coverage canceled because of health issues once you're approved, which is a standard across many final expense products.
How Much Does Final Expense Insurance Cost?
Final expense life insurance can also be referred to as burial insurance, funeral insurance, or whole life insurance.
Final expense insurance plans are relatively inexpensive compared with other types of insurance because there are no medical exams or health questions asked during the application process, and they do not consider any pre-existing conditions or smoking history. If you pass away within two years of signing up, then the insurance company will refund your premiums.
Premiums for individuals over the age of 50 start to increase gradually with age. In order to get a lower rate, most seniors get coverage early. Insurance premiums can start as low as $25 a month and go up to $350 a month, depending on the amount of the death benefit payout and other factors, such as health, age, gender, and the underwriting company.
Because there are no underwriting concerns involved with final expense insurance, anyone can be approved for a policy. There are, however, limited options available when it comes to choosing your coverage and limits. You may choose the amount of coverage you want up to $25,000. Death benefits of $30,000+ are usually not available under this type of policy due to no medical examination being required and no health questions being asked during the application process (which makes it easier for people with pre-existing conditions to get approved).
Similar to other types of insurance, some final expense policies can build cash value over time. If you want to borrow from that cash value during your lifetime, you can use it as a security for a loan, giving you another way to pay for expenses as needed.
How Long Do You Pay for Final Expense Insurance?
Because final expense life insurance is technically considered a whole life insurance policy, premium payments will be paid for the lifetime of the insured party. Whole life insurance is often also referred to as "permanent life" because it isn't limited to a specific time frame like term insurance.
One of the major benefits of final expense life insurance is that the policy will eventually accrue cash value. It is important to carefully review your complete statement of coverage in order to determine how your final expense cash value benefits can be used.
It can be possible to borrow the cash value of your final expense (permanent life) insurance policy. If you do borrow, your policy loans will accrue interest. The death benefit and cash value of the policy will be reduced if the policy loan is not paid on time. The amount of cash value available depends on many factors, including the type of coverage and the length of time the policy has been active. Policy loans may be subject to tax.
As long as you can pay your premiums and as long as the company remains solvent, such policies can never be canceled. Cancellation of the policy is allowed but will incur the forfeiture of your premiums unless it is canceled within two years of the date of issue.
What's the Difference Between Life Insurance and Final Expense Insurance?
Life insurance and final expense insurance are very similar, but there are a few differences.
The main difference is that the life insurance benefits are designed to pay out for your survivors when you pass away. These benefits can help with funeral costs and other final expenses, such as outstanding debts or medical bills. With life insurance, you have the option of adding Accidental Death and Dismemberment (AD&D) coverage to the policy in order to give an additional death benefit if you die from an accident or dismemberment. You also may have a cash value component to your policy. When paying your premiums over time, the cash value will build up. At any point, you can take advantage by borrowing against it or paying your premiums with it without losing coverage.
Some life insurance companies do not provide coverage for final expense policies. Final expense insurance does not have a cash value component nor AD&D options attached to it. It is important that you plan ahead so that the policy will be in place when someone needs it and so the benefits don't go unpaid. With burial insurance:
- You don't have to take a medical exam to get coverage
- Your policy won't be canceled due to changes in health
- You can count on this insurance for seniors, who may not qualify for traditional life insurance
Final expenses can be defined as any expense that is necessary due to an injury or death (including medical bills). Even if your loved one has health insurance, they may reach their maximum amount of coverage and then incur expenses, which other types of insurance simply will not cover.
What Happens at the End of a Final Expense Insurance Policy?
Final expense insurance is a type of insurance policy that could help your family with the expenses that come with sudden death. The benefit amount will be given to your beneficiary who can decide how best to use it for the benefit of your family.
If you are looking for an end-of-life or final expense provider, then make sure you find one that has good customer service and a great reputation in order to get the best, most comprehensive service. Talk to peers, friends, and loved ones about companies they have dealt with, and compare rates between providers based on their coverage plan as well as price.
Final expense insurance may also provide some peace of mind during this time period by letting someone know that there will be money available when needed most.
If you need to speak with a financial advisor, Elder Law Insurance Company can go over expense plans and your financial obligations to reduce your insurance premium rates.
$10,000 Death Benefit Policy
This is like any other life insurance coverage option on the market today, but with a small benefit and subsequent small premiums. If you choose this type of plan, you can expect to have just the average funeral costs paid. Full-service burial and/or cremation services can range anywhere between $9,000-$15,000, depending on the arrangements made with the funeral home and director.
Once a final expense insurance policy is secured, it will be guaranteed never to increase so long as the premiums are paid every month. When purchasing this kind of policy, there is no need to submit medical records or take a health test.
$25,000 Death Benefit Policy
Most final expense insurance policies have a maximum death benefit of $25,000.
This death benefit can be used to cover 100% of the costs associated with the death of a loved one. It can also provide some financial padding for other expenses that the family could incur after the event, such as traveling to and from the location, unpacking and packing belongings, storage fees, moving fees, and supplemental income while taking time to observe the life of a loved one.
Many people who are not prepared for a death in their family end up taking out loans to pay for funeral services and burials. This inherently can put anyone in a negative financial circumstance.
If you are at least 55 years old and do not qualify for any other life insurance plan, a final expense insurance policy might be worth the cost. An insurance policy with a high death benefit will provide financial security, won't force savings to be used, will prevent loans, and can provide additional financial relief, even after funeral expenses.
If you need help determining whether or not you should purchase a plan, contact us today to find out how we can help.
Final Expense Insurance Policy Accruing Cash Value
What is the advantage of cash value? A life insurance policy with cash value allocates a portion of your premium toward your policy's cash value amount. The insurance company's operating costs and the actual cost of your insurance are covered by the remainder of your premiums.
Your policy will continue to grow as you pay your premiums. Because of this feature, you'll be able to take a partial loan against your policy over time. There is no interest on the cash from these insurance policies.
For example, if $2,000 has been borrowed and $1,500 remains on the loan, then only that amount needs to be repaid, as long as you are no longer taking loans against the policy.
On average—depending on the plan type—a final expense insurance policy costs about $83 per month. This is an annual cost of around $900. This means that over the course of five (5) years, you will have paid out roughly $4,500 as your total cost in premiums only.
This amount is far less than most people pay for burial expenses alone should they pass away without being financially prepared for such an event. A final expense insurance policy is an indispensable option for proper financial planning.
Types of plans that you should be aware of:
- Simplified issue final expense insurance: People in good health who are looking for a way to cover end-of-life costs should consider the simplified issue. The application does not require a medical exam. The coverage amounts for a simplified issue can be as high as $35,000.
- Guaranteed issue final expense insurance: For people who can't buy other types of life insurance because of their age or health, then guaranteed issue is a good option. Anyone who meets the age requirements can usually qualify, and there are also no health/medical exam requirements. Depending on the coverage amount, it can be as high as $25,000.
Final Expense Funeral Plans - Buyer Beware (work with a professional):
Funerals rank among the most expensive purchases many consumers will ever make. A traditional funeral costs about $7,000, although "extras" like flowers, obituary notices, acknowledgment cards and limousines can bring the total to well over $10,000. Moreover, people often "overspend" on a funeral or burial because they think of it as a reflection of their feelings for the deceased.
To help relieve their families of some of these decisions, an increasing number of people are planning their own funerals, designating their funeral preferences, and sometimes even paying for them in advance. In fact, many elder law attorneys advise prepayment as a way to invest in assets that will not be countable by Medicaid or SSI.
However, consumers lose millions of dollars every year when pre-need funeral funds are misspent or misappropriated. A funeral provider could mishandle, mismanage or embezzle the funds. Some go out of business before the need for the pre-paid funeral arises. Others sell policies that are virtually worthless.
Consumers received some protection from unscrupulous funeral providers with the creation of the Funeral Rule in 1984. This rule, administered by the Federal Trade Commission (FTC), requires funeral providers to give consumers accurate, itemized price information and other specific disclosures about funeral goods and services. Unfortunately, the Funeral Rule does not apply to many of the features of pre-need contracts, which are governed solely by state law, and protections vary widely from state to state. Some state laws require the funeral home or cemetery to place a percentage of the prepayment in a state-regulated trust or to purchase a life insurance policy with the death benefits assigned to the funeral home or cemetery. Other states, however, offer buyers of pre-need plans little or no effective protection.
Following are some questions that the FTC recommends asking before signing up for a pre-need funeral arrangement. The questions are from the FTC's Shopping for Funeral Services page.
- What happens to the money you've prepaid? States have different requirements for handling funds paid for prearranged funeral services.
- What happens to the interest income on money that is prepaid and put into a trust account?
- Are you protected if the firm you dealt with goes out of business?
- Can you cancel the contract and get a full refund if you change your mind?
- What happens if you move to a different area or die while away from home? Some prepaid funeral plans can be transferred, but often at an added cost.
In addition, find out exactly what you are paying for and compare with other funeral providers. And make sure the price is locked in and additional money won't be required at the time of death.
These pitfalls can be avoided, of course, by making decisions about your arrangements in advance, using a reputable insurance agent and companies. Be sure to tell your family about the plans you've made; let them know where the documents are filed. If your family isn't aware that you've made plans, your wishes may not be carried out. You may wish to consult an attorney on the best way to ensure that your wishes are followed.
One way to ensure there is money available to pay for the funeral is to set up a payable-on-death account (POD) with your bank. Make the person who will be handling your funeral arrangements the beneficiary (and make sure they know your plans). You will maintain control of your money while you are alive, but when you die it is available immediately, without having to go through probate.
Sometimes it's more convenient and less stressful to "price shop" funeral homes by telephone. The Funeral Rule requires funeral directors to provide price information over the phone to any caller who asks for it.
If you run into problems or have questions about your state's laws, most states have a licensing board that regulates the funeral industry.
In conclusion, final expense insurance provides protection and the added benefits of cash value accrual. If you don't know what kind of insurance would best suit you, give us a call! The advisors with Elder Needs Insurance are here to provide you with the sound guidance you need!
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