If you are in poor health and don’t want to be denied insurance due to a medical exam, then you will most likely qualify for final expense insurance.
What is final expense insurance?
Final expense life insurance is a term life insurance product referred to as a “no medical exam” guaranteed issue life insurance. Guaranteed issue life insurance is also referred to as “final expense/funeral insurance” because the coverage amounts are so low that they basically only cover funeral and burial expenses.
Traditional insurance policies require a medical exam as part of the approval process known as underwriting. No medical exam life insurance offers quick approval for coverage and can be good if you are in poor health.
Because there are no medical exams or health questions, life insurance providers consider these applicants a higher risk and premiums are usually more expensive for less coverage compared to traditional life insurance that requires a medical exam.
| Final Expense | Guaranteed Issue | Simplified Issue |
| A type of guaranteed issue policy with a low death benefit that covers funeral and burial expenses | No medical exam and for those 50 years old and older. Coverage up to $25,000 | No medical exam with no age limit, but you still have to complete a health questionnaire. Coverage up to $100,000 |
You have probably received mailers from Colonial Penn or Mutual of Omaha offering guaranteed life insurance. Those are essentially final expense policies.
For guaranteed life insurance, premium calculation depends on your age, gender, where you live, and coverage amount. Understand that there are limits on coverage amounts and it varies by insurance provider.
Although simplified issue life insurance does not require a medical exam, it does require a health questionnaire. If you don’t want a medical exam, but can qualify for a simplified issue policy, it is generally a better deal because you can get more coverage for a cheaper premium.
Pre-need and burial insurance are different products
There are several types of life insurance products. You may have heard burial and funeral insurance used interchangeably. Basically, funeral and burial insurance refers to products that cover “final expenses,” like funeral service or crematory costs. However, this should not be confused with pre-need insurance.
When a person works with a funeral home to decide exactly what they want and they pay for everything in advance, that coverage is called pre-need life insurance, Les Masterson, managing editor of Insure, told Insider.
We do not recommend pre-need insurance because the beneficiary is the funeral home and coverage is specific to the chosen funeral home. Should the funeral home go out of business or you move out of state, you may not have coverage, and that defeats the purpose of pre-planning. Additionally, according to the AARP, the Funeral Consumers Alliance (FCA) advises against buying pre-need.
The big difference between life and funeral insurance is the death benefit
Masterson noted funeral insurance, also called burial or final expense insurance, is a type of life insurance policy that can come as term or permanent life. We typically recommend term life insurance over permanent life insurance because it’s cheaper and provides the death benefit for your beneficiaries, but the downside is that it ends after a specified time period. Our discussion focuses on term life funeral insurance policies.
Masterson explained funeral insurance is different from traditional term life insurance in three ways: (1) a lower death benefit making it less expensive and a good option if you’re on a fixed income; (2) it’s easier to get this policy — no exam required; and (3) it is often purchased by people who are middle-aged or older.
Most people get life insurance to cover the mortgage, education, and other expenses so that their family can continue after they die. However, funeral insurance has a lower death benefit because it only covers funeral, burial, and final expense costs. Masterson noted that “the median price for a funeral is $8,500,” and death benefits for funeral insurance are “often between $5,000 and $25,000.” Some plans offer a higher death benefit.
Who should get “final expense” life insurance?
Final expense life insurance is for those who might be in poor health and can’t qualify for traditional life insurance. It is usually marketed for those over 50 because there is a limit on the coverage amount. It is more expensive than other no medical exam life insurance policies.
If you are on a fixed income or are older, funeral insurance offers some coverage. If you qualify for a simplified issue no medical exam life insurance policy, it is generally better to apply for that instead, as you should be able to get more coverage and a cheaper premium. However, a simplified policy has a health questionnaire.
Talk to your financial planner and life insurance provider about adding funeral insurance to your coverage.
Ronda is an attorney, writer, and entrepreneur. She is a contributing writer for the Huffington Post. Originally from Chicago, she has lived in Los Angeles and New York. She loves to travel and is passionate about education equity, especially for first generation college students.