Final expense insurance is designed to cover the bills that your loved ones will face after your death. These costs will include medical bills and funeral expenses. Final expense insurance is also known as burial insurance. Unfortunately, even bare-bones funerals can cost thousands of dollars. The ins and outs of insurance policies can get tricky. Here’s what you need to know about final expense insurance.
Find out now: How much life insurance do I need?
Final Expense Insurance: The Basics
A final expense life insurance policy isn’t the same as what’s known as “insuring your life.” Insuring your life concerns leaving your family and loved ones with enough support after you pass away. Term and permanent life insurance value your policy as proportionate to your earning power now and for the rest of your life.
With funeral insurance, the value of your policy is proportionate to the expense of your desired funeral. While other forms of life insurance can top a million dollars, it’s rare for final expense insurance policies to get above $20,000.
Do I Need Final Expense Insurance?
The answer to that question will vary from person to person. Do you already have term or whole life insurance? If you do, that policy can help your loved ones pay for final expenses. However, if you have term life insurance and you outlive the policy term, it’s a different story. In that case, you may want to consider final expense insurance.
Alternatively, maybe your family will have plenty of assets to work with when you die. In that case, you could use what’s called “self-insurance.” “Self-insurance” is one of those terms that sounds more complicated than it is. To self-insure is just to use your own money rather than use a life insurance payout.
Could your family self-insure for your final expenses? It’s a good idea to assume around $10,000 for funeral expenses. But don’t forget to take into account whether you will want a catered party after the service. Or perhaps a trip abroad to scatter your ashes. Maybe you’ll end up leaving big bills behind. If situations like these sound like your situation, you may want to consider springing for final expense insurance. Additionally, it’s probably best not to count on the lump sum death payment from Social Security to pick up the slack. It’s only $255.
The Cost of Final Expense Insurance
The exact cost of your final expense insurance will depend on your age. Unfortunately, the older you are, the larger the premiums. This is because insurance companies take on more risk when insuring older folks, given the fact that they’re statistically closer to death. If you buy final expense insurance when you’re 45, you’ll pay less each month than if you wait to purchase until you’re 75.
Can I Pre-pay for my Funeral?
You certainly can, and some people do. This approach does have its pros and cons. When you pre-pay for your funeral, you get to personalize it. You can grill different funeral directors until you find one you love. You can pick out the perfect casket and the choicest plot in the cemetery. Plus, pre-paying will more likely prompt you to talk to your loved ones about your choices. This may give both parties more peace of mind.
States have varying guidelines on funeral pre-payment. These guidelines work to prevent you from paying unscrupulous folks who can take your money and run. It helps protect you or your family from overpaying on top of what you pre-pay. Before you pre-pay, check your state guidelines for how the money will be held until your death.
Make sure you know what you’re paying for. Also check whether you get to lock in the rate for your funeral. That way your family won’t be surprised by an up-charge later. When pre-planning or making any pre-payments, be sure to keep documentation. That way you and your loved ones will have records of what you want and what you did.
The disadvantage of pre-payment is that it’s less flexible than burial insurance. If your funeral plans change or you move, you and your family may not get that money back. Even worse, the funeral parlor could go out of business and you may lose that money entirely. Final expense insurance provides your surviving relatives with a payout they can spend anywhere. You have less control, but your family has more flexibility.
If you want to leave a clear indication of your wishes without necessarily locking in the funeral home, you could always combine burial insurance with a document stating your preferences. Kept wherever you keep your will (you have a will, right?), this document would cover issues like burial vs. cremation, open vs. closed casket. etc.
Whether you choose a life insurance policy that covers funeral expenses and then some, a dedicated final expense insurance policy, or funeral pre-payment, you’ll be doing your loved ones a huge favor. Taking the time to consider and document your end-of-life wishes may be a little uncomfortable now, but it will make all the difference when the time comes.
If you’re having a hard time figuring it out on your own, consider turning to a financial advisor for risk management or estate planning help. If you don’t already have a financial advisor, a matching tool like SmartAsset’s SmartAdvisor can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and your goals. Then the program will narrow down your options to three fiduciaries who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.
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