What is Final Expense Insurance?

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What is Final Expense Insurance?

Final expense insurance is a form of whole life insurance. This means as long as the clients pay the premiums on the policy, there is no risk of outliving it. It has a smaller death benefit and is typically easier to get approved for as older clients tend to have more health issues.

It is commonly referred to as "burial insurance", "funeral insurance", or even "simplified whole life insurance". The different names are used to help market this product to clients to prepare for the end of life expenses that arise when a loved one dies. However, it is important to note that any proceeds from a life insurance policy can be used for whatever purpose the beneficiary chooses.

Final expense insurance typically has a face value between $2000 and $50,000. Depending on your final wishes, funeral costs can get expensive very quickly. The cost of caskets, memorial services, embalming, or cremation can easily climb upwards of $10,000. If you don't have an extra 10 grand sitting around that you don't have plans for, a final expense policy is a good way to save a family a great deal of financial struggle.

Who is it for?

Final expense is usually marketed to the older adult population that are starting to think about their funeral costs. While some companies will sell a final expense policy to a younger client, most of these policies have age limits, typically starting from 40-50 years old to 80-85 years old. The smaller face amounts makes the premiums easier to afford for older clients. This is an important consideration because many clients who purchase these policies are retired, semi retired, or have a fixed income of some sort.

While the approval process is more lenient with final expense than it would be with a term policy, health and age still have a pretty significant impact on how much the policy will cost. There is a three tier "rating" system that dictates what the insurance company will charge for premiums.

Let's Talk Ratings

A "preferred" rating is the best, these clients are in good health and therefore pay the lowest premiums. A "standard" rated client has a few health problems but will still be able to be approved for a policy with few issues. Their premiums will be a bit higher than the preferred rated clients. Third and lowest rating for a final expense policy is called "graded". Standard and preferred rated clients will have full coverage from the day the policy is active. That means if they were to die, the beneficiaries would receive the full death benefit.

Most graded policies come with a waiting period of two to three years before the client will have full access to their death benefit. If an insured were to die during the waiting period, it is typical for the beneficiary to receive all the premiums paid into the policy at the time plus 10% interest. Accidental deaths are usually covered with the full death benefit, even during the waiting period.

Graded ratings were created to help protect insurance carriers from loss and possible fraud. For example, if you have a family member who is terminally ill or is even on their death bed and you take out a life insurance policy, it is very likely that family member will die without paying many premiums. Insurance companies obviously want to protect themselves from a situation like that. On the other hand, a graded policy could be incredibly beneficial for a client. For example, if you have a chronic illness that is not life threatening, you could still get approved for a policy.

Is Final Expense Right for Me?

There are many factors to consider whenever you are shopping for life insurance. If you are over the age of 50 and do not already have a privately owned policy that you control, than a final expense policy could make sense for you. Don't know what you could qualify for? We always suggest reaching out to an advisor you trust or us here at Blaeos for expert advice. As always, there are no strings attached, just the information you need to make the right choice for your family.