As we age, it's natural to start thinking about our legacy and what we will leave behind for our loved ones. Life and final expense insurance are popular options for seniors looking to protect their families' financial future.
While life insurance provides coverage for a specific period or the duration of your lifetime, final expense insurance only covers end-of-life expenses such as funeral and burial costs. The best option for you depends on your precise needs, goals, and budget.
In this article, we'll explore the pros and cons of each option and provide distinguishing characteristics to assess when selecting the best solution for your situation.
Understanding Life and Final Expense Insurance
Understanding the differences between life and final expense insurance is crucial to deciding which type is right for you. Here, we’ll dive deeper into the definitions and purposes of each and the key differences between the two types of coverage.
Definition and Purpose of Life Insurance
Life insurance is an agreement that you make with an insurance company. It offers a death benefit to your beneficiaries after you pass away. Traditional life insurance policies aim to provide financial security to your loved ones. You can use this coverage to pay for funeral costs and debts, provide income for your beneficiaries, and cover other expenses.
There are two main types of life insurance policies: term and permanent coverage. Term policies cover a specific time, usually 10, 20, or 30 years. On the other hand, permanent insurance provides coverage for your entire life and usually includes a cash value component.
Definition and Purpose of Final or Burial Insurance Policies
Final expense insurance, also called burial or funeral insurance, is a type of life insurance plan specifically created to cover the expenses related to your end-of-life, such as funeral and burial costs.
With its limited scope, a final expense life insurance policy only relieves your loved ones of the financial burden of paying for these expenses out of pocket, nothing else.
Key Differences Between the Two Types of Insurance
While life and final expense insurance provide financial protection for your loved ones, there are some differences between the two.
Coverage Amounts and Premiums
Final expense coverage typically ranges from $2,000 to $50,000, whereas the base range for life insurance coverage starts from $100,000 to several million dollars.
Because of the limited protections and the low cash payout, premium payments for final expense insurance are lower than those for traditional policies.
Medical Underwriting
Final expense often requires little or no medical underwriting, making it easier for seniors with pre-existing medical conditions to obtain coverage. On the other hand, standard life policies typically require a medical examination and may be more challenging to acquire for applicants with major health issues.
Your health status will impact your life insurance rates.
Flexibility
When it comes to policy terms and options, life insurance policies provide greater flexibility compared to final expense insurance policies. For instance, you may have the opportunity to convert a term life insurance policy into a permanent policy or take out a loan against the cash value of a permanent policy.
However, Final expense policies feature none of these defining perks and are generally less flexible, with limited options for customer customization.
Factors to Consider When Choosing Between Life and Final Expense Insurance
Choosing between life and final expense insurance requires careful consideration of your specific needs and circumstances. Here are some key factors to consider when making your decision.
Premium Costs and Benefits
The cost of premiums and included benefits are essential when choosing between life and final expense insurance. Final expense insurance premiums are typically lower than average premiums of traditional coverage, but the coverage amounts are also lower. With life insurance, you’ll pay more in premiums for a higher death payout.
Coverage Limits and Benefits Payout
Final expense insurance covers end-of-life expenses, including funeral and burial costs, while life insurance provides broader coverage for the financial needs of your loved ones. If your primary concern is covering end-of-life expenses, final expense insurance may be the better option. However, a standard life policy may be a better choice if you’re looking for more comprehensive coverage to support your beneficiaries.
You can also add riders like Long-Term Care (LTC) Rider and Critical Illness Rider to bolster the protection of your conventional policy. Sometimes, prolonged health complications and hospice care drain savings long before the memorial service.
Medical Underwriting and Eligibility
Final expense insurance typically requires little or no medical underwriting, making it easier for seniors with pre-existing medical conditions to obtain coverage. However, a standard life insurance policy may require more work to obtain for seniors with health issues. Not to mention the high premiums you’ll have to pay if you’re approved to offset the financial risk to the insurer.
If you have a pre-existing condition, final expense insurance may be the more accessible option for you.
Flexibility in Policy Terms and Options
Life insurance policies offer more flexibility in terms of policy terms and options. For example, you can convert a term life insurance policy to a permanent policy or borrow against the cash value of a permanent policy. Final expense insurance policies typically have fewer options and offer less flexibility.
Life Insurance Pros and Cons for Seniors
Now that we’ve covered the key differences between life and final expense insurance and the factors to consider when choosing between the two, let’s take a closer look at the pros and cons of life coverage, specifically for seniors.
Advantages of Life Insurance for Seniors
Life coverage offers several advantages for seniors, including:
- Comprehensive coverage: Life insurance policies provide a wider range of options than burial insurance plans, including long-term care and critical illness coverage.
- Higher payouts: Life policies provide higher death benefit payouts than final expense coverage, making them a better option for seniors looking to offer more financial support to their beneficiaries.
- Cash value accumulation: Permanent life insurance policies accumulate cash value over time, which can be borrowed against or used to pay premiums in the future.
- Estate planning: Life insurance can be used as an estate planning tool, providing tax-free funds to help beneficiaries pay estate taxes and other expenses.
Disadvantages of Life Insurance for Seniors
While there are many advantages to life insurance, there are also some potential disadvantages to consider, including:
- Higher premiums: The average cost is significantly higher than final expense insurance monthly premiums, particularly for seniors with pre-existing health conditions.
- Medical underwriting: Seniors will face more stringent underwriting and scrutiny of their medical history when applying for life insurance, making it more difficult to obtain coverage.
- Limited coverage options: Seniors may have limited coverage options, particularly if they have pre-existing health conditions or are older.
Life insurance can be a valuable tool for seniors looking to provide financial support to their loved ones in the event of their passing. However, it’s necessary to consider the potential advantages and disadvantages before deciding.
If you’re considering conventional coverage, speaking with an experienced life insurance agent who can help guide you through the process and find the best policy for your needs and circumstances may be helpful.
Pros and Cons of Final Expense Insurance for Seniors
Let’s take a closer look at the pros and cons of final expense insurance.
Advantages of Final Expense Insurance for Seniors
Final expense insurance offers several advantages for seniors, including:
- Lower premiums: Final expense insurance premiums are generally lower than standard life insurance premiums, making it a more affordable option for seniors on a tight budget.
- Simplified underwriting: Final expense insurance has more straightforward underwriting requirements, making it easier for seniors to receive coverage.
- Specialized coverage: Final expense insurance covers only funeral and burial expenses, which can help relieve the financial burden on beneficiaries.
- Flexible policy options: Final expense policies offer a second option called guaranteed issue policies, which can be a good alternative for seniors with pre-existing health conditions.
Disadvantages of Final Expense Insurance for Seniors
While there are many advantages to final expense insurance, there are also some potential disadvantages to consider, including:
- Limited coverage: Final expense insurance policies typically have lower benefit amounts than life insurance policies, which may not be sufficient to cover all end-of-life expenses.
- No cash value accumulation: Final expense policies do not accumulate cash value over time, which means there is no option to borrow against the policy or use it to pay premiums in the future.
- Restricted coverage options: Seniors may have limited coverage options, particularly if they have pre-existing health conditions or are older.
Final expense insurance can be a valuable tool for seniors looking to cover their funeral and burial expenses, but it may not be the best option for everyone. Carefully consider the potential advantages and disadvantages before making a decision.
If you’re considering final expense insurance, speaking with an experienced insurance agent who can help guide you through the process and find the best policy for your needs and circumstances will be helpful.
Choosing the Right Insurance Option for You
Assessing Your Coverage Needs and Budget
The first step in choosing the right coverage option is to assess your needs and budget. Consider your age, health, financial situation, and the coverage you need to meet your end-of-life expenses.
According to a study by the National Funeral Directors Association (NFDA), the median for a funeral with burial and viewing in 2021 was $7,848. The numbers will change over time with fluctuations in the market, but gauging a rough estimate gives you a baseline.
Consulting with an Insurance Agent
Once you have a better idea of your insurance needs and budget, consulting with an experienced insurance agent is a good idea. An agent will help you choose the right policy and help you find the best coverage options based on your needs and circumstances.
Comparing Quotes and Policy Options
Finally, compare quotes and policy options from different insurance providers. Comparing quotes will help you find the most affordable and comprehensive coverage for your needs. There may be better options than the cheapest policy, so consider the benefits and drawbacks of each option carefully.
Choosing Coverage Based on Your Life Situation
When choosing between life and final expense insurance for seniors, there is no one-size-fits-all answer. Both types of insurance have pros and cons; the right choice will depend on individual circumstances. Here, we’ll explore situations where life insurance is better and cases where final expense insurance is better.
Situations where life insurance is better
- Seniors with dependents: Life insurance may be the better choice if you have dependents, such as children or a spouse who relies on your income. Life insurance can provide a much larger payout, which can help support your loved ones financially in case of your untimely death.
- Seniors with high net worth: Life insurance may be the better choice for those with high net worth, as it can pay estate taxes or other debts upon death. Furthermore, specific life insurance policies offer investment options that allow cash value accumulation over time.
- Seniors with a longer life expectancy: If you are in good health and expect to live for many more years, life insurance may be the better choice. Life insurance policies can provide coverage for a lengthier period, giving you and your loved ones peace of mind.
Situations where final expense insurance is better
- Seniors with limited income: If you have a fixed income, final expense insurance may be the better choice, as it typically has lower premiums than life insurance. Final expense insurance can help cover the cost of funeral expenses and other end-of-life expenses, ensuring that your loved ones don’t face the burden of these costs.
- Seniors with health issues: If you have health issues, final expense insurance may be the better choice, as it typically has less stringent underwriting requirements than life insurance. This means you can get coverage even if you have pre-existing conditions that would make it difficult to get life insurance.
- Seniors with a shorter life expectancy: If you have a shorter life expectancy, final expense insurance may be the better choice, as it typically provides coverage for a shorter period.
Common Mistakes to Avoid When Choosing Life Insurance or Final Expense Insurance
While choosing between life insurance and final expense insurance for seniors, it’s important to avoid common mistakes that could negatively impact your coverage and benefits.
Here are a few things to keep in mind:
Failing to Disclose Pre-Existing Medical Conditions
When applying for life or final expense insurance, you must be transparent about any pre-existing medical conditions you may have. Failing to disclose this information could result in a denied claim or a reduced payout, leaving your loved ones without the support they need.
Not Considering Future Needs and Expenses
It’s essential to think about your future needs and expenses when choosing an insurance policy. For instance, if you expect your end-of-life expenses to increase over time, you may need more than a final expense insurance policy with a fixed benefit to cover your needs.
Alternatively, a life insurance policy with a higher coverage limit may be more appropriate if you have a large estate or dependents needing long-term financial support.
Overestimating or Underestimating Coverage Needs
Another common mistake is overestimating or underestimating your coverage needs. Overestimating your needs can result in higher premiums and unnecessary coverage, while underestimating your needs leads to underinsurance, which leaves your loved ones needing more support.
Be sure to carefully consider your end-of-life expenses and other financial obligations to determine the appropriate coverage level for your needs.
Conclusion
Life and final expense insurance are valuable choices for seniors looking to secure their financial future and provide for their loved ones. Life insurance offers a broader range of coverage and benefits, while final expense insurance covers end-of-life expenses. When choosing between the two options, consider factors such as:
- Cost;
- Coverage limits;
- Medical underwriting;
- Flexibility in policy terms and options.
Assessing your insurance needs and budget, consulting with an insurance agent, and comparing quotes and policy options are all crucial steps in finding the right insurance coverage. Avoiding common mistakes like failing to disclose pre-existing medical conditions and overestimating or underestimating coverage needs will bolster your chance of a positive outcome.
By taking the time to consider your options and secure appropriate insurance coverage carefully, you can enjoy greater peace of mind knowing that you and your loved ones are protected. Don’t hesitate to take action and secure your coverage to ensure a secure financial future.
