What is a final expense policy?
A final expense policy is typically a type of whole life insurance used in planning for one’s final expenses such as burial, funeral and paying off any secure creditors.
According to the National Funeral Directors Association, the average cost of a funeral is approximately $8500. This average does not include the cemetery plot, headstone, flowers or other final expenses such as paramedic expenses, ambulance cost, Medicare deductible and unpaid debts.
If you consider these items, your own longevity, and inflation, this cost could be significantly higher. It’s also important to remember that social security provides only a one-time lump sum payment of $255.
Funeral costs continue to rise. See the statistics below showing the increase from 2004 to 2014:
National Median Cost of an Adult Funeral with Viewing and Burial: 2004 vs. 2014
| Item | 2004* | 2014* | % Change |
|---|---|---|---|
| Non-declinable basic service fee | $1,460 | $2,000 | 37.0% |
| Removal/transfer of remains to funeral home | $195 | $310 | 59.0% |
| Embalming | $498 | $695 | 39.6% |
| Other preparation of the body | $174 | $250 | 42.9% |
| Use of facilities/staff for viewing | $339 | $420 | 23.9% |
| Use of facilities/staff for funeral ceremony | $395 | $495 | 25.3% |
| Use of a hearse | $225 | $318 | 41.1% |
| Use of a service car/van | $100 | $143 | 42.5% |
| Basic memorial printed package | $95 | $155 | 63.2% |
| Metal Casket | $2,100 | $2,395 | 14.0% |
| Median Cost of a Funeral With Viewing and Burial | $5,582 | $7,181 | 28.6% |
| Vault | $998 | $1,327 | 33.0% |
| Total with vault | $6,580 | $8,508 | 29.3% |
| nfda.org/about-funeral-service-/trends-and-statistics.html | |||
How do final expense policies work?
A final expense policy is usually available for individuals between the ages of 50-85. Coverage amounts are usually smaller than typical life insurance policies. $5000- $30,000 face amounts are available. Rates typically are guaranteed to never increase.
Coverage amounts will never decrease as long as premiums are continued to be paid. Policies cannot be cancelled. Polices will develop tax-deferred cash values. Rates are based upon your current age at time the policy is issued. Usually no medical exam or blood work is required,. A short medical questionnaire is usually completed.
Once the medical questionnaire is reviewed, the underwriter will determine the final rates for the amount selected. Usually the policy turnaround is fairly quick. Premiums can then be paid annually, semi-annually, quarterly or on a monthly bank draft.
Are only whole life policies available?
A final expense policy is used primarily for a permanent need. This means the policy must be in force when the insured dies. This guarantees that the policy will be around when needed to pay for any final expenses. A term policy is used primarily for a temporary need such as 10 or 15 years. A temporary need might be until the kids graduate and go off on their own or until a mortgage is paid off.
A term life policy would not make much sense when the need is considered to be permanent. If you purchase a term policy for final expense and the term ends before death the policy will have expired before the need is met.
There are a couple of different types of final expense policies available in today’s marketplace. A level ongoing premium whole life final expense policy allows you to stretch your payments out for the whole of your life. This allows an individual to be able to budget and control their expenses.
Also available is a single premium whole life final expense policy. This option is also available with most companies that sell final expense policy plans. The single premium plan allows an insured to pay only one premium payment for the life of the policy.
This payment method gives an immediate increase in the value of your estate. The single premium final expense policy elimanates the need to keep up with ongoing premium payments as you get older.
Many individuals like the idea of just paying one premium and knowing that their final expenses will be taken care of.
Do final expense policies have any tax advantages?
Like most life insurance policies, final expense policies also pay direct benefits to your beneficiary of your choice free of federal income tax.
In addition, any cash value growth inside of your plan would also grow free of any taxes during accumulation.
Are final expense policies different than prepaid funeral plans?
Yes, prepaid funeral plans are not insurance. These plans are typically sold by a funeral home. The insured chooses everything from their casket to their burial plot. The prepaid funeral plans have no regulation and have frequently been subject to fraud and misspent funds. The life insurance industry is highly regulated.
With a final expense policy your beneficiaries can decide how to use the money. One of the big disadvantages of using a prepaid funeral plan is what if you decide to move to another city, state or country? Are you really certain where you want your funeral to take place 10 or 20 years from now?
What life insurance companies sell final expense policies?
Their are quite a few companies that are in the final expense marketplace. You want to do business with a company that is financially strong, offers competitive rates and makes doing business an easy process. Here are a few of the companies that offer excellent final expense policies:
- Oxford Life
- Transamerica Life
- United Home Life
- Mutual of Omaha
- Assurity Life
- Vantis Life
- American National Life
Why choose a final expense policy?
Most individuals who purchase a final expense policy do so because they currently have no life insurance or perhaps have a pre-exisiting medical condition that prevents them from purchasing conventional life insurance. Or they realize that funeral and burial costs are expensive and they do not wish to burden their family and friends with finding a way to provide for a proper burial.
The story of a typical insured who purchases a final expense policy
Bonnie is a 75 yea widowed retired school teacher. She has diabetes along with high cholesterol and blood pressure. Her sister recently passed way. While planning for her sister’s funeral, Bonnie realized just how expense funeral and burial costs were. She didn’t want to burden her children with this so she started investigating how she could pay for her own final expenses.
Afraid that she would be uninsurable do to her medical history, Bonnie contemplated just purchasing a prepaid funeral plan. Not liking what she read about some of the fraud with prepaid funeral plans Bonnie to look at the life insurance option.
Bonnie decided to call and talk with the nice lady who had helped her with her auto insurance. Since her auto and home company was a large well known company she thought they would have a policy to fit her needs.
Bonnie requested a quote for a $15,000 policy. Unfortunately, the auto insurance carrier have a policy they could offer due to her medical history and the low amount of coverage requested. The nice lady at her auto insurer referred her to an independent broker she knew that handled this type of protection.
The independent insurance agent walked Bonnie thru several options that were available to her. After discovering that no medical exam was necessary and only a few health questions were required, Bonnie decided to apply for a $15,000 policy. Bonnie decided on the single pay option. She felt the premium was very affordable for her needs. She also liked that no further premiums were due in the future.
After just a few days, the agent called Bonnie to let her know the final expense policy was approved an issued. Bonnie was glad to finally have this issue off her mind.
Bonnie told her family about her purchase and explained how to claim the benefits once she had passed away. This simple bit of planning gave Bonnie and her family peace of mind knowing that all final expenses were taken care of when that day arrived.
If you would like to see what options might be available for your final expense policy needs, please contact us at 1-888-393-9003 or mike@specialriskterm.com
