People purchase life insurance for any number of different reasons. For some, it is to replace income, and for others it is to pay off debts. For many, however, the reason is to pay the high cost of their funeral and other related costs – and for this reason, many individuals will purchase final expense life insurance.
How Does Final Expense Life Insurance Work?
In many ways, final expense life insurance works just like other types of life insurance coverage in that the policyholder will pay a premium in return for death benefit coverage should the insured pass away while the policy is in force.
In most cases, the face amount on a final expense life insurance policy will range between $5,000 and $50,000 – although there are some carriers that will offer plans with higher face amounts.
These types of policies are typically used for paying off a decedent’s funeral and any other expenses related toward settling their estate. This would include his or her memorial service, headstone, burial plot, transportation, flowers, other funeral expenses, as well as debts and estate related expenses. Many people mistakenly use the terms funeral or burial insurance, but the policies are geared toward a larger set of expenses than just the burial or funeral
Today, the cost of the average funeral can meet or exceed $10,000 in many areas of the country – an amount that a lot of families and loved ones just simply do not have readily available. Because of that, final expense insurance can provide a great solution to providing income tax-free proceeds for paying these expenses quickly and easily – without having to put loved ones into debt during a difficult time.
In most cases, the proceeds from final expense insurance are paid out to the beneficiary quickly. To collect, the beneficiary will typically need to provide the insurance carrier with a copy of the life insurance policy, the insured’s death certificate, and proof of identification.
What Types Coverage are Available?
Most of the final expense life insurance policies that are available in the market today are permanent plans. This means that these policies offer both death benefit coverage, as well as a cash value component. (This is as versus a term life insurance policy that only offers death benefit coverage without any cash value or savings build up).
With a permanent life insurance policy, the amount of the premium that is charged will typically be guaranteed throughout the life of the policy, meaning that the policy holder will not need to worry about any premium increases. This can be a real advantage to those who are living on fixed incomes and may not be otherwise able to keep the plan in the future should the cost go up.
A permanent life insurance policy can also be advantageous because, as long as the premium is paid, the policy cannot be cancelled – regardless of the insured’s advancing age, and regardless of whether the insured contracts any adverse health issue. Therefore, once the policy has been approved, the insurance is guaranteed – usually through the insured’s age 100.
The cash that builds up in the cash value portion of the policy is allowed to do so on a tax-deferred basis. This means that no taxes will be due on the gain of these funds until they are withdrawn – essentially allowing the cash to compound and grow exponentially over time.
Should the policyholder decide to either withdraw or borrow any of this cash, he or she is allowed to do so for any reason that they choose. For example, they can use these funds for paying off debts such as their mortgage balance, paying down credit card debts, and for supplementing their retirement income. They could even use the money to take a nice vacation.
One thing that is important to keep in mind, though, is that even though it is not required that a loan or withdrawal be repaid, if there is an unpaid balance in the cash value component at the time of the insured’s death, then this amount will be subtracted from the amount of the death benefit proceeds that are paid out to the policy’s beneficiary at that time.
Therefore, if the beneficiary was counting on a certain amount of funds to pay off final expenses, it could present a financial hardship by having an unpaid cash value balance in the policy.
How Do You Qualify for Coverage?
Qualifying for a final expense policy can often be easier than qualifying for regular, traditionally underwritten life insurance coverage. This is because many of these policies will not require an applicant to undergo a medical examination as a part of the underwriting process.
This means that the applicant will not be required to submit a blood and urine sample as is required by many life insurance underwriters. In most cases, all the applicant will need to do is answer just a few basic health-related questions on the application for coverage.
Because there is no medical exam to contend with, however, final expense life insurance policies may present an avenue for those who have pre-existing health conditions to obtain life insurance that they would otherwise not have been able to qualify for.
How Do the Benefits Pay Out?
For those insureds who are in good health, there is not a waiting period for the benefits to pay out on a final expense insurance policy. In other words, regardless of how long the insured has had the policy, upon death, the policy will pay out the full amount of the stated death benefit to the named beneficiary.
There are, however, some final expense policies that have graded benefits whereby if the policy has only been in force for less than two years and the insured passes away, then the beneficiary will only receive the amount of the premiums paid. (In some instances, the beneficiary may also receive a small amount of interest, too).
This is done so that the life insurance company can limit its risk. Because many final expense policies do not require medical exams as a part of the underwriting process, the individuals that apply – and are approved – for this type of coverage may be more risky in terms of health, and in turn, in terms of claims to the insurer. Therefore, the life insurance carrier must find ways to protect itself from paying out a large number of high death benefit claims to a high number of insureds.
In any case, when the death benefit proceeds are received by the beneficiary, there will be no income tax due on these funds (just like with other types of life insurance policy proceeds). This means that the entire amount of the proceeds may be used for paying off debts such as funeral costs, medical bills, and other final expenses of the insured.
How Much Will a Policy Cost?
The cost of the premium on a final expense life insurance policy will be dependent upon several different factors. Just as with other types of life insurance coverage, the price has to do in large part with the applicant’s age and gender, as well as with the amount of coverage that he or she is purchasing.
Because many final expense policies do not require a medical exam, however, the risk that is taken on by the insurer is usually higher than for that of a traditionally underwritten policy. Therefore, in order to compensate for some of this risk, the premium that is charged may be higher for a final expense policy than for that of a comparable traditionally underwritten policy that has the same amount of coverage.
Who Should Consider the Purchase of Final Expenses Insurance Coverage?
There are a number of different individuals who may be good potential candidates for a final expense life insurance policy. However, in most cases, these types of policies are sold to those who are between the ages of 50 and 80 years old.
These policies are good options to consider for those who may need additional coverage – even if you already have a group life insurance plan through an employer or a union, and / or an individual life insurance policy that is in force for other uses such as the payoff of a mortgage or for income replacement.
Final expense policies are not good options for people who are young. This is because other life insurance options will be much more affordable.
Because final expense insurance is geared towards the payoff of funeral and other related costs, it can be a great way to provide peace of mind for loved ones and survivors so that they do not need to worry about these expenses when the time should come.
Important Criteria When Purchasing a Final Expense Policy
There are some important criteria to consider when you are purchasing a final expense life insurance policy. First, you will want to ensure that you have enough coverage protection. This is because you don’t want to leave your loved ones and survivors in a financial bind.
For example, the primary reasoning behind the purchase of final expense coverage is so that an insured’s final debts can be paid such as their memorial service, along with other costs such as uninsured medical bills. With this in mind, it will be important to factor in all of these potential costs when applying for a final expense policy.
One good way to get an estimate of how much your final expenses could be is to make some inquiries at some local funeral homes in the area where you intend your final resting place to be. While many people do not like to think about these matters, having this taken care of can relieve your loved ones of having to worry about it during an already stressful period at your passing.
Another important factor to consider when purchasing a final expense insurance plan is who will be the beneficiary. This is the person (or persons) who will receive the policy proceeds at the time of the insured’s death.
When choosing a beneficiary, it will be important to consider that this individual (or individuals) will likely be making important decisions regarding any of the final arrangements that were not previously taken care of. Therefore, the policy beneficiary on these types of plans are often someone who is close to the insured such as a son or daughter, a niece or nephew, or other close friend or family member. They must also be someone who is trustworthy and organized, and who will be able to take care of your wishes promptly.
It will also be important to choose a secondary beneficiary, in case that the unexpected would occur to the primary beneficiary. In some instances, the primary beneficiary on a life insurance will predecease the insured. Therefore, having a secondary beneficiary who can step in will ensure you that someone will still be there who can take over the duties of paying your final expenses and overseeing to the other essential needs.
In addition to the above considerations, it will also be important to purchase your final expense insurance policy from a life insurance company that is strong and stable financially. This is because you will want to be sure that the company is there with the proceeds when your survivors need them to be.
There are many life insurance companies out there in the marketplace – and a large number of these carriers offer final expense insurance coverage. Not all of these insurers are the same when it comes to paying out benefits. Therefore, prior to making your final policy purchase decision, be sure that you have reviewed carefully the financial stability and strength ratings that are provided by the insurance company rating agencies such as A.M. Best, Moody’s, Fitch Ratings, TheStreet.com, and Standard & Poor’s.
These companies provide ratings that are based upon how strong and stable insurance companies are from a financial standpoint. They also rate insurers on how they pay out claims to their policyholders. Typically, ratings are based on letter grades that range from A++ through F. In many cases, going with a company that has a rating of A or better is usually best.
Another good gauge of an insurance company’s strength is to check its reputation with the Better Business Bureau (BBB). The Better Business Bureau will also provide letter grades to companies that range from A+ to F, similar to a school report card. Also, there is a section on the BBB’s website that shows information about complaints that have been filed with the company in question, as well as what the complaints were about. In addition, there is also a section that shows how many of these particular complaints have been closed.
Once you have done an ample amount of research on a particular insurance company – and you feel that the company is strong and stable financially, and that it has a positive reputation for paying out its claims – then it may be a good choice for purchasing a final expense life insurance policy through.
How and Where to Obtain the Best Premium Quotes?
If you are seeking premium quotes for final expense insurance, typically the best way to go about it is to work with either an agency or a company that has access to more than just one life insurance carrier. This way, you will be better able to directly – and non-objectively – compare insurers, policies, benefits, and premium quotes and to then determine which will work the very best for you, your situation, and your budget.
When you are ready to begin your final expense insurance policy comparison, we can help. We work with many of the top final expense insurance companies in the marketplace today, and we can assist you in obtaining all of the pertinent details that you need in making a more informed purchase decision. We can get you all of the information that you require quickly, easily, and conveniently – all from your home computer – and all without the need to meet in person with a life insurance agent. If you are ready to start the process, all you need to do now is fill out the form on this page.
Should you find that as you move forward you have any questions at all regarding final expense insurance – or if you have any questions about life insurance at all – our experts are here to assist you. We can help you in determining the proper amount of coverage for your specific needs so that you won’t leave your loved ones with unnecessary debt. We can also help you in narrowing down which of the many life insurance carriers may be the best one for you. We can be reached by phone, toll-free, by calling (877) 235-9299.
We understand that the purchase of any type of life insurance can at times seem a bit overwhelming. There are many variables to be mindful of – and you want to ensure that you’re making the proper choices. When you’re faced with these decisions, it’s good to know that you have an advocate on your side who can walk you through the process and help you with making the best choices for your needs. So, contact us today – we’re here to help.