Life Insurance Advisor.com
There are many different types of life insurance on the market today, and each is designed to provide for various needs. One such policy is final expense. This form of life insurance policy, referred to as final expenses or burial insurance, is designed to provide a death benefit for the primary purpose of covering burial costs and other related fi …nal expenses.
Final expenses can be quite costly, depending on the type of funeral that is planned as well as the expense of the burial plot, location, and even the cost of medical care prior to death. Funeral costs alone may run between $1,000 and over $10,000 depending upon the arrangements.
Types of Final Expense Life Insurance Policies
Some final expense policies are term insurance, meaning that the insured’s beneficiaries will receive a certain amount of death benefit, but there is no cash value component in the policy. As with purchasing traditional life insurance coverage, though, the insured may outlive the coverage in a term life policy and may or may not be able to re-qualify at the time of policy renewal.
Most often, however, final expense life insurance policies are permanent insurance with lower face amounts that are primarily in the range of between $10,000 and $25,000. This is because these benefits are not designed to replace income or to pay estate taxes of the insured, but rather only to cover funeral and other types of final expenses so that the loved ones of the insured do not have to scramble to pay costs such as that of funeral services or a cemetery plot.
One type of policy that is specifically relevant to final expense coverage is that of a single premium whole life plan. This type of life insurance coverage requires that the policy holder make only one lump sum premium after which the policy is considered to be paid up. In return, the insured’s beneficiaries will receive a guaranteed amount of death benefit.
Who Buys Final Expense Life Insurance?
Although people of any age may obtain it, typically, final expense insurance policies are purchased by seniors and they will cover an insured up to age 100. Those that apply for final expense life insurance are not required to go through traditional life insurance underwriting. In fact, in most
cases, applicants are simply asked to state that they do not currently have certain illnesses or health conditions. This type of underwriting is considered to be “guaranteed issue,” where the proposed insured is not asked ay medical questions, or “simplified issue,” meaning that the applicant will need to answer specific health related questions on the application, but will not be required to undergo a medical exam in order to qualify for coverage.
As a permanent type of life insurance policy, many final expense plans will build a cash value over time. And, because many of these are permanent life insurance plans, the premiums on final expense life insurance will usually not change.
Nearly anyone can apply for a final expense life insurance policy. But because many seniors and those who are ill are denied for traditional life insurance coverage, final expense insurance policies can provide a great alternative for allowing these individuals in particular the chance for at least some benefits to cover their final costs.
In order to offset the expenses of covering insureds who may pass away and use benefits soon after receiving coverage, many insurance companies that offer final expense insurance choose to sell “graded” benefits. This means that if the insured’s death occurs within the first few years after obtaining the policy, then their beneficiaries may only receive a portion of the total death benefit amount. However, once the policy has been in force for a certain number of years without a claim, then the amount of death benefit to be received by beneficiaries will increase to its full amount. Typically, final expense insurance policies will need to be in force for between two and four years in order for full benefits to be received on a graded type of policy.
Using Final Expense Life Insurance for Planning
In addition to the purchase of final expense life insurance, policy holders may also make pre-arrangements with a specific funeral home or funeral service agency. This way the funeral service entity may be named as the beneficiary on the final expense life insurance policy.
Because final expense insurance offers low death benefit amounts, they are a very good alternative for those who are seeking pure life insurance coverage for the primary purpose of paying for funeral and other related costs.