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Final expense life insurance is a specialized type of life insurance designed to cover the costs associated with a person’s funeral, burial, and other end-of-life expenses. It provides peace of mind to individuals and their loved ones by ensuring that these financial responsibilities are taken care of, relieving the burden during an already difficult time.

There are three major types of final expense life insurance policies available — simplified issue, guaranteed issue, and pre-need life insurance. Each come with its own features and benefits. The best option for most people is simplified life insurance because it is the most affordable, but some people are not eligible and are best suited for guaranteed issue life insurance. However, setting up a financial security net for your family is a highly individualized process, and your needs will vary depending on your circumstances. 

What are the different types of final expense insurance?

Simplified issue insurance

Simplified issue life insurance pays out a small death benefit amount to your family when you die. Coverage amounts are lower than traditional life insurance and are typically capped at $50,000.

Like all final expense insurance policies, you do not need to take a medical exam to get simplified issue life insurance. However, simplified issue policies do require a medical questionnaire that evaluate your health. If you have something as serious as a terminal diagnosis, you may be prohibited from getting a simplified issue life insurance policy. If this happens, you still have another life insurance options — guaranteed issue life insurance.

Even with the medical questionnaire, simplified issue life insurance provides a quick and seamless application process. The questionnaire should only take minutes to answer, and application approval happens within days. 

Guaranteed issue insurance

Guaranteed issue life insurance is exactly what the name entails, application acceptance is essentially guaranteed. Similar to simplified issue life insurance, you don’t need to a medical exam to get coverage. But unlike simplified issue insurance, you also don’t need to fill out a medical questionnaire. While certain health conditions may bar you from getting coverage from simplified issue insurance, guaranteed issue life insurance is available to most and doesn’t even ask about an applicant’s health.

Because almost anyone can get guaranteed issue life insurance — even those with very serious medical conditions — the premiums are much higher than simplified issue life insurance. Only those who are not eligible for simplified issue life insurance should opt for guaranteed issue life insurance.

Pre-need insurance

While simplified issue and guaranteed issue life insurance pay out a death benefit to your family — that they can technically use however they wish — pre-need life insurance is a policy that pre-pays for your funeral expenses. 

If you purchase pre-need life insurance, then your family won’t receive a death benefit when you die. Instead, all of your funeral expenses will already be covered, so loved ones won’t need to arrange or pay for your last wishes.

Some funeral homes and insurance companies sell these types of policies. If you do purchase pre-need life insurance, it is best to purchase the policy through an insurance company with a good financial standing. Purchasing pre-need life insurance from a funeral home isn’t always the best idea, because if the funeral home shuts down, you lose your coverage and you do not get the money back. 

What type of final expense policy should you get?

Life insurance is highly individualized, and the type of policy you should get depends on your individual needs and circumstances. However, if you are eligible, then simplified issue life insurance will offer the best coverage at the best price. Because guaranteed issue life insurance is geared towards individuals with very serious health conditions, it is a lot more expensive than simplified issue and is best suited as a last resort.

Pre-need life insurance may be useful to some, but doesn’t provide the same flexibility that simplified issue and guaranteed issue life insurance provide. While simplified and guaranteed issue pay out a death benefit that can be used for more than just funeral expenses, pre-need life insurance only covers the cost of your funeral. So if you die with outstanding medical bills, your family will still be financially liable.

To determine what your best options are, speak to an insurance agent or certified financial planner. 

Alternatives to final expense insurance

If final expense insurance isn’t the best option for you, there are other ways to ensure your family’s financial health and protect them from your end-of-life expenses. 

Savings account: You can create a dedicated savings account specifically for funeral and burial expenses. This allows you to accumulate funds over time and earn interest on your savings. Keep in mind, you’ll need to start doing so early on to save enough to cover final bills. 

Annuities: An annuity is a financial product that provides periodic payments in exchange for a lump sum of money. Some people choose to purchase immediate annuities that start making regular payments immediately to cover their funeral expenses.

Payable-on-death (POD) account: A POD account is an investment account where you designate a beneficiary to receive the funds in the account after you die. Using a POD account, the money you set aside for end-of-life expenses goes directly to your chosen beneficiary and does not go through probate.

Combining multiple methods: You can combine several of these alternatives to create a comprehensive plan. For example, you might use a savings account, a POD account, and a small life insurance policy to cover all your end-of-life expenses.

Whichever choice you opt for will depend on your unique financial situation. 

“If you already have a savings plan for your funeral and have taken care of your final expenses, you do not need to spend extra money buying [final expense] policies,” says Haibo Stephen Yao, assistant professor of insurance and risk management at the University of Central Arkansas.

It’s essential to assess your financial situation, goals, and preferences to determine the financial plan that best aligns with your needs. Consulting with a financial advisor can also help you make an informed decision about how to plan for your final expenses.

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