Starting a family, owning a home, driving a vehicle or even walking out of your front door in the morning entails risk. As adults, we hope for the best and prepare for the worst. Or, the inevitable. The uncertainties and risks that inherently come with experiencing life can be reasonably mitigated with insurance policies.
Insurance actuaries crunch statistical life expectancy and behavioural data, which is then cross referenced with your application, to custom design coverage policies. Youth, healthy lifestyles and low-risk activities correspond to cheaper premium rates. Unhealthy lifestyles, high-risk activities, pre-existing medical conditions and advanced age correspond to higher premium rates. Or even denial. The kind of insurance you can apply for depends on the risk you want to insure against.
About 60% of people own a life insurance policy of some kind. Final expense insurance is usually marketed to senior citizens and high-risk applicant demographics. If you are in the market for one or the other, or even both, let’s explore the differences between them.
Life insurance policies insure against any financial disruptions your family may experience in the event of your unexpected death. In effect, life insurance acts as a form of income replacement after your death to protect your family. The average life insurance policy has a coverage value between $250,000 and $1,000,000. After your death, the financial value of your policy can be paid out to beneficiaries who can spend it any way they see fit. Life insurance payouts can pay for funeral expenses, mortgages, tuition, medical expenses, leveraged for loans or be cashed out.
Monthly premiums can cost tens of dollars to hundreds of dollars a month. You pay for premiums for the rest of your life, or in multi-year or multi-decade terms, depending on the policy. A life insurance issuer will require an interview, medical exam and an assessment of lifestyle habits during application processing. The younger and healthier you are, the cheaper the premium. There might be a mandatory waiting period of months or years before a life insurance policy is issued as well.
Final expense insurance
Final expense insurance is an insurance product designed to cover all end-of-life medical expenses and/or funeral expenses. These can include medical bills and all expenses related to funeral services. The average final expense insurance policy is usually worth about $25,000. Some policies can be much higher in value but cost more in premiums. Final expense insurance is usually marketed towards senior citizens, people in infirmed health and low-income demographics. A large risk pool paying premiums over a short span of time, due to old age or ill-health, lowers risk for the issuer.
There are no medical exams required for most final expense applications. Premiums can cost between a few dollars and usually not more than $150 a month. Applicants can fill out an application online or apply by phone. Final expense issuers assume a lot of profit-adverse risk by accepting applicants who couldn’t be approved for most forms of insurance. This is mitigated by the fact that most final expense applicants, who are elderly or in declining health, are approved in large high-risk demographic pools. Most life insurance policies are approved on a case-by-case basis. There are usually no waiting periods applied to final expense coverage issuance.
Finalexpenseinsurance.com has cost information on rates for these policies:
“If you are 65 years of age and are looking for a $10,000 policy you can expect to pay about $45 on average. Someone that is 45 years of age can expect to pay about $25 per month on average. Coverage generally starts at $2,000 and can go up to as high as $100,000.”
Life insurance policies require an interview and personal medical exam. Anyone can apply for life insurance, although the younger and healthier you are, the better your chances are for approval. Or in gaining a life insurance policy corresponding to your exact needs. Final expense insurance applications only require a basic questionnaire and are relatively easier in gaining approval. Most final expense insurance policies feature a minimum age limit between 40 and 90.
Beneficiaries can be named to both, but to varying degrees of effect. The policy payout for life insurance is always larger than final expense. By a factor of ten, or more at the minimum. Life insurance policies are designed to act as income replacements. Depending on the value of the policy they offer payouts to beneficiaries for years or decades.
Final expense policies can payout to beneficiaries, but they pay out the remainder of funds after medical and/or burial fees are paid. There may not be a lot of value left over after such fees are paid. Final expense policies may be cashed out or leveraged for loans against their value, depending on the issuer, but this can be self-defeating. Final expense insurance policies are a kind of last-chance coverage for people who can’t be approved for traditional insurance.
Assess your needs
Whether you need life insurance or final expense depends on your familial and personal needs. Make a list of your personal needs and family needs in the event of your death. Consult with an insurance agent or broker. Don’t make impulsive decisions when it comes to your insurance needs.