You can’t imagine how many people ask this question- do I need final expense insurance?
Is it actually worth it?
In this guide, I’ll go through whether it’s right for you, or whether you’re better off with another type of insurance.
You’ve made all of your estate arrangements, drafted your will, designated beneficiaries to your life insurance, pension, investment accounts, and bank accounts, and created trusts if necessary.
Why bother applying for and paying for final expense insurance?
You’ve done most of the work; now learn how, why, and when final expense insurance benefits your heirs from the office of a Texas life insurance attorney.
Is Final Expense Insurance Expensive?
Final expense insurance is usually a type of whole life insurance designed to cover medical bills and funeral expenses when the policyholder dies. Thus, a final expense policy is also known as burial or funeral insurance.
This type of policy is most popular with seniors and retirees who have made all of their other estate planning arrangements, such as drafting a will, designating beneficiaries to life insurance, investment accounts, and bank accounts, and creating trusts where necessary.
A final expense insurance policy will likely have these features:
- Whole life insurance rather than term – in other words, no policy expiration date as long as premiums are paid;
- Cash value –the policyholder may be able to take out a policy loan during their lifetime;
- Fixed premium payments;
- Simplified and streamlined application process – usually no medical exam required;
- Coverage can often be issued in days;
- Affordable premiums, compared with larger whole life insurance policies.
What Are Final Expenses
If you have arranged for dispensation of your assets and property and paid your bills, likely, you have only final medical expenses and burial or cremation expenses left. This is precisely what final expense insurance is intended to do for your loved ones. They will be grieving you, but as beneficiaries of your final expense insurance, they can make arrangements if you have not and pay for your funeral, cremation, and burial expenses, as well as take care of any end-of-life medical expenses that your insurance or Medicare or Medicaid did not cover.
Why is this important? Your executor or your heirs could wait months or years for final medical bills to come in and then be paid from the estate. By purchasing final expense insurance, you relieve them of the duty to preserve the corpus of your estate for medical creditors and allow them to move on.
Will Your Executor Decide?
Here’s the thing: When you die having prepared and executed a will, your executor will make all decisions thereafter regarding the disposition of your estate. Life insurance is not part of your estate when you die unless all named beneficiaries have predeceased you.
So, whether you die with or without a will, you can designate a life insurance beneficiary to handle your final expenses as you see fit.
Many people make cremation and/or burial and funeral arrangements in advance as part of their estate planning. Others do not, leaving it up to their heirs or life insurance beneficiaries to make those arrangements.
Final expense insurance allows you another opportunity to take charge. Do you want to be buried? Where? Do you want to be cremated?
Then what? All of these questions can be answered and settled by purchasing final expense insurance. Don’t leave your final resting place up to the guess of your loved ones.
Other Types Of Insurance
If you are older with few bills or younger with few assets, final expense insurance may be the only type of life insurance you need. However, there are circumstances where one should consider purchasing a term life insurance policy with a larger death benefit. These include:
You have a special needs child of any age
Suppose one of your children has special needs, such as a learning disability, a physical disability, or autism. In that case, you might consider purchasing a life insurance policy in an amount sufficient to pay for the continuing care, therapy, and education they need.
Do not designate them personally as the beneficiary, however – first, a minor child cannot directly receive the death benefit. Second, if the child is not a minor but is incapacitated, they cannot receive the death benefit.
In these cases, a court must step in and appoint someone to administer the funds. Wouldn’t you rather select that person yourself?
Create a trust in the name of your child that is funded by the insurance proceeds upon your death, and designate a close friend or family member as trustee.
You care for an aging parent or other relative who has no assets
Similar to having a child with special needs, an aging relative in your care must be provided for after your death. The only difference is that the term of the policy you purchase can be shorter and tied to that relative’s expected life span.
You have a young family
In a one-parent home, purchasing term life insurance to provide for the care and education of young children in case you die unexpectedly is a must.
In a two-parent home, whether you are the primary breadwinner or the primary caregiver matters not; you each should purchase a life insurance policy. Why?
If the primary breadwinner should die unexpectedly, life insurance can replace that income stream until the children have grown. Likewise, if the primary caregiver should die unexpectedly, life insurance can pay for childcare and other services.
Your family is 0-15 years into a 30-year mortgage
Purchasing life insurance in an amount sufficient to pay the mortgage will ensure that your family can stay in their home should you die unexpectedly. This situation presents an opportunity to ladder multiple life insurance policies and save some money on insurance premiums.
For example, let’s say you and your spouse just took out a $300,000 mortgage. Rather than pay premiums on one 30-year $300,000 policy, ladder three policies this way:
Policy 1 – 10-year term, $300,000 coverage
Policy 2 – 20 year term, $200,000 coverage
Policy 3 – 30 year term, $100,000 coverage
This way, you will save money on premiums, and as you pay your mortgage down, you will not need Policy 1; it will expire, then you will not need Policy 2, and it will expire.
But should something happen to you, your family will have the insurance proceeds in an amount sufficient to pay the remaining balance of the mortgage.
You are offered group life insurance through your employer
Group life insurance through work is often offered free of charge to an employee, or at nominal cost, as part of their benefits package.
Do your family a favor and enroll in your employer’s group life insurance policy, and if there is an optional Accidental Death and Dismemberment (AD&D) rider available to purchase, purchase it.
The coverage will be a multiple of your annual salary and is an inexpensive way to provide a financial cushion for your family should you be injured and unable to work or die unexpectedly.
Suppose you have gone to the trouble of making a will and designating beneficiaries of investment accounts, bank accounts, and life insurance.
In that case, you will benefit by purchasing end-of-life insurance, also called final expense insurance.
This type of insurance guarantees that the money is there to pay for your last remaining medical bills as well as your cremation, funeral, and burial expenses, according to your wishes.