Common Questions About Final Expense Insurance

Kim Wilhelm CEO of Final Expense Direct Life Insurance
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Written by Kim Wilhelm

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Kim Wilhelm on Facebook
Kim Wilhelm on LinkedIn

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Last Updated 24 Sep 2021

Common Questions About Final Expense Insurance

Final Expense Insurance (aka funeral or burial insurance) is meant to cover the bills that your loved ones will confront after you pass away, including funeral expenses and medical bills. At Final Expense Direct, we represent our clients with their best interest in mind, every day. Our team is here to answer your questions about final expense insurance. There are many “what if” scenarios and plenty of questions that arise about coverage. 

How Is Final Expense Insurance Different from Using Savings?

It seems wise to save money to use for your final expenses. However, you might have to reach into that money before you pass away. There’s no way to know for sure because diseases, injuries, and illnesses are unpredictable. Also, medical debt is the #1 cause of bankruptcy in this country. A single stretch in the hospital could erase your entire savings. Paying into a final expense insurance policy creates more certainty than depending solely on personal savings.


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Is Final Expense Insurance the Same as Life Insurance?  

Final expense insurance is a form of whole life insurance sold in small quantities, typically between $5,000 to $25,000. The target demographic tends to be people who are age 50 and older, often in poor health and on a strict budget. They don’t have other life insurance or savings to handle final expenses. Final expense policies usually don’t require a health exam and are easy to get approved for.   

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Do Funeral Homes Offer Final Expense Insurance?

Final expense insurance is purchased through an insurance company or through an agent, like the ones at Final Expense Direct. Some agents who are affiliated with a funeral home could sell something called “pre-need insurance.” This is different from final expense or burial insurance.

With pre-need insurance, the payout goes straight to the funeral home. With burial insurance, the payout goes to your chosen beneficiary.       

How Many Quotes Should I Get? 

We recommend getting three quotes. Prices aren’t advertised online, so you’ll need to call the funeral home directly. We feel like comparing three is enough to give you a general idea. But you should get as many as it takes to feel comfortable that you’re getting the best price or service for your budget.  

How Much Coverage Should You Buy?

To determine how much coverage you need, try to estimate the sum of your final expenses. You can do this in four simple steps:

Step 1: Calculate Household Expenses

To estimate your family’s expenses, take the amount of a normal month’s expenses (include utilities, car expenses, house payments, food and transportation, insurance fees, etc.) and multiply the total by three. This will be about what your family needs to survive for a few months. So, if your total monthly expenses are $3,000, then your amount for family expenses will be $9,000 ($3,000 x 3 = $9,000). 

Step 2: Consider Funeral Expenses

Funeral expenses are dictated by what type of services you choose. See this list to help get an accurate estimate of the typical funeral-related expenses. We can assume, at this moment, that your expenses will average $10,000.

Step 3: Add to Get Total Final Expenses

Next, add the above numbers together. In this case, it’s $9,000 (family expenses) + $10,000 (funeral expenses) = $19,000. So, this $19,000 would be the minimum coverage needed to account for both of these expenses.     

Step 4: Keep Inflation in Mind

Finally, there’s an inflation factor that varies for men and women. This factor depends on your age range. For example, for men ages 63-65, the multiplier is 1.83. So, you’d multiply 1.83 by the total you had from Step 3 for the total estimated cost.  

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Won’t the Arrangements Allocated in My Will Be Enough?

You can try to make funeral arrangements through your will, but don’t expect reliable results. Wills are usually read after the funeral service and they must pass through probate court before provisions can be implemented. The probate process can take many months, at best. Chances are slim that your will would provide any immediate help with your final expenses. 

What If I’m a Veteran?

You may wonder if you need final expense insurance if you’re a veteran. Burial benefits for veterans culminate at $2,000 for a service-related death and merely $300 otherwise. Also, Veterans qualify for free burial in national cemeteries. But, as we’ve mentioned, the average cost for a funeral and burial is around $7,000 – $8,000. Even if you qualify for Veterans’ benefits, there could still be a large sum left over. With a flexible final expense policy, you can fill in the gaps.   

What If You Have Medicaid or Receive Social Security Benefits?

Unfortunately, Medicaid and Social Security benefits barely begin to cover final expenses. Medicaid grants $1,500 (at most) to be counted toward funeral expenses. Social Security provides only $255 to a surviving spouse or child to be used for funeral costs.  

What If You Have a Regular Life Insurance Policy?

Some folks buy final expense insurance to coincide with an existing life insurance policy. But, if you have a separate policy that focuses solely on funeral and burial costs, you can protect your beneficiaries from having to pull money from the general life policy to cover the final expenses.  

What If a Family Can’t Afford a Funeral? 

If you can’t afford a burial or funeral, you might be able to get federal government assistance. Here are some of the programs that could help: 

  • Personal loans – apply through your bank or credit union 
  • Veterans benefits
  • Federal Emergency Management Agency (FEMA) 
  • Crowdfunding/Crowdsourcing – raising money through donations
  • State government assistance
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Are Final Expense Policies Renewable?

Final expense insurance can be a form of permanent life insurance, meaning, in most cases, it does not expire unless you stop paying your premiums. Though, it is possible to purchase final expense insurance for only a set term. If you choose a term-based plan, once that term ends, you will need to purchase a new plan to continue coverage. Here’s what you need to know about renewing a final expense insurance policy. 

Final Expense Insurance

Final expense insurance is a low cost life insurance plan that is designed to provide your loved ones with the funds necessary to conduct a funeral and pay off your end-of-life expenses. Some final expense policies have a savings component as well, meaning the value of the policy will increase as you pay premiums into it. The policy will allow you to select a beneficiary, whom at your time of death will be legally responsible for allocating any death benefits that are paid out. 

Can My Final Expense Policy Expire?

If you purchase a final expense policy that is considered “permanent”, it will never expire. If the policy you choose to purchase is only set for a specific term, it will eventually expire. Once your policy expires, you will not be covered and therefore your beneficiaries will not receive any death benefits if you pass away. For this reason, many people choose the permanent option, ensuring that their family will have the money needed to pay their end-of-life costs. 

How To Renew Final Expense Policy

If your final expense policy expires, you will not be able to renew the same plan, but you can purchase new coverage. The downside of this is that your new policy will likely cost more, because rates for new policies increase based on how old you are. With this in mind, it is recommended that you purchase a permanent policy if you have no reason to suspect that you will pass away within a set period of time.  

Borrowing From Final Expense Policy

If you purchase a permanent final expense policy, you will be able to borrow from the savings component of that policy. This will likely not be the case if you purchase a term-based final expense insurance policy, because it will expire before you accrue enough payments to borrow from. If you have a permanent final expense policy, tax-free savings can be built up over time.  

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Can Final Expense Policies Have Living Benefits?

You can technically use final expense policies to cover living benefits, but with its smaller payout, it may be a bit more limited than other plans—but not impossible.

How Final Expense Payouts Work

All life insurance policies provide a death benefit, or payout when the policyholder is no longer living. This money will then go towards the policyholder’s desired expenses and beneficiaries.

On average, final expense death benefits range anywhere from $5,000 to $50,000.

What You Can Use the Payout For

There are virtually no limitations a plan can enforce on what you can put this money towards. However, the amount you set for the payout will greatly determine what you can really use it for. These can potentially include:

  • Funeral Expenses
  • Medical Bills
  • Financial Support for Loved Ones
  • Personal Loans
  • Inheritance
  • Business Partner Shares
  • Estate Taxes, and More

Limitations of the Final Expense Death Benefit

However, for all of these potential uses, you must divide your payout of $5,000-$50,000 to each of them. So, you must choose what and how much to contribute towards it. 

While it wasn’t listed above, living expenses are another potential use of the final expense payout. When you as the policyholder have passed on, you may leave people behind who need help covering their living expenses until they can get back on their feet.

You can absolutely set aside funds for this purpose, but it may be extremely limited based on how much they need and what else you want to use it for.

Say, for instance, you want to use it for your funeral expenses and your loved one’s living expenses. If the average funeral costs around $6,000, you’ll need a payout that’s more than $6,000. Then, let’s say you want to set aside another $6,000 for living expenses. You’ll need at least a $12,000 death benefit, and even more if you want to use it for other things as well.

You can also use your final expense policy for your own living expenses. However, this may be risky. Once you start tapping into the death benefit, your monthly payments won’t change, and the payout won’t increase, only decrease.

Alternatives for Living Benefits

If you want to use your life insurance policy for your own living expenses, final expense may not be your best option. Term life policies are a bit bigger and easier to use for this purpose. Term life, however, is more difficult to qualify for than final expense. And, this doesn’t mean that final expense is a worse option—it’s still incredibly beneficial.

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Do You Need Final Expense If You Donate Your Body to Science?

Should You Donate Your Body to Science?

Donating your body to science is an important decision. Those that choose to donate their body to science may do so because they want to make a difference and continue their legacy. If you choose to donate your body to science, there are a few benefits that should be noted.

Cremation Is Free

If you donate your body to science, your cremation will be free. As cremation can sometimes be expensive, this is an excellent way to cut costs and still be cremated. Bodies used for science are only utilized for a few weeks, then their ashes are returned to their loved ones.

If you want to be cremated but not donate your body to science, then a final expense policy can help cover those costs. Consider a final expense policy as a way to provide for a cremation and funeral service.

Does Final Expense Have a Cash Value?

Final expense insurance does allow for a cash value to build because it’s a form of a whole life insurance policy. However, the savings must accrue, and there are some things to keep in mind when you want to borrow against the cash value.

What is a cash value?

A cash value is a feature present in whole life insurance policies. Term life insurance policies do not have a cash value. The cash value builds because it operates like a savings account within the policy.

To calculate the cash value, subtract the cost of insurance and other insurance costs from the total amount of premiums paid.

How can I use the cash value?

With final expense, it seems like you will not be able to benefit from it, because its primary purpose is to disburse a death benefit to your loved ones after you die. A cash value provides you with a means of getting added financial support from your policy while you’re still alive.

You can use the cash value for any number of things, but people usually use it to pay medical debts or make premium payments.

This can be done in a couple of different ways – first, you can surrender part of your policy, but that will cut into your death benefit. Another way is to take out a policy loan.

A cash value is part of what makes final expense insurance even more well-rounded as a great insurance option.

Can the cash value impact the death benefit?

Borrowing against the cash value via policy loan can reduce your death benefit. Many policies require making premium payments for at least ten years before you’re able to do this. Taking out a policy loan is fast and easy, allowing for immediate withdrawal so that you can cover urgent costs.

The downside here is that when you’re taking a loan, you have to pay it back. This isn’t usually an impossible task, but when you make payment plans, you’re paying back the amount you were loaned plus interest. In some cases, the interest rate can be up to 8%. 

If you have an outstanding balance by the time you pass away, the amount you owe will be deducted from the death benefit.

Can You Have More Than One Final Expense Insurance Policy?

You are not limited to one final expense insurance policy. In fact, having more than one policy can be a good idea because you’ll be able to get greater coverage by default. 

The catch is that you must also keep in mind that you should not exceed the benefits that you are capable of obtaining through your income. Policies have their own requirements related to your income level. As long as your benefits match what someone with your income level can afford, and as long as you pay your premiums, you have no limit on the number of policies you can join.

Since final expense insurance is a form of life insurance (whole life insurance), the same can be said for life insurance policies in general. 

Why you may want more than one policy

Some have multiple policies to pay for specific needs. You may purchase a small final expense insurance policy to cover the cost of embalming and cremation, and another policy to cover the funeral service itself, and another for the sake of providing your beneficiaries with more funds. 

If you wish to have more than one policy, it is easier to qualify the healthier you are. If you take good care of yourself and you’re not suffering from any serious medical condition (i.e., ALS or End-Stage Renal Disease), then you are more likely to have the ability to get more than one policy to begin with.

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Can You Have Riders with Final Expense?

Including riders is an excellent way to customize your insurance policy and tailor it to your needs. If you’re not sure whether it’s possible to add a rider to your final expense policy, know that it can be an excellent option and save money in the future.

Why Add a Rider?

Adding a rider to your final expense policy can provide for different circumstances and eliminate the need for additional insurance policies. Adding a rider is one of the best ways to prepare for multiple situations and be sure you’re covered.  

Child Insurance Rider

One possible addition is a child insurance rider. Thinking about adding this rider can be difficult, but considering all situations is an important part of evaluating your insurance needs. Let’s discuss what this type of rider is and who it can be useful for.

The child rider is purchased with the notion that your child’s funeral expenses will be fully covered. Child insurance riders have a death benefit that ranges from $5,000 to $25,000. When you’re grieving this loss, the last thing you need is your debt adding complications. To purchase this rider, your child has their own criteria to meet. A pre-existing condition may make this rider sound like a necessity, but in reality, a child with a pre-existing condition disqualifies you from adding a child insurance rider to your plan. Your child must also be between the ages of 15 days to 18 years old. They can be covered under this plan until they are 25 years old. Also, note that this policy only covers your children – not your grandchildren.

What Added Features Can a Final Expense Policy Include?

Final expense insurance policy benefits don’t end when you join a policy. You can attach additional benefits known as riders. Riders come in different forms and present their own advantages and incentives for joining. Riders are worth looking into if these supplemental options apply to you.

The Types of Riders

Riders include:

  • Accelerated death benefit
  • Child rider
  • Long-term care
  • Term conversion
  • Waiver of premium

Accelerated Death Benefit

The accelerated death benefit is for those who are terminally ill. If you are critically ill and, depending on your specific policy, determined to live no longer than six months to two years. This rider can allow you to cover your medical expenses. The Accelerated Death Benefit (in most cases) is not taxed as income. The downside is that it’s going to reduce the death benefit for your beneficiaries. Getting this also requires proof that you will not live past six months to two years.

Child Rider

The child rider is purchased with the notion that your child’s funeral expenses will be fully covered. Death benefit ranges between $5,000 to $25,000. Insurance companies usually permit adding this to a policy when the applicant is between 18 and 65 years of age (yet with some, that range is 20 to 55; that is why you should get in contact with your insurance provider when considering this policy). You may not be able to get this if you are outside the age range, or if your children are past a certain age. You can add a child rider to your plan when your child is between 15 days to 18 years old. Coverage can last up until the child turns 25. Also, note that you may not be able to sign your child up if he or she suffers from a pre-existing and life-threatening condition.

Long-Term Care

The long-term care rider is similar in concept to the accelerated death benefit. With this one, the idea behind it isn’t based on having a short amount of time to live. In this case, those who require daily care are ideal candidates for this insurance rider. For instance, someone who has Alzheimer’s and requires daily assistance from health aides. This is a living benefit. It can be borrowed against, which is very useful because long-term care is a substantial expense to cover. For example, a year of having someone take care of you in your home will cost you $52,624.

Term Conversion

Term conversion allows you to convert a term life insurance policy into a permanent one. The incentive behind this is that you can make the switch without being subject to a medical exam. And since you will no longer be on the term policy, this also means that you no longer have to worry about outliving your policy and losing out on your death benefit.

Waiver of Premium

You can only obtain the waiver of the premium rider while your policy is still in effect. This will become useful should you become critically ill, seriously injured, or become disabled. If any of this happens to you, you will not have to pay a premium to keep your policy.

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