Final Expense vs. Life Insurance

Written by Kim Wilhelm

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Last Updated 14 Apr 2024

No one likes thinking about death - but it is a reality of life. The best thing we can do for our families and the loved ones we leave behind is to ensure that our passing doesn't add an unnecessary burden to their lives, which is why many of us take out insurance to cover funeral costs and other expenses.

Unfortunately, there are no guarantees that an insurance company will issue a policy to us or that the policies we qualify for will fit our budgets or needs.

Understanding the differences between insurance types can go a long way toward ensuring you find the best possible coverage for your unique situation.

In this article, we'll explore the differences between two popular insurance types: final expense life insurance and life insurance.


What Is Final Expense Insurance?

Final expense life insurance is sometimes called funeral insurance, burial insurance, or modified whole life insurance. It is a whole life insurance policy with a small death benefit that is much easier to obtain than other life insurance products.

The death benefit of your final expense policy can cover the final expenses of the deceased, like the funeral costs, memorial service, cremation, or burial. It is important to note that there are no limitations on how your beneficiaries can use the death benefit.

The premiums of the final expense policy never increase in price, and the benefit won't decrease. The policy doesn't have an expiration date tied to an age threshold, which gives it an advantage over term life insurance.

Whole life policies accumulate a cash value that you can use to take loans against, although any unpaid loans outstanding at the time of your death will reduce the amount your beneficiaries will receive.

Most final expense life insurance policies do not require a medical exam or access to your medical history, but some may require that you answer health questions in order to qualify, particularly policies with first-day coverage.

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What Is the Difference Between Final Expense Insurance and Life Insurance?

Technically speaking, final expense life insurance is life insurance. However, a traditional life insurance policy has a very large death benefit (ideally ten times your annual salary) and is designed to provide financial support to loved ones after a contributing member of the household passes away. Final expense life insurance is designed to pay for short-term expenses associated with the deceased's passing, i.e., funeral expenses, and won't be sufficient to replace their lost income. Life insurance (whether it's term, universal, whole, or variable life insurance) covers larger, long-term expenses and can function as a form of income replacement or inheritance.

Cost of Final Expense Insurance vs. Life Insurance

Final expense insurance premiums are traditionally lower than life insurance premiums because the policies are smaller. 

Depending on the insurance company and the insured, a 60-year-old can expect to pay around $62 to $98 per month for a $25,000 final expense insurance policy and $250 per month for a traditional life insurance policy.

A regular life insurance policy will have a benefit of anywhere from $250,000 to $1,000,000 compared to a final expense insurance policy that usually pays out amounts ranging from $3,000 to $30,000.

Pros and Cons of Final Expense Insurance

Any insurance policy will have its own pros and cons. Here are a few to consider before deciding whether or not final expense insurance is right for you:

The Pros of Final Expense Insurance

  • Final expense insurance is an affordable option for senior citizens who aren't in good health.

  • Final expense policies are more affordable than traditional life insurance policies, and premiums never increase.

  • There's no medical exam required.

  • The death benefit is guaranteed as long as premiums are paid and is not taxable.

  • The death benefit can be used in any way the beneficiary likes.

  • You can borrow from the accumulated cash value over time.

The Cons of Final Expense Insurance

  • The death benefit is small compared to other types of life insurance and won't supplement beneficiaries' household income or cover long-term expenses.

  • Some policies have waiting periods.

  • The total premium paid could exceed the death benefit over time.

  • There are many deceptive final expense insurance companies on the market that make it seem as though coverage will be more substantial than it actually is.

Different Types of Final Expense Insurance

As we've mentioned, there are different types of final expense insurance to consider, including graded benefit final expense insurance and guaranteed issue final expense insurance.

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Graded Benefit Insurance

A graded benefit policy has a waiting period, e.g., the policy may pay 30% of the total benefit if the insured party passes away during the initial year they've taken out the policy, 70% if they pass away during the second year of the policy, and the full amount if they pass away after two years of the policy being in force.

If you suffer from certain health conditions that exclude you from certain policies, such as being a cancer survivor in remission, drug or alcohol abuse, or certain heart conditions, this may be a good option to consider. If you are actively suffering from a serious condition, including recovering from heart surgery or undergoing cancer treatment, you can only get a guaranteed issue policy which comes with a two or three year waiting period during which only a portion of the death benefit will be paid if one was to pass away during that time.

Guaranteed Issue Insurance

Guaranteed issue policies do not require the completion of a medical questionnaire, a medical exam, or access to medical records but have a waiting period before any death benefits can be received. If the policyholder passes away at any point during the waiting period, the death benefit won't be paid to the beneficiaries. They will receive the premiums paid back with some interest.

Different Types of Life Insurance

Life insurance provides protection and peace of mind for individuals and their loved ones. There are many life insurance policies available, each catering to specific needs and preferences:

Term Life Insurance

This is one of the most straightforward and affordable forms of life insurance. It provides coverage for a set term, usually ranging from ten to thirty years. If the policyholder passes away during the term, the beneficiaries receive a death benefit. Once the term expires, the coverage ends, and there is no cash value accumulation or refund of premiums.

Whole Life Insurance

Unlike term insurance, whole life insurance offers coverage for your entire lifetime. It combines a benefit with a cash value component that grows over time, similar to a savings account. Premiums for whole life insurance tend to be higher, but the policy can build cash value that can be borrowed against or withdrawn.

Universal Life Insurance

This type of policy offers more flexibility in terms of premiums and death benefits. It allows policyholders to adjust their premiums and coverage amounts as their circumstances change. The cash value component also grows at a variable interest rate, allowing for potential accumulation over time.

Variable Life Insurance

With this policy, policyholders have the opportunity to invest the cash value portion in various investment options, such as stocks, bonds, and mutual funds. The potential for higher returns comes with increased risk, as the cash value can fluctuate based on market performance.

Indexed Universal Life Insurance

This type of policy links the cash value growth to a specific stock market index, such as the S&P 500. It offers the potential for greater growth than traditional universal life insurance while also providing a level of protection against market downturns.

Guaranteed Issue Life Insurance

Designed for individuals with health issues that may make it difficult to qualify for other types of policies, guaranteed issue insurance does not require a medical exam. However, premiums are often higher, and coverage limits may be lower.

Group Life Insurance

Often offered through employers or associations, group life insurance provides coverage to a group of people under a single policy. It's usually more affordable and may not require a medical exam, but coverage ends if the individual leaves the group.

Who Should Get Final Expense Insurance?

Final expense insurance is ideal for senior citizens or people with poor health that cannot qualify for other types of insurance. It's also a good option for anyone who cannot afford regular life insurance policies but still wants to cover their own funeral costs and ensure that their final wishes are fulfilled.

If you already have life insurance, investments, and savings (or have prepaid for your funeral) that can cover the cost of your final expenses, you probably don't need final expense insurance. However, funeral costs are rising, and final expense insurance can guarantee that those expenses won't place a financial burden on your loved ones after your passing. With the cost of cremation, burial, embalming, venue rental, flowers, transport, and funeral director fees amounting to nearly $8,000-$12,000 on average, final expense insurance can be a great help to the ones we leave behind.

Considering that an estate can take months to settle, the rapid payout of final expense insurance can really help your loved ones in their time of need. They'll receive thousands of dollars in time to cover the cost of the funeral, burial, or cremation.

Who Should Get Regular Life Insurance?

Larger life insurance policies are perfect for people who are in good health, relatively young, and able to afford the premiums. Most insurance companies issue policies with a value of $50,000 or more, which leads to much higher premiums. The older you are and the higher risk you are, the higher the premiums are going to be.

While the benefit will be much greater, these policies aren't as affordable as final expense insurance policies, and claims aren't paid as quickly as final expense insurance.

If you only want $20,000 or so of coverage (or less) and rapid payouts, final expense insurance is ideal.

Finding the Right Final Expense Provider

If you've decided that final expense insurance is right for you, get in touch with Final Expense Direct. We only work with reputable, tried-and-tested insurance companies that offer affordable, valuable policies to their customers. We will work with you to find the perfect match based on your unique requirements. 

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