Final expense insurance: What you need to know

What is final expense insurance?

Although it’s marketed as a policy for final expenses, this type of policy is really just a permanent life insurance policy with a small death benefit. It’s called final expense insurance because it’s aimed at people who just want enough coverage to make sure those expenses are paid.

Final expense policies are usually either simplified or guaranteed issue policies, and the majority of people who apply will be approved. Most policies have no medical exam and many also have no medical questions.

How much does final expense insurance cost?

Final expense insurance premiums vary depending on your age, the company you choose, and the amount of the death benefit. The younger you are when you buy the policy, the less it will cost. However, younger people in good health will likely get a better deal from a traditional life insurance policy with a medical exam rather than a no-medical exam final expense policy.

AIG advertises that its final expense policies start at about $21 a month for $5,000 in coverage, while Colonial Penn promises coverage from $10 a month. The actual rate you pay, however, may be much higher, and the best way to find out is to compare quotes.

Pros and cons of final expense insurance

Is final expense insurance worth it? There are a lot of factors to consider before you buy a final expense insurance plan. It’s always advisable to speak with an expert before buying any kind of life insurance.

Pros:

Simplicity. You can quickly buy a final expense insurance policy online or over the phone.
Guaranteed acceptance. There is no medical exam for most policies.
Available to older applicants. Most companies will sell policies up to age 80 or 85.
Level premiums. Premiums don’t go up over time and as long as you pay them, coverage won’t expire.

Cons:

Limited benefit period. There is usually a two-year period during which benefits under the policy are limited.
Limits on coverage. Final expense policies have smaller death benefits, so they aren’t a good fit for anyone needing a larger death benefit.
You could overpay. Life insurance that doesn’t require a medical exam is more expensive because it’s a blind risk for the insurance company. If you’re healthy and on the younger side, you’ll likely get a better rate by going through the exam.
It’s not the best investment. You might do better to put the money into another type of investment and have more than enough for final expenses by the time you die.

If you really want to make sure your funeral expenses are covered and don't have a better method of putting money aside for that purpose, final expense insurance might be the right choice.

Life insurance FAQs

When should I buy a final expense insurance policy?

There’s no specific right time to buy life insurance, but the younger you are, the less you will pay. You can purchase a final expense insurance policy anytime between the ages of 45 and 85. However, at a younger age, you may be better served by a different type of policy.

What if I die prematurely?

Some policies include a two-year limited benefit clause that will limit what is paid out during the first two years of coverage. It’s important to read the terms of the policy before you buy.

What are considered final expenses?

While the funeral and related costs are what come to mind as final expenses, there may be others. They can include medical bills, debts, long or short-term care expenses that were outstanding when the insured died, and any other expenses left behind.