What is Final Expense Life Insurance?

Some types of life insurance were developed with a primary purpose to pay for certain things. Several products have a primary purpose to pay for final expenses, so these products are commonly referred to as final expense life insurance. This article describes the various products that fall under that category.

Simplified Issue Whole Life

"Simplified issue" means there are less underwriting requirements than a traditional whole life policy. No medical exams or bodily fluids required. Instead, you'll see about a dozen yes/no medical questions on the application. This product offers as much as $50,000 coverage. The maximum amount of coverage depends on the company as well as the age and health condition of the proposed insured. It's important to note that $50,000 maximums are uncommon. Most consumers will encounter maximums of $25,000 if they are looking at a simplified issue product. Severe health conditions not only affect the maximum coverage, but the company may also downgrade what's covered for the first two or three years (called a graded policy). Simplified issue policies are almost always cheaper than guaranteed issue products, which I will discuss next.

Guaranteed Issue Whole Life

This type of policy doesn't ask health questions. In exchange for the lack of health questions, only accidental death is covered for the first two years of a policy. If death occurs in the first two years and it's not accidental, all of the premiums plus a small amount of interest are paid to the beneficiary (the face amount isn't paid). After the first two years it functions like a normal whole life policy. As mentioned before, simplified issue is almost always cheaper. An exception might occur if the person is a smoker with COPD. This type of policy should only be used as a last resort option for the most severe health conditions. Even if people suffered from a severe health condition in the past, they should still check with an agent to see if they qualify for simplified issue. Some health conditions no longer matter if they occurred long enough in the past.

Term Life Insurance

This is the worst type of life insurance for final expenses. One company sells a popular term product that goes up in price every 5 years and automatically cancels at age 80. Even if someone can afford all of the price increases, it cancels at an age when it's needed most. Many seniors buy this product because it starts off cheap and because they don't read the fine print. Term insurance is great for things like mortgage protection, but it's simply not suitable for final expenses.