What You Need to Know About Final Expense Insurance
As Ben Franklin famously wrote in a 1789 letter, “In this world nothing can be said to be certain, except death and taxes.” Mr. Franklin, of course, has a point. However, the similarity between death and taxes doesn’t end with this certainty. Both of these inevitabilities leave bills that must be paid. The famous statement has also been subject to a game of historical telephone after centuries of misquoting. (Aren’t you more familiar with the abridged version, “Nothing is certain but death and taxes”?) Not only has the quotation been garbled, it’s been mistakenly attributed to both Mark Twain and Daniel Defoe.
There’s another lesson here: No one likes being misquoted, especially when it comes to their final wishes. Writing something down, even something as final as a last will and testament, doesn’t ensure it will be remembered or interpreted correctly. That’s why many people choose final expense insurance or other funeral insurance. While a will may not be found until after funeral services have occurred, final expense insurance makes sure funds are allocated and available for your family when they’re needed. Let’s take a look at why this insurance is important and the difference between plan types.
Why Your Final Expenses Could Be More Than You Think
Year after year, the price of laying our loved ones to rest has increased across the world, with the median cost increasing almost a third over the past 10 years. The rising prices have been noted by more than just the families who are left to pay the price.
A Forbes article explained that monetary inflation and increasing overhead costs in the industry are partly to blame for growing sticker prices on funerals. Funeral services were once held in the home of the deceased. Social shifts toward privacy and sanitation moved final rites to dedicated areas, driving up operation costs. A gradual move in the funeral market toward large corporations and away from local businesses also increased those providers’ profit margins. A larger business network means lower costs when services can be streamlined, resources pooled, and supplies bought in bulk. However, those savings haven’t historically trickled down to the customer.
Funeral Costs: What to Expect
National Funeral Directors Association statistics give a breakdown of the cost of average common funeral types. The findings show that an average funeral can cost $7,360, but the price can be as high as $8,755 when you add a vault, which many cemeteries require. Note that not all online calculators account for all needed charges, such as casket, urn, or burial plot. That’s why it’s important to ask questions about potential extra charges if you choose a prepaid plan—and to consider them if you select final expense insurance.
The estimates listed here do not include additional charges for flowers, obituaries, grave plot, or monument or marker costs. These numbers also do not include cash advance fees, which can further increase costs when funeral providers use third-party vendors. We’ve broken down the estimate into two types: burial and cremation.
Choosing a Burial Plot
One thing we haven’t discussed much is selecting a burial plot. It can be easy to focus on the funeral-specific costs of burial, but unless you choose cremation, you’ll want to include a plot or other burial rights in your planning. Here are some things to know about this portion of your final expenses.
- Know your rights. Unless a cemetery also sells funeral services, they aren’t covered by the FTC Funeral Rule. Look into whether your state has burial-specific regulations. Most states don’t, so do your research and be familiar with all your options before you begin shopping.
- Make sure all costs associated with your plot are accounted for—you’ll often need to cover more than just the plot itself. Expenses to watch out for include a grave liner, perpetual care, maintenance/grounds keeping or an “endowment care fee.” Those laid to rest in a mausoleum or columbarium may also need to include opening/closing charges or maintenance fees in their estimates. Get these charges in writing as part of an itemized list before making your selection. A business’ hesitancy to provide this should be a red flag for how you’ll be treated in the future.
- Take time to find out what is and isn’t allowed in the place you choose to be sure the type of monument or memorial you prefer is permitted. Some cemeteries may also have regulations against flowers or other items left on graves.
- If you select a prepaid plan over final expense insurance, wait to buy burial rights until you’re sure you won’t move or decide to opt for cremation. Selling a burial plot you no longer need can be a challenge. As with your other expenses, allocating funds for a burial plot with final expense insurance leaves your plan flexible.
Funeral With Burial:
- Metal Casket: $2,400
- Basic Services Fee: $2,100
- Vault: $1,395
- Embalming: $725
- Facilities/Staff for Ceremony: $500
- Facilities/Staff for Viewing: $425
- Hearse: $325
- Removal or Transfer of Remains: $325
- Miscellaneous Preparation: $250
- Printing for Memorial: $160
- Service Vehicle(s): $150
Funeral With Cremation:
In 2015, the NFDA projected that cremations would eventually become more common than traditional burials. Some families opt to hold memorial services and viewing prior to cremation. Other families, however, choose to hold their remembrances after cremation, letting the urn symbolize their loved one. The median price of funerals with cremations is $6,260. As with the above estimate of services with burial, this number does not include cash advance fees or cemetery monument or marker costs.
- Basic Services Fee: $2,100
- Cremation Casket: $1,000
- Embalming: $725
- Facilities/Staff for Ceremony: $500
- Facilities/Staff for Viewing: $425
- Third-Party Cremation Fee: $350
- Removal or Transfer of Remains: $325
- Urn: $275
- Miscellaneous Preparation: $250
- Printing for Memorial: $160
- Service Vehicle(s): $150
These costs can quickly add up and create an unexpected financial burden for those left behind. One life insurance company projects the average cost of funerals will rise to $18,276 by 2030. Facing these expenses, some families may choose to take on debt in the form of loans or money borrowed from friends. They may opt to look into low-cost burial options.
Making these financial decisions is not what loved ones need during this difficult time. Instead, they need time to heal and space for grieving.
While it can be tempting to put this issue out of sight and mind, the reality is that it’s statistically unlikely for most families to comfortably swing the cost of a funeral. CNBC reported that 40% of American families couldn’t cover an unexpected expense of $400. As we’ve discussed, final expenses—which include funeral services, outstanding debts, probate fees, and more—can have a much more significant price tag.
Proactively making arrangements with final expense or another type of burial insurance makes it simple for your family to access the funds they need to handle these expenses. But which type of insurance best suits your needs?
Funeral Insurance Plan Types: Final Expense, Burial, and Preneed
Understanding the differences between funeral insurance options can be a real challenge, but don’t panic—we’re here to help you parse it out.
The term “preneed insurance” generally refers to plans meant to cover costs specifically associated with burial and a funeral service. This type of coverage may also be called a prepaid funeral plan. The beneficiary in these policies is usually the funeral home, which means it will receive any benefit payment.
Final expense insurance is a different plan type, although some companies will use the term “burial insurance” to refer to final expense. How does final expense insurance work? Like burial/preneed, final expense does cover burial and funeral costs, but it is a more extensive and flexible form of life insurance than preneed or other prepaid plans. These overlapping definitions can be confusing, especially when you start to research online, but understanding the pros and cons of each and what questions to ask will help you make the right choice for you and your loved ones.
What You Should Know About Preneed Plans and Prepaid Funerals
- You can plan your own funeral service, leaving no doubt for your loved ones that it’s what you would have wanted.
- It is possible to pay up front without using a payment plan.
- There are many expenses that may not be covered. For this reason, you’ll need to carefully review any preneed contracts before agreeing to them. You might even want to consider hiring a lawyer to help you. This list of provisions that any ethical preneed contract should include will help you spot suspicious omissions.
- It’s not unheard of for funeral homes to mishandle or mismanage the money you pay them for your preneed plan. With that in mind, be sure you trust the company before purchasing a preneed policy.
- Due to market fluctuations, the goods and services you select for your prepaid plan may not be available at the time of your death.
- Similarly, the cost of products and services you select when you purchase your plan may not be set in stone, so it’s important to be clear on whether prices are guaranteed—and if they aren’t, who will be responsible for paying the difference.
- Your loved ones may be responsible for paying taxes on income or interest that accrues on the invested funds.
- Because preneed insurance policies are contracts with specific funeral homes, you may be limited to the geographical boundaries of that company’s service area.
- If your plans change or you move away from the area where you bought your preneed policy, you may not be covered. Choosing final expense insurance instead will give you and your loved ones more flexibility and guaranteed coverage.
- The Federal Trade Commission’s Funeral Rule entitles you to several rights and disclosures, including an itemized list of expenses. However, you should be aware that some aspects of prepaid contracts fall within the jurisdiction of the state, and the rule does not apply to these parts. Protections vary from state to state.
Q&A: When Shopping for a Preneed Plan
What are the legal requirements? The Funeral Rule mandates that a funeral home provide you with written explanations of services that are required by law. This information is important because laws surrounding things such as embalming and cremation vary from state to state. Embalming for delayed burials is required in some states, while others leave it up to you, and no states require the use of a casket (often the most expensive part of a funeral) for cremations.
How do I know if I’m getting the best value? The FTC recommends you approach funeral purchases the way you would treat any other large purchase—by shopping around. Specifically, it recommends comparing prices between at least two funeral homes.
Can I buy some products or services separately? You are not obligated to buy a funeral package that includes goods or services you do not want or need. In fact, you aren’t even obligated to buy everything for your funeral through your preneed provider. For example, embalming, caskets, and the memorial service itself can be bought separately if you find a better price through a different vendor.
Are package options available? While it’s true you may find a better value by shopping around, you might find it more convenient and less stressful to get everything you need in one place. You might even find the best price this way, so ask what your package options are.
Are any of the listed costs estimates? Cash advance fees that your funeral provider pays for you to a third party might be estimates. Be sure to ask which fees are set prices and which may be subject to change.
Does the cemetery I’ve chosen have associated requirements and fees? Before purchasing a plot at a specific cemetery, be sure you’re aware of burial requirements or unexpected fees you might be charged. Some cemeteries require an outer burial container—even if one is not required by law. They may also charge perpetual care fees, and if you use a mausoleum or columbarium, it will likely have its own fee. In most instances, the Funeral Rule does not usually apply to cemeteries, and charges from them can add hundreds of dollars to your funeral bill. See the sidebar for more information on cemetery plots and potential associated expenses.
May I see a full itemized list of casket and burial container prices? Often, casket prices are not listed on the General Price List (GPL)—but funeral homes are required by law to show you a document with the full list of caskets available and their prices. Because industry studies indicate that consumers are more likely to buy one of the first three caskets they are shown, sellers have an interest in pitching more expensive caskets first. Don’t make choices based on these sorts of sales tactics. Ask for all your options.
Are there optional goods or services we haven’t discussed yet? There may be optional goods and services that you’ll want your prepaid plan to cover, such as transportation of your body or staffing fees associated with a graveside service. If these sorts of optional fees are not included in your preneed policy, your loved ones might have to pay the difference.
Is this an independent, locally owned funeral home? Many people want to support locally owned businesses, but sometimes what appears to be an independent neighborhood establishment is actually owned by a large corporation. The only way to be certain that a funeral home is independently and locally owned is to ask.
What happens if I move, want to cancel my contract, or this funeral home goes out of business? Find out how your plan will change if circumstances change. State laws vary widely when it comes to protections associated with contract cancellation, moving, or your provider going out of business. Before you sign anything, make sure whatever plan you choose will cover you in these situations.
How Does Final Expense Insurance Work?
Final expense insurance, or burial insurance, is meant to cover the cost of funeral and burial serviceslike the prepaid plans. However, unlike preneed or prepaid funeral packages, final expense insurance can also help cover outstanding debts, probate fees, and other remaining expenses. This type of life insurance also allows you to choose your beneficiary, unlike preneed plans. While a preneed plan is usually payable to the funeral home, a final expense benefit goes straight to the beneficiary you choose. Final expense insurance can be purchased as either a term or whole life policy. Depending on your coverage needs, it can last for the duration of a term or until the whole life policy ends at age 100.
- This type of policy can increase in value over time. It works like a savings account, with the balance going up as you pay in.
- The price of your initial premium will be higher the older you are. But your premium’s amount will not go up as you age.
- Final expense insurance policies allow you to select a beneficiary, which means you can choose an agent who’s legally responsible for the allocation of benefits. Commonly, people choose a partner or relative to act as a beneficiary to ensure instructions are followed and funds are properly distributed.
- You won’t be required to take a medical exam to receive coverage, and your policy won’t be canceled due to changes in health. Final expense insurance is available to those in poor health with graded benefits, meaning only a portion of your policy will be available for the first few years of coverage.
- Additional benefits can be awarded in the case of an accidental death.
- Your entire policy does not have to be paid all at once. Term policy payments can be arranged to be paid monthly or yearly.
- Final expense insurance can cover a number of costs. This allows loved ones to use the benefits for the expenses they need to pay, as opposed to just covering burial costs. This coverage includes common final costs, such as medical bills, probate or legal fees, and other expenses other policy types don’t cover.
- The flexibility of final expense insurance also extends to your choice of service providers. This means you can allocate funds without being tied to a certain provider, geographic area, or plan. Final expense insurance leaves your options open, a great benefit given the length of time that may pass between choosing and using a policy.
- You can borrow against the tax-deferred dividend value of your final expense policy. This means that in addition to preparing for your family’s financial future, you’ll also have an accessible line of credit in case of emergency.
- Given its flexibility, final expense insurance mitigates some of the worry preneed or prepaid plans may leave unresolved. Many of the concerns and limitations of those plans don’t apply to final expense. However, there are some things you should be aware of before enrolling in final expense insurance.
|Benefit||Burial/Preneed/Prepaid Insurance||Final Expense Insurance|
|Expenses Covered:||Burial/funeral costs only||A variety of final expenses|
|Beneficiary:||Funeral home||Your choice|
|Specific Arrangements:||Locked in at the time you choose||Remain flexible, although you give instructions|
|Cost:||Varies by provider and selection—solely covers funeral costs||A $10,000 policy costs about $2 per day.|
|Benefit Amount:||Once the plan is paid for, the benefit amount remains the same.||Tax-free savings are built up over time up to $35,000.|
|Balance May Be Borrowed Against:||No||Yes|
Q&A: When Shopping for a Final Expense Plan
Who should my beneficiary be? Final expense insurance allows you to choose your beneficiary and leave instructions for how your benefits are allocated, but the final say is theirs. While this freedom can be a benefit in the event of unexpected expenses, there’s still the chance that your wishes may not be followed to the letter. For this reason, your beneficiary should be someone trusted enough to make the best decision for you and your family. Many people decide to appoint a relative or spouse. More importantly, you should choose someone who has an insurable interest. In other words, you want a person who derives some benefit, financial or otherwise, from the continued existence of the insured party.
What’s the benefit of cash value? A life insurance policy with cash value simply means that a portion of your premium goes toward your policy’s cash value amount. The remainder of your premium goes toward the insurance company’s operating costs and the actual cost of your insurance itself. As you continue to pay your premiums, your policy will continue to grow in value. Over time, you will gain the ability to take a partial loan against your policy because of this feature.
Taking a loan against your policy comes with some advantages over getting a loan from a bank or other institution. Loans of this nature do not require you to go through a credit check or an application process, and typically, these loans will not show up on your credit report. You also won’t have to pay back a loan against your cash value on a set timetable. However, the most important benefit these loans offer is a lower interest rate in general than you would get at other financial institutions.
Is there a waiting period? In most cases, final expense insurance policies can immediately provide full death benefits, starting from your first day of coverage. All one needs to do is have the application approved and pay the first premium to secure coverage, and your paperwork should display the policy effective date. However, if your policy has a graded benefit, you’ll only have access to partial benefits at the start of the policy effective date. Full access to benefits will be available after a set period of time.
How Much Coverage Should I Buy?
To determine the amount of final expense coverage you will require, you will first need to try and estimate your total final expenses, which is a simple process with only 4 steps.
Step 1: Estimate Household Expenses
Estimating family expenses is done by taking the total amount of a typical month’s expenses (including house payments, utilities, car expenses, food and transportation costs, insurance fees, etc.) and multiplying by 3. This will roughly be the amount your family needs to survive for 3 months. So if your total monthly expenses are $2,500, then your number for family expenses will be $7,500. ($2,500 x 3 = $7,500.)
Step 2: Factor in Funeral Expenses
Funeral expenses are determined by what kind of services you end up choosing. See above for a sample of commonly incurred funeral-related expenses that should help you come to an accurate estimate. For now, let’s say your expenses will be the average of $10,000.
Step 3: Add to Find Total Final Expenses
To get your total final expenses, add the above figures together, which in this case are $7,500 for family expenses and $10,000 for funeral expenses. This amount, $17,500, would be the minimum coverage required to account for both funeral and family expenses.
Step 4: Take Inflation Into Account
Multiply the total you arrived at in Step 3 by the inflation factor listed next to your age range for the total estimated cost.
|Age||Multiplier for Men||Multiplier for Women|
Intangible Benefits of Funeral Insurance
Of course, the reasons to consider funeral insurance aren’t purely financial. Time, energy, stress, peace of mind, and other considerations can play a big part in the plan that’s right for you. Here are a few things to think about—past the number on the calculator—when you’re choosing a plan.
Ease the burden for grieving loved ones. When people have to plan and pay for the funeral of a loved one, they might view the responsibility as a final expression of their feelings toward the deceased. This mindset can lead them to spend money beyond what their income allows for, causing even more stress during an already-trying time. When you choose to invest in funeral insurance, you are ensuring that your family and friends will face their grief without the extra burden of planning and paying for a funeral.
Be at peace knowing that your funeral will represent who you really were. When you buy funeral insurance, you don’t have to wonder whether your ceremony will reflect your personal values or whether your remains will be dealt with in a way that you find appropriate. In the case of prepaid or preneed plans, you will plan your service with your chosen funeral home. If you opt for final expense insurance, you will also discuss your wishes with a trusted beneficiary. In both cases, your family will know that the service is what you would have wanted.
Allow yourself time to think over what you really want. Financial decisions and other practical considerations surrounding the eventuality of your own death are never easy. Give yourself the time and space to find the options that suit your needs by planning ahead with some form of funeral insurance. Yes, this process can be difficult—but it would be difficult for your loved ones to pull a funeral service together just days after your death. Burial insurance or final expense insurance will do a lot to ease that burden.
Give your family immediate access to funds dedicated to covering your final expenses. Some options for financial coverage of your final expenses require initial payment from those handling your funeral and burial. They may have to wait to be reimbursed or have to deal with probate delays. Funeral insurance policies generally make the money available immediately so no one has to pay out of pocket.
Answering Your Questions: How Final Expense Works
What’s the difference between final expense insurance and using savings? While simply saving money to be used for your final expenses may seem like a good idea, there is no way to know whether you will be forced to dip into that money before you die. Consider this: The No. 1 cause of bankruptcy in the U.S. is medical debt. Disease, illness, and injury are unpredictable, and a single stint in the hospital could wipe out a lifetime of savings. By paying into a final expense insurance policy, you can avoid the uncertainty that comes with relying on personal savings.
Do I need final expense insurance if I’m a veteran? Burial benefits for veterans max out at $2,000 for a service-related death and as little as $300 otherwise. Veterans also qualify for free burial in national cemeteries. However, as we’ve discussed, the average cost for a funeral and burial is around $7,131. So even if you do qualify for these benefits, it is likely there will still be a large financial sum not accounted for. Final expense insurance is flexible enough to fill in the gaps.
Won’t the provisions set aside in my will be enough? Making arrangements for your funeral through a will can lack results. This is because wills are often read after the funeral takes place and because they have to go through probate court before provisions can be executed. The process can take several months, even in best-case scenarios. While it’s possible that the person who ends up paying for the funeral will be reimbursed once the will makes it through court and other bills are paid off, it is unlikely that it will provide any immediate relief when it comes to your final expenses.
What if I have Medicaid or receive Social Security benefits? Unfortunately, Medicaid and Social Security benefits only scratch the surface in terms of covering final expenses. Medicaid allows, at most, $1,500 to be applied toward funeral expenses, and Social Security provides just $255 to a surviving child or spouse to be used for the same purpose.
Does it make sense to purchase final expense insurance or burial insurance if I have or preneed insurance? The limitations and uncertainties associated with preneed insurance can make buying an additional final expense insurance policy a logical choice. Remember that a prepaid plan will typically only cover the cost of the funeral. If you leave behind medical bills, attorney’s fees, taxes, or any other debt when you die, preneed insurance will not cover those expenses. For this reason—and because it is not unheard of for funeral homes to mismanage prepayments or misrepresent plans—if you are still weighing your options and have yet to buy any sort of funeral insurance, final expense is the safest way to be sure your remaining debts are covered in the way you desire.
Is there any reason to buy final expense insurance if I already have a regular life insurance policy? While final expense insurance is itself a form of life insurance, some people choose to purchase it to accompany an existing life insurance policy. Having a separate policy dedicated solely to funeral and burial expenses will protect the policyholder’s beneficiaries from having to take money out of the general life insurance policy to cover final expenses.
We’ve covered a lot of ground, and it’s not surprising if you still have questions about burial insurance. The good news is, you don’t have to figure it out on your own. We’re ready to help you choose the final expense insurance plan that’s best for you. Call a licensed HealthMarkets insurance agent at (800) 827-9990, or find an agent in your area and get personalized guidance today.