End of Life Insurance Guide: How to Plan for Final Expenses

If you are considering end of life insurance, then give yourself a pat on the back. You are thinking ahead … and beyond.  Only 30% of families entering a funeral home have the financial resources available to make funeral arrangements.  Many families are financially devastated when a family member passes away.

For most people, retirement planning involves figuring out how to make our money last as long as possible.  Fixed incomes are almost a fact of life.

Some folks sadly consider how much money will be needed to wrap up our affairs after we’re gone and the money pit they could leave behind for their family.

Whether or not to buy end of life, burial insurance is an important decision to protect those you care about the most.

End of life insurance has a language of its own. To make this easier, we’ve completed a lot of legwork for you.  Here is a recommended process, step-by-step, to aid you in making a comfortable decision.

You can call it what you want I guess.  Lots of names for it, even death insurance.  I don’t personally like to use that last term so we will leave it there.

Common product names are burial insurance or final expense life insurance.  Other times it is called funeral insurance.  There may be some subtle subjective differences but for ease of illustration, these products are really same thing, end of life insurance plans.

Step 1: Estimate Your Final Expenses

Your first step is to figure out how much you’ll need to cover your end-of-life expenses. The cost of your funeral is the first thing that comes to mind and it’s often the largest single cost. But there are other “final expenses” to consider – remaining medical bills, legal costs, living expenses, and credit card bills, to name a few. You can use our funeral planning guide that will have you pull this all together nicely.

Step 2: Determine If You Will Leave Behind Enough Money to Cover Final Expenses

The key question is will there be enough money in your estate to cover your final expenses? You may need the help of a financial advisor to figure this out. A secondary question is–will your survivors have immediate access to the funds in your estate to pay your bills? Your money could be tied up in probate and that could be a problem since funeral providers (and cemeteries) expect payment at the time of the funeral. It’s likely there will be other bills that come due upon your death. Who is going to pay them if your money is not readily available?

Step 3: Decide If You Actually Need Insurance For End Of Life Expenses

If you believe you will probably not have money at the end of your life to comfortably cover any final expenses then a Final Expense insurance policy might make a lot of sense for you.  Remember, even if you expect you will have enough money left over from funeral and burial expenses, you may not want your estate to be depleted by your final expense costs. Having a final expense policy in place is one way to ensure that your entire estate will be available to your family or that the full costs that burden your family otherwise are covered.

If you want to “keep it simple” look for a Policy with the following:
  • Level premiums –  premiums never increase.
  • Top rated insurance company – with an A.M. Best rating of A- (Excellent) or better.
  • No medical exam – although you will have to answer very basic health questions for an underwritten policy.  Coverage is designed typically for people 50-85 at the date of application.
  • Ideally a permanent policy – that can stay in force until the end of your life and may also offer cash value accumulation.
For maximum savings you may want to consult us regarding more complex options that will require a full paramedical exam in your home.

Step 4: Decide on the Type of End of Life Insurance You Want

There are many specialized policies available on the market today to help you cover your final expenses.

Mentioned earlier, they may be marketed as funeral insurance, burial insurance or final expense insurance. One feature these policies have in common is that the coverage is typically capped at $25,000 to $50,000.  This is compared to common life insurance coverage starting at $50,000 or more.

The smaller amount of protection specifically designed to pay for typical end of life expenses like funeral, burial. Though the policy benefit can be used for anything, final expense life insurance policies are not intended to provide a lot of supplemental income to your survivors like regular life insurance. Here are the key questions about funeral insurance and what you need to know:

What is the difference between Guaranteed Issue and Medically Underwritten Policies?

When choosing an insurance policy for final expenses you have two basic options: guaranteed issue or medically underwritten. Knowing the difference is important, particularly if you have concerns about your medical history.

With guaranteed issue policies, almost qualified applicants are accepted regardless of medical history.  In fact, you don’t even need to answer health questions to apply.

So what’s the catch with Guaranteed Issue whole life insurance?

There are automatic limited benefit periods written into these policies the first 2 or even 3 years.  It varies with the different insurance company’s policy.  In addition, since there is more risk being assumed by the insurance company, the cost is higher than for other types of whole life insurance policies.

A guaranteed issue or “guaranteed acceptance” policy will not have full benefits during the “waiting” or limited benefit period.  That means that the full death benefit for natural death will not be available until the policy has been in effect for some specified period of time — usually 2 or 3 years.

Since the waiting period varies, be sure to look out for this important detail. Should you die before the 2 or 3 year limited period is over, your beneficiaries will only receive a limited death benefit amount.  This is typically ROP, return of premium plus a interest factor of 7-10% depending again on what is written in the policy by the insurance carrier.

Now, with a medically underwritten policy, the insurance company “underwrites,” or evaluates, your health based on your answers to a series of questions regarding your medical history.  End of Life insurance typically is offered to applicants age 50-85 in a no medical exam, whole life insurance policy.

Since burial insurance limits are lower, the underwriting requirements are generally less rigorous, but it is still possible for you to be declined based on health or lifestyle factors.  Preexisting conditions, certain prescriptions or combinations or even risky activities can all cause your application to be rated up or declined.  However, working with an independent professional who works with all the top carriers and their products helps you find a policy that is the ideal fit.  A state licensed independent agent or broker will be your best option to find the insurance company and policy that can accommodate any significant health problems.

So which type do you choose?  Talk with an expert first.  Don’t try to qualify yourself.  Most people 50-85 qualify for full 1st day coverage.  End of life insurance is designed for people in less than optimal health.

Guaranteed acceptance whole life insurance should be the last life of defense.  It is high risk life insurance which carries limitations with it.  It leaves your family at risk of not receiving full benefits the first couple of years if you pass away due to natural causes.

What is the difference between Whole Life and Term Life Insurance?

As if deciding between guaranteed issue and medically underwritten were not enough, you also need to determine if a whole life policy is best for you or if you should turn to term insurance.

The key difference between these types of policies is that a whole life policy is guaranteed protection for your entire life.  This price will never increase and the death benefit will never decrease.  Of course you must do your part and keep up with your premium payments as scheduled.

A term policy premium will expire at a specified point in time. The time period may be a span of 10, 15, or 20 years, or expire when you reach a certain age, such as 75 or 80 years old.  Some term policies go up in price every 5 years such.  Most expire all together at age 75 or 80.  Term policies should NEVER be used for final expenses. 

The distinction between whole life and term life is particularly important when it comes to final expense planning if you want to be sure that your coverage is in effect at the time of your death.

A permanent policy, while it can be more expensive than term life, will ensure that you have coverage when you need it.

Wise Shopper Tip: When shopping for funeral insurance be sure to read the fine print. For example, it’s not always clear whether the advertised policy is whole life or term life.  AARP/NYL Term Life Insurance policies are famous for expiring in the drawer.  Ownership becomes quite expensive over the years, particularly age 70 for men only to expire on your 80th birthday.

You don’t want to be fooled into thinking that you are getting a great deal on life insurance policy only to find out later that it is really a increasing premium term policy. 

For $50,000 or less, we always recommend whole life insurance for end of life expenses.  Beyond that, if healthly, we might advise guaranteed universal life (GUL), another type of permanent insurance.

Does Life Insurance Cover a Funeral?

For most of us the main purpose of life insurance is to provide financial security for our loved ones.  If your family also depends on your income, life insurance can help replace income lost due to your death.  It can also provide an inheritance for your heirs even if you do not have personal assets to leave them.

In this case, life insurance policies are generally purchased in larger amounts than the typical limits of a funeral or end of life insurance policy. 

When your final day comes and the funeral or cremation must be handled, the funeral home will require immediate payment in full.  Whether your policy is just burial insurance or a large life insurance policy, a funeral home can take assignment of benefits from the policy to cover the cost of your bill. 

In this case, the funeral home will call the insurance carrier to verify the value of the policy presented by the beneficiary you selected.  From there, your beneficiary will be asked to sign a life insurance “assignment form” provided by the funeral home for the amount of the bill. From there, the bill will be paid directly by the insurance company and taken out of the full policy value.  Your beneficiary(s) will receive remaining monies once the funeral home has filed its paperwork with the life insurance company.

Step 5: Request a Quote

Since the exact price of funeral insurance will depend on your personal preferences.  The best way to to down to a funeral home and price it out.  Make sure you consider the impact of inflationary costs down the road.  A 10K funeral will be 20K in 20 years. 

Consider purchasing a larger policy to offset inflationary pressure so your family is protected into the future.  Any remaining monies they will receive tax free.  While it may be possible to complete the entire shopping process online we highly recommend that you talk with us to get consultation on selecting the best policy for your overall needs.  Life insurance policies are not apples to apples at all, particularly with less than good health. Ask questions, get prequalified, and make sure that you understand exactly what you are buying.

Step 6: Decide How Much End of Life Coverage You Can Afford

Are you a savvy consumer? Do you pride yourself on finding the best deal?  If so, you might be in for a rude awakening when shopping for life insurance because you won’t find any “deals.”

Insurance is a highly regulated product.  Policies and rates must be filed state-by-state by the insurance companies and are not offered later at a discount.  Rates will vary from policy-to-policy.

Always be wary if you see an offer for a “deal” on end of life insurance. Be sure to read the fine print and research the company offering the policy.  It doesn’t do much good to get a “deal” if the policy has a surprise rate increase or limitations built into the policy you did not know about.

What If I Cannot Afford To Pay The Quoted Rates?

You have a couple options if the monthly premium quoted is more than you can afford. Your first is to rework specifically what you will be doing for your funeral and burial plan.  You can go down to the funeral home of your choice and discuss want you want.  Maybe you won’t be able to afford a casket of gold.  Make some changes so you can select a smaller policy benefit amount.  Some people select a cremation instead.  It does save a lot of money.  A small $5,000 policy currently suffices.  See our Funeral Costs article for tips on managing your funeral cost.

We do not recommend this, but you could consider buying a term policy instead of whole life if your final expenses include some extensive debt.  While good term life is harder to qualify for, term policies can be less costly than whole life.

The risk is that a term policy could terminate before death.   You should only consider convertible, level premium term life insurance.  This would offer a policy conversion privilege to change to whole life down the road… when your outstanding debt has been reduced.

Term should not be considered the best option for end of life insurance, just a compromise.  Term life insurance is designed for the “what-if’s” not the inevitable. 

Step 7: Choose an End of Life Insurance Provider

Final Expense insurance policies can be purchased through insurance agents and “directly” thru some select insurance companies.

Buying “directly” is not a good choice and does not you a nickel in doing so.  All rates are set with your state.  The reality, your most likely to be sold a policy that is low quality and overpriced when dealing “directly” with insurance company.  Common examples of this, Globe Life or Colonial Penn.

The advantage of buying through an independent agency like Special Risk Life is that it gives you access to the full spectrum of insurance companies and policies on the market.  We help you secure the best policy for your needs and budget by shopping the life insurance market.  The insurance company compensates us.  Our help and service is always free to you. 

We are a specialist agency working with the top life insurance companies in the industry.  Why not go straight to the agent or broker that has access to all of the competition out there?

Let a true professional help you find the best policy for your needs to get the job done right the first time.  We’re here to help you accomplish your goals.  269-230-3464