The end of one’s life can be a shock and can happen suddenly, this is a time of sadness, reflection, and grief.
What also comes during this time period is the financial aspect that can leave loved ones crippled with debt, or even worse create money disagreements amongst family members during a moment of high emotions.
The most straightforward and easy way to be prepared for the costs associated with the end of one’s life is a Final Expense policy.
When deciding if this product type is worth the cost there are a few ways to decide, but it ultimately comes down to simple math.
Is Final Expense Insurance Worth It?
If you have no savings set aside for the inevitable end of life costs then final expense insurance is a critical monetary solution to be able to honor the life of the deceased without causing a financial setback for the next living heir.
To have a clear understanding of the costs associated with this product there are a few crucial financial numbers to understand.
How much are Final Expenses?
The average cost for a traditional service with a viewing in the United States is $7,643 for a burial and $6,280 for cremation. This can vary drastically depending on the wide variety of options.
Not included in these price estimates:
- Cost of Headstone, Monument, or Marker
- Cemetery Property, Plot of Land, Columbarium, etc.
Additionally, there can be other expenses that come at the end of life aside from the service costs.
- Leaving an Inheritance
- Legal Expenses
- Charity Donations
- Medical Bills
- Remaining Balance on a Mortgage
- Credit Cards
- Remaining Car Loan Balances
- Post-Mortem Expenses
- Other End-of-Life Expenses
After adding all these expenses up the final bill can be well over $20,000.
How is the price calculated?
When looking into this product for seniors the price will vary depending on four important factors:
Health: This has major implications on which plan an applicant will be able to qualify for. The healthier someone is the lower the premiums will be.
Age: The older the proposed insured is on the date of application the higher risk the prospect is to insure. Higher risk leads to more expensive prices for the insured once the policy is approved and in force.
Policy Amount: The more coverage you take out the greater your monthly premiums will be.
Gender: Females will pay less than males for coverage, this is for numerous reasons but the biggest is that women on average live four years longer than men. A shorter life span means there will be fewer premiums paid to the provider and the coverage amount will be due to the beneficiary sooner.
How much does it cost?
The prices listed below are a range of potential premiums someone can expect to pay depending on their age and the policy amount.
The healthier you are the lower your premium will be, but the more complex medical history you have the higher you can expect your premium to be.
|45||$26 – $46||$37 – $68||$48 – $89|
|50||$29 – $58||$42 – $77||$55 – $101|
|55||$35 – $65||$51 – $84||$67 – $125|
|60||$43 – $69||$62 – $99||$82 – $138|
|65||$56 – $86||$82 – $125||$108 – $184|
|70||$73 – $117||$108 – $150||$143 – $215|
|75||$99 – $169||$148 – $207||$196 – $303|
|80||$133 – $246||$197 – $368||$262 – $539|
|85||$183 – $300||$273 – $449||$363 – $597|
|45||$22 – $34||$32 – $49||$42 – $64|
|50||$24 – $46||$35 – $53||$46 – $74|
|55||$28 – $51||$41 – $64||$54 – $95|
|60||$33 – $53||$48 – $74||$62 – $110|
|65||$41 – $65||$60 – $91||$79 – $135|
|70||$53 – $84||$78 – $110||$103 – $164|
|75||$72 – $123||$107 – $160||$141 – $235|
|80||$98 – $175||$146 – $262||$194 – $383|
|85||$132 – $191||$202 – $284||$269 – $377|
How Does It Work?
When looking into how final expense insurance works there are two key features that make this product slightly different from a traditional whole life plan.
Lower Coverage Amounts: This feature allows you to receive all the same benefits as a traditional whole life plan with a smaller price tag. There is a price point for any budget.
Simplified Issue Underwriting: There are no medical exams involved with this type of product. This means that you will be able to apply for a policy over the phone within a matter of minutes rather than the days or weeks it can take when a medical exam is involved.
Price Never Increases: The price will never change, for seniors on a fixed income this is a key feature when planning your monthly budget. Regardless of if your plan is in year 1 or year 30, the price is locked in.
Coverage Never Decreases: When purchasing a product designed for your end-of-life expenses, it critical that the policy will be there when your loved ones need it. With this plan, you will be assured that your family will be taken care of because the policy will never terminate.
Builds Cash Value: With each payment made, a portion will go towards the cash value. Over time this value will accumulate and you will have the option to borrow against the plan.
Level: This product is best for those who are in great health and is the only plan that does not have a waiting period. You can only have access to these top-tier policies by qualifying based upon your health. By offering immediate coverage and the lowest priced premiums, this is the top option for coverage if you can medically qualify.
Graded: This plan is designed for applicants who may have had a recent surgery or has a medical condition that might cause concern for the providers. Due to the carrier taking on more risk, a two-year waiting period is implemented with a favorable payout schedule during this time.
Modified: This product has a two-year waiting period with a payout structure of returned premiums plus 10% interest given upon death within this timeframe. Like the level and graded plans, you will need to answer medical questions and in some cases, this plan can cost more than a Guaranteed Issue product.
Guaranteed Issue: A Guaranteed Acceptance plan is meant only for those who have a chronic or terminal illness. Every applicant will be approved and no medical questions will be asked. This plan also has a two-year waiting period in which paid premiums and returned plus 10% if the policyholder passes during this time.
Crunch The Numbers
To make sure this product is your best financial planning option, all that you’ll have to do is some simple math.
The average life expectancy in the USA is 78.7 years old.
If a healthy male takes out a $10,000 policy when he is 65 years old, how long would he need to live for him to be overpaying the amount he could have saved in a savings account?
Let’s look into the numbers.
Here is a simple chart to illustrate the amount of money he would pay into the account with a $56 monthly premium.
Amount Paid Into Policy
It would take just under 15 years (179 months) for him to pay more than what he could have saved.
In this example, the man would only begin to overpay for the policy just before his 80th birthday, which is over the national average lifespan.
Other Financial Options
There are other types of products on the market that can be used as tools to plan for the costs that come at the end of life.
Each product has pros and cons so you will need to evaluate your specific financial position to know which would be right for you.
Savings or Investment Account
Saving or investing for the inevitable costs that come at the end of one’s life is an extremely responsible thing to do. However, there are still reasons for concern when using this method.
Sudden Death: No one knows when their health will decline or an accident will occur. Life is unpredictable and planning for these costs does not always go according to plan.
Investment Volatility: There is always the possibility that your investment does not perform as expected. This can leave your family members in a tough position if the investment account is earmarked for the costs associated with death.
Inflation: It is impossible to know how much our dollar will be worth in future years, meaning the value of the dollar that you are saving today can have less purchasing power in later years.
Traditional Whole Life Insurance
As mentioned earlier, a traditional whole life plan is very similar to a final expense policy but there are a few differences.
Whole Life Benefits: This is one way the two products are similar, they both offer a coverage lock, price lock, and build a cash value. These are standard features in a whole life plan.
Larger Policy Amounts: Due to the fact that this policy type can reach upwards of a million dollars in coverage, the monthly payment is going to be much more expensive than other options.
Used To Protect Wealth: Many financial planners will instruct their clients to use a traditional whole life product to shelter their wealth.
Term Life Insurance
This product provides temporary coverage.
Coverage Terminates: At a specific age or after a certain number of years the coverage will terminate. This means if you take out a 30-year policy when you are 50 years old the coverage will expire when you reach 80 years of age.
Price Is Cheaper: Due to the fact that the policy is not permanent, the carriers charge less for this type of coverage. However you need to read the fine print, some companies like AARP start their prices at a lower rate and will actually raise the price the older you age.
No Cash Value Earned: Unlike a whole life plan, this product does not build a cash value that you can borrow against. This means each month you are paying for temporary protection from the provider and that is your only benefit.
Pre Need Insurance
This product is taken out with your local mortuary and has limited flexibility in what the funds can be used for.
Pays For Specific Services: This coverage type is designed to only pay for your expenses from the mortuary. This includes all the items needed to respectfully be laid to rest.
The Beneficiary Is The Mortuary: Once you pass away the distribution will be paid directly to the mortuary. This will limit the choices that your loved ones will have.
One Single Mortuary: Taking out a policy that preplans your end of life service is a good idea in theory but there are issues that may arise with this option.
What if your local company goes out of business, or you change your mind on where you would like your final resting place to be. There are numerous factors to think through prior to taking out this coverage.
a. The only way to answer is final expense insurance worth it is by crunching the numbers. Determine how many years you would need to pay into the policy before another option would be a better solution.
Even if you do live longer than average the policy will never expire and will be there for your family.
b. There are no price or coverage games that are played with this product. All aspects of the policy are locked in.
c. After doing the math for your specific set of circumstances you will be able to take steps toward making a decision on how to plan for the inevitable end-of-life costs.
I’m the owner and founder of Willamette Life Insurance. Willamette Life specializes in Final Expense Insurance. We compare prices with different insurance carriers while finding the perfect match for your health and budget. This company was started to help educate the public on why Final Expense Insurance could be a great option for them and their family. We strive to be friendly, informative, and always have the client’s best interest as our top priority. Everything in this article is my own professional opinion and experiences I have had during my time in helping clients.