What Exactly is Final Expense Life Insurance?

If you need life insurance, you’ve probably spent a least some time trying to research your options and responding to ads promising “free quotes”.

When looking at all of those options you may have seen various types of life insurance:  Term Life, Whole Life, Universal Life, and Final Expense.

So by now you have probably figured out that Final Expense Life Insurance is almost always a form of Whole Life insurance.

So why does it have a niche name?  Why not just call it “Whole Life”?

There are a few reasons actually.  You see, Final Expense may be Whole Life insurance, but it is a variation of Whole Life and has some significant differences from your typical Whole Life policy.  Let’s take a quick look at what the similarities and differences are.  When you get done with this quick review, you will know everything you need to know about what makes Final Expense different.

What is Final Expense insurance used for?  Well, the name gives it away:  it is for your Final Expenses.   

These are the most common expenses people will have that are associated with death itself and with the subsequent funeral.  Looking at the below list you can see there is a range of prices.  Your costs may vary, sometimes widely, depending on where you live, the desired level of service for your funeral, and your ability to be a savvy shopper.

final expense

The national average for Funeral Expenses is approximately $8,000-10,000 for a basic funeral.

So you can see you’re going to need some money for your final expenses, but nothing in the realm of $100,000 or more, so you won’t need a ton of insurance coverage for this kind of bill.  But because you don’t know when you will die, you need this coverage to be Whole Life, not Term.  If you lived to age 85, and you purchased a 30-year Term policy when you were 50 years old, then all of your life insurance ended right before you needed it.  With people living longer and longer, it doesn’t make sense to rely on Term insurance for your final expenses.  You may want to check your current policy.  Many of them have been sold that end at age 80.

Let’s look at what is the same about Final Expense and Whole Life insurance:  they both last your whole life, hence the name.  It is permanent coverage.  Unlike Term insurance, this coverage has no cutoff period such as 10 years or 20 years.  Because of this fact, it will be there when you need it, as long you maintain your premiums.

Also like Whole Life, your Final Expense policy will build cash value.

However, don’t get too excited about the cash value.  It is not going to grow very fast, nor is it going to accumulate a large amount of interest.  The typical interest rates might be 2-5%.  But over time the cash value in your policy will grow and you can borrow against this sum to pay for misc. expenses, vacation, pay off a debt, or for whatever you want.  You probably won’t want to do that however because the reason you have this policy is so the insurance benefit will be there when you need your final expenses paid.  If you borrow against the cash value, this amount will be subtracted from your death benefit.  But… it’s nice to have options, so enjoy the security of having this extra bit of “savings” that you could theoretically take advantage of.

It’s now time to look at what makes Final Expense insurance different than your traditional Whole Life policy, and we will get to that immediately in the next article. When you see the differences, the premise of why there needs to be a separate category called “Final Expense” will make a lot more sense.