Answers ยท Life Insurance
Is final expense insurance worth it?
Sometimes. Final expense insurance is a small whole life policy, usually 5,000 to 25,000 dollars, meant to pay for a funeral and the last bills. It is worth it if you have nothing set aside and your health rules out cheaper coverage. If you already have that money saved, or you are healthy enough for regular life insurance, you can usually do better.
Final expense insurance is small whole life insurance with a friendlier name.
Burial insurance, funeral insurance and final expense insurance are mostly the same thing: a whole life policy with a small death benefit, usually somewhere between 5,000 and 25,000 dollars, sold mainly to people between 50 and 85.
The premium generally stays level for life, and the coverage does not run out at a certain age as long as you keep paying. That is the difference from term insurance, which ends.
The money goes to the person you name as beneficiary. It skips probate, so it usually arrives within weeks of the claim, right when the funeral home wants paying. That speed is most of what you are buying. Nothing forces the beneficiary to spend it on the funeral, either. It is ordinary life insurance money.
To be clear about who is talking. opfinances.com is a licensed insurance agency. We are not a financial advisor and not a fiduciary, and this is general education, not advice on your situation.
A funeral costs less than the ads suggest, and Social Security pays almost none of it.
The National Funeral Directors Association's most recent survey put the median funeral with a viewing and burial at a little over 8,000 dollars. A funeral with cremation came in lower. A cemetery plot, a headstone, and opening the grave usually cost extra. A direct cremation with no service can cost a fraction of either.
Social Security pays a one time death payment of 255 dollars, and only to a surviving spouse or an eligible child. That number has not changed in decades. Veterans may qualify for separate burial benefits through the VA.
So the number to insure is your own plan, not a scary national average. Decide what you actually want, price it with a local funeral home, and then decide how to pay for it.
The policy that cannot turn you down usually makes your family wait two years.
There are two main kinds. Simplified issue asks a handful of health questions and requires no exam. If you are approved, the full benefit is usually in force from the first day.
Guaranteed issue asks no health questions at all. That is the one in the television ads. The trade is a graded death benefit. If you die of natural causes in roughly the first two years, your family typically gets back the premiums you paid plus some interest, not the face amount. Accidental death is usually covered in full from the start. The terms vary by policy, so read that section before you sign.
Guaranteed issue also costs more for the same coverage, because the insurance company is pricing in everyone it could not screen. A healthy 65 year old who buys it pays extra for a waiting period they never needed.
Run the break even before you sign anything.
Most sales calls skip this math. Say a 70 year old pays 90 dollars a month for a 10,000 dollar policy. After about nine years and three months, they have paid in 10,000 dollars. If they live to 90, they will have paid about 21,600 dollars for a 10,000 dollar benefit. These are illustrative numbers, not a quote.
The death benefit generally does not grow, either. So 10,000 dollars buys a little less funeral every year the policy waits.
Now compare that with putting the same 90 dollars a month into a savings account with a payable on death designation. It reaches 10,000 dollars on about the same schedule and keeps growing after that. It also skips probate, so your beneficiary can usually claim it with a death certificate.
The difference is the early years. Die in year two and the policy pays 10,000 dollars while the savings account holds about 2,000. That is what the premium buys: protection against dying early. It is not a better deal if you live a long time.
It is worth it for some people and a poor deal for others, and we get paid when you buy one.
It is usually worth it when you have little or nothing set aside, you cannot build the amount fast enough, your health rules out regular life insurance, and your family would otherwise put the funeral on a credit card. It also helps when a surviving spouse would face a funeral bill in the same month the household income drops.
It is usually not worth it when you already have 10,000 dollars or more set aside and can make it payable on death to the right person. Same if you already carry life insurance that will cover it, or you are healthy enough for a fully underwritten policy, which usually costs less per dollar of coverage.
A preneed plan is a different product. You buy it through one funeral home, and it pays for specific goods and services there, often at today's prices. It does not hand your family cash. Ask what happens if you move.
Any death benefit depends on the claims paying ability of the insurance company issuing the policy. opfinances.com earns a commission when a policy is placed, and small policies get marketed hard partly because they are easy to sell. So ask anyone quoting you, us included, to show you the break even year in writing.
Before you decide
Questions worth asking.
Is this simplified issue or guaranteed issue, and do I actually need the version with no health questions?
Is there a graded benefit or waiting period, and exactly what does my family receive if I die in year one or year two?
In what year will my total premiums pass the death benefit, and how old will I be then?
Would a fully underwritten policy cost less for the same coverage at my health?
What happens if I miss a payment, and how long is the grace period before the policy lapses?
How much are you paid if I buy this, and would you still recommend it if that number were zero?
Related
What is the difference between final expense and burial insurance?
Usually nothing. Burial insurance, funeral insurance, and final expense insurance are marketing names for the same small whole life policy. The money goes to your named beneficiary, who can spend it on the funeral or on anything else.
Does final expense insurance have a waiting period?
Guaranteed issue policies usually do, often about two years for death from natural causes. During that time the family typically gets the premiums back plus some interest instead of the full benefit. Simplified issue policies usually pay the full benefit from the start once approved.
Does Social Security pay for funerals?
Only 255 dollars, paid once to a surviving spouse or an eligible child. There is no general funeral benefit beyond that. Veterans may qualify for separate burial benefits through the VA.
Is it better to save for a funeral or buy final expense insurance?
If you can set aside the money and expect to live long enough to build it, saving in a payable on death account usually costs less. Insurance wins when you might die before the savings catch up, or when you cannot save the amount at all.
What is the difference between final expense insurance and a preneed plan?
Final expense insurance pays cash to a beneficiary, who can use it at any funeral home or for any bill. A preneed plan is bought through one funeral home and pays for specific goods and services there, often at today's prices.
Where this fits.
This question sits inside a bigger one. Life Insurance walks through the whole decision rather than this one piece of it.
On Point Finances is a licensed insurance agency, not a tax, legal, or investment adviser. This page is general education, not a recommendation, and reading it does not create a client relationship.