What is a Final Expense?
Final expense insurance is a whole life insurance policy that has a small death benefit and is easier to get approved for. Final expense insurance is also called “funeral insurance,” “burial insurance,” “simplified issue whole life insurance,” or “modified whole life insurance.” All are marketing terms that the insurance industry uses to sell small whole life policies with a face value (death benefit) of $2,000 to $50,000.
There is no difference between final expense insurance and normal life insurance other than the fact that insurers sell smaller policies to make it more affordable, says Richard P. Sabo, a financial planner and insurance fraud expert in Gibsonia, Pa.3 Final expense insurance has a death benefit designed to cover expenses such as a funeral or memorial service, embalming and a casket, or cremation. However, the beneficiaries can use the death benefit for any purpose, from paying property taxes to taking a vacation.
“They market the final expense insurance to people who are older and starting to think about their funeral costs, and they make it look like they need to do it in order to take care of their family,” says Sabo. “Some people already own existing life insurance policies that can go toward paying final expenses, so do they really need a new policy?” Another situation where final expense insurance may be redundant is if someone has already prepaid their funeral expenses, he adds
How Does Final Expense Insurance Work?
Let’s say you’re retired, no longer have life insurance through your employer, and don’t have an individual life insurance policy. You also don’t have a comfortable nest egg and are worried about the financial burden you’ll leave on your spouse and/or kids when you die.
You contact a life insurance agent and start the application process, which includes answering a few basic questions about your health. The death benefit is great, but the premiums are not affordable because of your age and health. Unfortunately, they don’t issue policies with a death benefit that’s small enough to make the insurance premiums fit your budget. At this point you might give up and assume you can’t afford life insurance.