What Is Final Expense?

WHAT IS FINAL EXPENSE?

Ok, so you are probably have seen or heard of the term final expense before. Especially if you are over the age of 50. Most likely it was in some form of an ad. You may have been; watching a Youtube video, received a robocall, scrolling through Facebook, checking your email,etc. Let’s face it, we can hardly take two steps without being exposed to an ad.If you have ever simply searched for the term final expense, brace yourself. 

Good news is, I am here to cover that today and hopefully clear the air on the topic..final expense. By the time you finish reading this,  you should feel more comfortable about what it is and how beneficial it can be for you and your family. The best part is, you can continue to skip all the final expense ads carefree! You will know just enough to be considered dangerous.

In its simplest form, final expense is an insurance policy that is intended to cover just what it says, your final expenses. Generally, the person eligible for this type of policy is in the later part of their career or on a fixed income. For this reason, they tend to be smaller, more affordable policies. Now, It is common for people to inquire about larger policies with all the bells and whistles but to be frank, they usually don’t fit in most peoples’ budgets. At the end of the day, the best policy to have is the one you can afford to keep. 

WHO IS ELIGIBLE?

So let’s cover who can qualify to get something like this. Insurance companies are mainly looking at two things: your age and health, to determine your costs. Most of them will require you to be between the ages of 50-85 for this coverage. Regarding health, there is a little bit more to discuss. 

You personally may have had or know someone else who has had life insurance and remember the process of providing blood and urine samples, waiting weeks for medical reports to process, and doing extensive phone interviews. Well none of that is necessary with final expense insurance! They are considered what is called simplified issue. Meaning, fewer questions about your health, no need for blood & urine samples, and in most cases very quick decisions made about your application. Now, there are many different carriers or insurance companies out there and they all have their own variables they look at when deciding to provide you coverage or not.

For example, some companies may look at your body frame and they may want to charge more or possibly decline you coverage if they deem you too heavy for your height. While other companies, don’t even ask about your height and weight. 

Here is another example of some of the differences, you may take a certain prescription and one company may turn you away while another will give you a policy. These are some of the many factors that need to be weighed out when deciding which company is the best for you. Having a licensed agent who represents a multitude of companies will be your best bet to finding the perfect fit for you.

WHAT KIND OF FINAL EXPENSES SHOULD I BE THINKING OF?

Now that we know what final expense coverage is and who it is for, let’s dive deeper into what it is used for. 

Again, these are typically smaller policies so we want to be strategic in how we use these funds. Most people share two main concerns. One of which is covering the funeral expenses. We want to ensure our family doesn’t get stuck with the bill. To put things in perspective, the average burial to date is approximately $8,000. Let that sink in. Like everything else in the states, the cost has gone up over the years and is expected to continue to do so. However, let’s stick with what we know today, $8,000. (Please check our funeral expense cost guide to see breakdowns of the costs and additional considerations for your planning.) 

If you receive social security income you are in luck! You actually get a little bit of relief. Upon your passing, you are entitled to $255(you can read the details here.) That will knock you down to $7,745. Listen, I know you are itching to cut the check for this right now. But, for many people it is easier to make a smaller monthly commitment and let the insurance company issue the big check. 

The second concern is leaving behind money for your kids and grandkids. A funeral expense policy can be gifted directly to your loved ones, typically income tax free. That’s right. Companies will literally give your family thousands of dollars and Uncle Sam isn’t going to touch it! For these reasons, it is not uncommon for people to have multiple funeral expense policies. You may need some for funeral costs and then some additional for gifting. As always, it will come down to what is comfortable to you and your pockets.

DO I GET ANY OTHER BENEFITS?

But wait, there’s more! Yes, it is a very cliche and corny line but it is the truth. Alongside income tax free money for your family and covering funeral expenses, you get access to your money. Every month you make your payment, a portion of the premium goes into an account that grows interest. This is called cash value.  Typically, you earn a larger interest rate compared to what you would receive from a standard bank account. As this money grows over time, you have the ability to use these funds.

Now, since the policy is intended for your family and final expenses, we don’t want to use this account as an atm but rather an emergency reserve. There are a couple strategies on how to utilize your cash value but definitely consult your agent beforehand.

You may also have access to built-in features and additional riders (optional add-ons) which will vary from company to company. For example, let’s say you wanted to get some coverage on your grandchild(ren) you could obtain a rider for that. A common feature I recommend is an automatic loan provision. This allows for the insurance company to use your cash value to cover your policy payments in the event you fall behind. This is a great option to help keep your policy from lapsing.

FINAL WORDS ON FINAL EXPENSE

So hopefully now you have a clearer understanding of what final expense is. It is a relatively affordable option for more seasoned adults to have peace of mind. You can rest assured that costs associated with your funeral are covered. One of the most difficult things to witness for me as an agent, is to see not only the emotional turmoil families experience but the financial stress placed upon them from not having a game plan in place to cover the expenses.

My final plea is this, make sure your affairs are in order. Get your funeral expenses covered, your will finalized and your power of attorney selected. Have the tough conversations with those closest to you so they are not left to figure it out. Nobody intentionally leaves their family in a bad situation, but sometimes we aren't always as proactive as we can be making sure things are in order.

If you have any questions about final expense, click here to schedule a time to talk!