Final Expense Insurance: Is It Right for You?
Final expense insurance is an option you may consider as you organize your retirement details. In the event of your death, having a plan in place can help family members take care of your funeral and related expenses—without financial stress.
But where do you start? There are many options to cover end-of-life costs. Additionally, talking to loved ones about death can be difficult. Here are some tips to get you started:
What is final expense insurance?
Final expense insurance is a policy that you purchase to cover any expenses related to your death. That includes medical fees and funeral costs (from urns and grave markers to flowers and funeral plots).
If you buy a final expense policy, you will pay a premium as you would a life insurance policy. The plan will be valid until you die. Upon your death, your beneficiaries will receive the policy funds.
Unlike life insurance plans that require an in-depth health history evaluation and medical exam, a final expense policy typically requires answering a few straightforward questions.
There are a couple of policy options. A guaranteed issue policy requires a test for terminal illness, and a simplified issue policy involves filling out a questionnaire—but it will not require a medical exam. You can talk to your retirement specialist about which policy will best fit your needs.
How to start the death-expenses conversation
Talking about death with loved ones can be tough. However, the greatest gift you can give them—as they face an incredibly difficult time—is a clear plan. That includes nominating a beneficiary to handle your death expenses.
If you have a final expenses policy, your beneficiary will access the funds to cover any costs. It’s essential to choose someone you trust. While the policy is for death expenses, ultimately, the beneficiary can use the funds how they see fit.
How does a final expense policy compare to other options?
When it comes to funding your final expenses, there are various options. Here are some questions people ask regularly:
“Isn’t it easier to just buy burial insurance?”
Many people choose to buy burial insurance. In some ways, it’s a practical choice, as you’re buying directly from the supplier—that is, the funeral home that will take care of your burial.
However, a couple of drawbacks to consider include:
Being obligated to use a particular funeral home: This can cause problems should you move away from the area (e.g., to another state). A final expense policy is not tied to a set funeral home. You get to choose!
Covering only funeral costs: Other expenses may pop up that burial insurance alone will not cover. A final expense policy will help cover extraneous costs.
“What if I create a savings account for final expenses?”
Some people opt to save for their final expenses. This is fine if you can set aside a good chunk of money to cover your funeral costs and never touch it.
This is risky, as you may need to dip into your savings to cover unforeseen expenses: a sudden medical issue (think about the cost of a hospital stay and footing the bill that medical insurance won’t cover) or an unexpected expense (such as an emergency home repair).
A final expense policy will guarantee that costs related to your death are taken care of. That might include any debts, medical bills, and probate fees.
“I can make final expense provisions in my will, right?”
Providing funds for your burial in your will, while it seems like a practical approach, has some limitations. For example, the reading of your will typically takes place after the funeral.
Additionally, because your estate has to go through probate court, it takes time (often months) to release the funds to your beneficiary.
A final expense policy will provide your beneficiary with immediate cash to pay for all your final costs.
“Will Medicare and Social Security cover my final expenses?”
Medicare will not cover your funeral expenses. Social Security will provide a survivor’s benefit for funeral expenses. However, the amount is small (just $255) compared to burial costs that average $8000-$10,000.
The addition of a final expense policy will provide coverage—not only for burial costs but other death-related expenses. This is something to discuss with your retirement specialist. Together, you can tailor a final expense policy to fit you and your family’s needs.
“I have a life insurance policy. Is that a good way to cover death expenses?”
A final expense policy is a type of insurance policy. If you have a traditional life insurance plan, you may consider adding a dedicated death-expenses policy.
This will allow your beneficiaries to manage your final costs easily during a difficult time. Also, it will provide immediate, separate funds without pulling from your primary life insurance policy.
Help your loved ones when they need it most
Having a plan for your end-of-life expenses is the greatest gift you can give your loved ones. Before you decide how you will fund your final costs, create the opportunity to talk to them about your intentions. It may be uncomfortable, but they’ll appreciate your efforts later on.
Aaron is MySeniorHealthPlan.com’s retirement specialist.
He can answer your final expense insurance questions and help you choose the right plan for your family’s needs.