Final Expense 101

final expense insurance
final expense insurance 101
The basics of Final Expense

Final Expense Insurance can be as simple or complicated as you want. Let’s start with simple and make it as easy as

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1 DEATH BENEFIT The first thing you must decide is how much insurance you need. Consider your final wishes. Do you prefer cremation or a burial? Once you decide on your estimated costs, don’t forget to factor inflation.

Of course, no one knows when your time will come, but make your best guess based on your health and family history. An easy calculation is to double the current cost every 20 years, or multiply by 1.5x the cost in 10 years.

For example, if your expected costs are $10,000 and you expect to live another 20 years, then you should consider $20,000 in death benefit. If you expect to live another 10 years, then $15,000 should be your target death benefit.

If your budget allows, it is better to overestimate your cost than underestimate it. Any excess dollars can always be given to a family member, church or charity. See the following tables for reference.

Current Estimated Final Expenses: $3,000
Need in 5 Years$3,563
Need in 10 Years$4,232
Need in 15 Years$5,026
Need in 20 Years$5,969
Need in 25 Years$7,090
Need in 30 Years$8,420
Current Estimated Final Expenses: $5,000
Need in 5 Years$5,938
Need in 10 Years$7,052
Need in 15 Years$8,376
Need in 20 Years$9,948
Need in 25 Years$11,816
Need in 30 Years$14,033
Current Estimated Final Expenses: $10,000
Need in 5 Years$11,876
Need in 10 Years$14,105
Need in 15 Years$16,753
Need in 20 Years$19,897
Need in 25 Years$23,632
Need in 30 Years$28,067
Current Estimated Final Expenses: $15,000
Need in 5 Years$17,815
Need in 10 Years$21,158
Need in 15 Years$25,130
Need in 20 Years$29,846
Need in 25 Years$35,448
Need in 30 Years$42,101

2 TYPE OF INSURANCE There are several types of life insurance, but only two types are used for Final Expense. You can choose between WHOLE LIFE or TERM insurance. Whole Life is the only safe selection for final expense insurance.

Term insurance has a finite life span. For final expense products, it will usually expire between 80 or 85 years of age. If you live beyond the expiration date, you lose all the premiums you paid into the policy which could amount to thousands of dollars.

Term is much cheaper than whole life, but don’t get drawn in by the attractive price. Almost all final expense term policies will increase their rates every 5 years, eventually doubling or tripling in price by the 80 years of age mark.

So you reach 80 years old, your health is deteriorating, and you wonder, “What happened?” You were considering cancelling the term policy because you couldn’t afford it, but they “did you a favor” and cancelled it right when you needed it most.

Whole Life insurance, on the other hand, is meant to last your whole life. You pay a level premium that never increases no matter how long you live. As long as you make your premium payments, it is guaranteed to pay when you die.

Whole life is more expensive than term insurance, but the benefits far outweigh the cost. Insurance is about mitigating risk. Don’t gamble by choosing a cheaper route and purchasing term insurance.

An easy way to remember the two types of insurance:

Term Insurance TERMINATES

Whole Life is for your WHOLE LIFE

3 TYPES OF PREMIUMS Whole Life Final Expense insurance is broken down into three general health classes, which means three levels of cost, or premium.

LEVEL PREMIUM is the “Cadillac” of final expense insurance. It is the cheapest whole life policy for which you can qualify. All whole life has level premiums that never change, but the industry has given the name “Level Premium” to this class of insurance that has the lowest cost.

With the lower cost comes a more extensive line of questions on the application. Not to worry, it is still a relatively painless experience. If you can “pass” this test of about 20 questions, you will qualify for the lower cost insurance.

Even if you have certain health conditions you may still qualify for this class of insurance. You may be diabetic, you may have had heart surgery 5 years ago, be on certain prescription medications or have other issues that will not disqualify you from level premium products.

Find an experienced agent who has a clear understanding of the different companies and can match you with the one who will provide the best price for your budget.

GRADED/MODIFIED plans are the next level up for final expense. You will have the same number of questions on an application for a graded policy as you will for a level premium policy. The difference is you may have a condition that bumps you up to this type of policy.

Similar to Level Premium final expense insurance, premiums will never increase for the life of the policy. However, the cost for this type of policy is more expensive than level premium insurance. In addition, if you die within two to three years after the policy is issued you may only receive 25-75% of the death benefit. Once the restricted period is passed, the policy will pay at 100% of the original death benefit.

GUARANTEED ISSUE policies are the most expensive form of final expense insurance. They are reserved for people who have more significant health issues. Conditions that may force you into a guaranteed issue policy include organ transplants, HIV, Alzheimer’s disease, ALS, heart attack or stroke within the last 12 months or certain cancers within the last 24 months.

Even if you have experienced any of these conditions, you can still get coverage. You will just have to pay a higher premium, but more importantly, you will have to deal with a two year blackout period. If you die within the first two years after the policy is issued, the death benefit will not be paid. Instead, all premiums paid so far will be refunded plus an additional 10%. As is the case for the other two classes of life insurance discussed above, premiums for guaranteed issue final expense life insurance will remain level for the life of the policy.

There are no health questions for a guaranteed issue policy. One cautionary note for guaranteed issue. Don’t buy this type of policy unless you have to. There are many products advertised on television and elsewhere touting guaranteed insurance for $9.95 a month. Don’t fall for the trap.

If you need coverage a guaranteed issue policy can be a blessing, and the worst that can happen is all the money paid in is refunded, but you shouldn’t pay for it if you don’t need it. Finally, not all guaranteed issue is the same. Premiums can vary greatly. Check with your insurance professional to make sure you are getting a good price, and don’t be afraid to ask for comparative quotes.

Insurance Classes

Level PremiumLow15-20Nonone
Graded/ModifiedMedium15-20No2-3 Years. 25-50% paid Year 1, increasing each year after
Guaranteed IssueHighnoneNo2 Years. $0 death benefit paid years 1 or 2. Premiums + 10% refunded Years 1 or 2
Comparison of different classes of whole life final expense insurance

Average Price Comparison $10,000 of Death Benefit

Average price for different classes of whole life final expense insurance. Female, non-smoker, $10,000 of death benefit.

The tables and information above should help provide a basic understanding for the pricing and features of different types of final expense insurance. Look for additional details in the many articles on this website, in addition to our trusted partners, or feel welcome to contact us for a personal review.