Final expense insurance is a type of life insurance policy used to pay for an individual's cemetery, burial, funeral, and/or memorial expenses. It is common for the terms final expense insurance, burial insurance and funeral insurance to be used interchangeably. However, there are noticeable and important distinctions between these types of insurance. Most notably, the proceeds of a final expense insurance policy are payable immediately after the death of the insured individual. The face value, or death benefit, may be paid to either the stated policy beneficiary or directly to a cemetery or funeral home. Proceeds of the insurance policy paid to the beneficiary may be used for any purpose after a death. Final expense insurance policies may either be issued as term-life-insurance or whole-life-insurance coverage.

Final expense insurance is designed to help ensure that there is enough money available to pay for the related cemetery, burial, funeral, and memorial costs at the time of need. A final expense policy does not lock-in or freeze the current final arrangement costs, therefore it is advisable to purchase a policy with a death benefit greater than current funeral costs in order to cover any future cost increases. The face value, or death benefit, of a final expense insurance policy, is usually based on the current cemetery, burial, funeral and memorial costs, a projected rate of cost increases (or rate of inflation), and the proposed insured life expectancy. For example, assuming an interest rate of 8%, current costs will double every 9.01 years.

Purpose and Characteristics of Final Expense Insurance.

A primary purpose of a final expense insurance policy is to reduce the financial burden placed on the next-of-kin when an individual passes. Final expense insurance is a pre-planning tool that may either supplement or replace, the pre-planning and pre-paying options offered directly by the cemetery or funeral home.

Final expense insurance policies may not require an in-person medical exam and may be issued quickly, within hours or days. Final expense insurance premium payments are set at a pre-specified level and will not increase over the term set forth by the policy coverage. The face value, or death benefit, generally falls within a range of $5,000 to $30,000. An application can be made online and/or over the phone by either the proposed insured or any individual with insurable interest (spouse, children, durable health-care power of attorney).

Reasons for Purchasing a Final Expense Insurance Policy:

  • For individuals who want to pre-plan but are not 100% certain that they will remain in the same city and state throughout their entire lives.
  • For individuals, whose preference for burial, entombment, or cremation may change.
  • When the cemetery, funeral home or memorial provider does not allow for pre-planning
  • If the cemetery, funeral home or memorial provider charges too much interest for pre-paying.
  • If the cemetery, funeral home or memorial company does not place all pre-paid money into an independently monitored trust.
  • If there is any reasonable chance that the cemetery, funeral home or memorial provider may not be in business to fulfill its obligations at the time of need

Reasons for Not Purchasing a Final Expense Insurance:

  • The monthly insurance premium payments do not make economic sense.
  • The cemetery, funeral home or memorial provider offers low-interest, or zero interest, pre-payment plans.
  • The cemetery, funeral home, or memorial provider lock-in all costs and guarantees all goods and services.
  • There is a significant discount offered by the funeral home or cemetery for pre-payments made directly with them.

Types of Final Expense Insurance

Final expense insurance may either be issued as either term-life insurance or whole-life insurance. Term-life insurance remains in place for a specific, pre-determined term (or amount of time). If a death occurs during that term, the face value death benefit is paid to the beneficiary. If a death does not occur during the given term, no death benefits are paid. Whole-life insurance coverage never expires, therefore the face value death benefit is guaranteed to be paid upon the death of the insured. *Whole-life insurance policies may automatically become an annuity when the insured reaches 100 years of age. Such a change should not affect the payable death benefit.

Cost of Final Expense Insurance

The monthly premium cost of a final expense insurance policy depends on the proposed insured's age, the type of coverage (term or whole life), the face value death benefit of the policy, and the credit rating of the insurer. The older the proposed insured is at the time of initial application, the higher the premiums will be. It is important to apply for final expense insurance as early as possible. Term-life policies will be less costly than whole-life policies. The higher a policy's face value death benefit, the higher the monthly premiums will be. While keeping monthly costs low is important, it is equally important that a final expense insurance policy is underwritten by a highly rated and well-capitalized insurance company.

Ancillary information about Final Expense Insurance

The decision to purchase final expense insurance should be considered as part of final arrangement pre-planning and in conjunction with estate planning. While estate planners, financial professionals, insurance companies and insurance brokers all may be able to broker final expense insurance products, it is important to keep premium costs low in relation to the quality of the insurance provided.

Who Purchases a Final Expense Policy

A final expense policy is generally purchased directly by an individual for family or a specific beneficiary when planning in advance of their passing. The alternative types of insurance policies (i.e., burial and funeral insurance) are either purchased by an individual directly or funeral home. In general, a funeral or burial policy is purchased as part of the contract entered into by and between an individual and the funeral home. This insurance policy is purchase to ensure that the funds are preserved and available at the time of passing. When the death occurs, the proceeds of the burial and funeral insurance policy are used for the goods and services set forth in the contract.

How to Apply for a Final Expense Insurance Policy

An insurance company issuing a final expense policy generally needs to know the following information:

  • Type of policy (e.g., Length of Term or Whole Life)
  • Amount of policy (e.g., $5,000, $10,000, etc…)
  • Name of insured
  • Age of the insured
  • Gender (male or female)
  • State of Residency
  • Smoker (Tobacco Use)
  • Email Address
  • Phone Number

Specifically, when applying for final expense insurance coverage, the proposed insured may be asked the following questions:

  • Is the proposed insured currently in a hospital?
  • Is the proposed insured currently in a nursing home?
  • Is the proposed insured receiving hospice care?
  • Has the proposed insured been told by a licensed medical professional that you have less than 12 months to live?
  • Has the proposed insured been tested positive for HIV or been diagnosed with AIDS?
  • Has the proposed insured been diagnosed with Alzheimer’s or dementia?