Final Expense Insurance vs. Life Insurance

Understanding the differences between final expense insurance and life insurance is crucial, but it's also important to recognize the common ground they share. Both these insurance types provide comprehensive coverage for end-of-life expenses, encompassing funeral costs, burials, medical bills, debt, and more. With a growing number of retirees burdened by debt, planning for these expenses can be daunting. However, leaving these financial concerns to our loved ones is an undesirable outcome no one wishes to impose.

Both life insurance and final expense insurance offer a way for you to plan how to pay for these expenses in advance, allowing your loved ones the opportunity to focus on closure and healing during their time of loss. Each of these forms of insurance ensures less stress and less worry for those you love after you’ve passed.

This comprehensive guide aims to shed light on the disparities between these life insurance products.  By exploring the advantages and potential pitfalls of each type, you'll gain the knowledge necessary to make an informed decision. So, what sets final expense insurance apart from traditional life insurance? Join us as we delve deeper into the features that differentiate them so you can make the best decision for your needs and budget.

What is the difference between life insurance and burial insurance? The term life insurance encompasses many different insurance products: term life, whole life, and burial insurance. Sometimes referred to as final expense insurance or funeral insurance, burial insurance is a form of life insurance that falls under that umbrella term but serves its own unique purpose. Final expense insurance is not interchangeable with other forms of life insurance. This is a form of life insurance designed to cover funeral expenses. While it can cover other things, its main function is covering end-of-life costs that arise as a result of someone passing away.

So, what is the difference between life insurance and final expense insurance? The biggest difference between final expense and life insurance is the amount of coverage. Life insurance policies can cover the insured for millions of dollars via term and whole life insurance, but final expense or burial insurance is a specific type of life insurance that offers a much lower level of coverage. Sometimes referred to as funeral insurance, burial insurance is designed specifically to cover end-of-life costs, including but not limited to your funeral, burial, a casket or urn, flowers and catering, travel expenses for loved ones to attend your funeral, and any other costs that arise as part of the memorial service. You may also use any funds leftover from a funeral insurance death benefit to pay for medical bills, outstanding credit card debt, or other desired expenses.

Another difference between burial insurance and life insurance is that burial insurance is also much easier to qualify for. Many life insurance policies will require a physical exam and a review of your entire medical history in order to qualify to purchase a policy. There are also rigid age limits that may mean you aren't eligible to purchase life insurance. On the other hand, burial insurance may ask a few health-related questions at most. While you may pay larger premiums for burial insurance as you get older, you can still purchase a policy at a later age.

One key benefit of final expense insurance is that it often pays out much faster than larger life insurance policies. So while your burial insurance coverage won’t be enough to leave your family with any significant gift to help pay for tuition or housing costs, it is enough to cover your final expense, whatever they may include.

Life insurance is an insurance product that pays out a death benefit to your beneficiary of choice, providing them with financial support after you’ve passed. The payout can be used for anything it is needed for and often serves as a safety net in the event of a loved one’s death. For instance, if a married couple is paying a mortgage when one of them passes, their life insurance policy will pay out a death benefit to the surviving spouse, which can then be used to cover the mortgage payments going forward.

When you purchase life insurance of any kind, you enter into a contract with the insurance provider. You pay your premiums each month, and in return, the insurance provider pays out the death benefit to the beneficiary of your choice upon your death.

You may choose a term life insurance policy that expires after an agreed-upon amount of time, after which the policyholder may choose to renew with recalculated premiums. You can also get whole life insurance, for which you pay the same premiums until you pass on.

Since your insurance provider will pay a significant sum upon your death, insurance companies want to know about your age and health. It is far riskier for an insurance provider to insure an older person or a person who is not in good health as their life expectancy is shorter, which in turn shortens the amount of time they will be paying their premiums. As such, life insurance often comes with health and age restrictions.

Individuals can purchase life insurance policies with death benefits in the many millions of dollars, depending on their income and current health. How much you’re insured for is almost entirely up to you, although the higher the coverage amount, the higher your premiums will be. There are limits to how much your life may be insured for and those limits are tied to your annual income, health, and age.

There are very clear benefits to purchasing life insurance. The advantages include:

• Life insurance provides your loved ones with financial support in the wake of your passing, which is crucial if you have loved ones who depend on you financially.
• Your beneficiary has the freedom to use the death benefit to pay for anything they wish.
• You may be able to borrow against your policy's cash value if it is whole life insurance.
• In a pinch, selling your insurance policy is possible, although you will never get the full amount of the benefit.

Life insurance does come with its downsides as well. Let’s take a look at the disadvantages of life insurance:

• Life insurance premiums are a significant expense, especially when it’s an expense you’ll be paying for many years.
• Qualifying for life insurance policies usually means a physical exam and a review of your full medical history.
• You may age out of life insurance eligibility. Most insurance providers will have a limit on how old you can be to purchase a life insurance policy.

Life insurance offers great benefits, but there is a possibility that, even if you decide life insurance is right for you, you may not qualify for certain types.

Burial insurance is a form of life insurance which means it, too, is a contract with your insurance provider. When you purchase burial insurance, you’ll pay premiums each month, and in exchange, your insurance provider pays out a death benefit when you pass on. Your coverage amount is intended to pay for the costs associated with your funeral as well as any other final expenses that arise as a result of your death. As such, when you decide to purchase burial insurance, you’ll have to settle on a coverage amount that will cover the costs of the funeral and any other final costs you want to plan ahead for.

In the United States, the average funeral costs between $7,000 and $12,000. That’s a lot of money when you haven’t planned for such an expense. Burial insurance offers consumers a way to plan for this expense without cutting into their estate, trusts or other life insurance death benefits.

Burial insurance is an easy method to plan for the expense of funerals, medical bills and other costs that arise in the wake of a death. There are numerous benefits to this form of life insurance. Let’s take a look at what these advantages are:

• Premiums are often relatively low. Burial insurance is, most of the time, an affordable way to prepare for final expenses. The younger you are when you purchase your policy, the lower your premiums will be.
• Burial insurance provides your loved ones with a way to pay for the expenses associated with funerals, cremations, memorials and every other cost that pops up after you pass on.
• Money from your burial insurance death benefit can be used to pay for the funeral, as well as other costs, including medical bills, credit card debt, mortgage payments and more.
• Burial insurance is not difficult to qualify for. You will not have to undergo a physical exam and may only have to answer a few simple health-related questions.
• Upon your passing, burial insurance often pays out proceeds faster than traditional life insurance ensuring your loved ones can pay important bills in a timely manner.

While burial insurance offers many upsides, there are, of course, a few disadvantages to this type of life insurance. The downsides to purchasing burial insurance are:

• The death benefit amount is not as much as life insurance. Your beneficiary will not be able to use the death benefit from burial insurance to pay for long-term expenses or anything significant outside of the costs of the funeral, memorial, or small unpaid bills. Burial insurance death benefits are usually between $5,000 and $25,000.
• The older you get, the more your burial insurance premiums will be. In most cases, older people won’t pay premiums for as long a period as younger people, which means those premiums need to be higher. This can be alleviated, however, by purchasing burial insurance in your 50’s and 60’s.
• As you will not have to undergo a physical examination, you won’t get discounted premiums for being in good health.

As you can see from these pros and cons, burial insurance is a great choice for those who can’t afford or qualify for other types of life insurance, or those who wish to supplement their life insurance death benefit with coverage specifically for final expenses since it often pays out faster.

There are several variables that come into play when considering whether to buy final expense vs life insurance. For instance, if you’ve developed serious health conditions that disqualify you for term or whole life insurance, your only other viable option to plan for the cost of a funeral may be burial insurance. You may also wish to supplement life insurance with burial insurance, so your dependents will have the funds to continue to pay off outstanding medical bills or credit card debt, tuition, or daily life expenses as well as the costs associated with a funeral or memorial service. Let’s take a closer look at the major factors that will determine which form of insurance is best for you.

Your Age

Your age plays a huge part in how burial vs life insurance fits into your financial planning. For both life insurance and burial insurance, the older you are, the higher your premiums will be. However, there is a point where you might age out of term or whole life insurance altogether. Most life insurance providers have a cap on the age of consumers to whom they will sell a life insurance policy. There will be a point where you are just simply too old to buy a policy. Many burial insurance providers also have an age limit, but it tends to be higher than the same for life insurance. Final expense insurance is designed for seniors in particular, so you will have a much easier time purchasing this form of insurance if you are older.

If you are 80 years old and looking for a way to plan for the expense of a funeral to take that weight off your loved one’s shoulders, you may find that burial insurance is the only choice available to you.

Your Health

Most forms of life insurance require a physical examination in order to qualify for coverage. When applicants are found to be in poor health, they are often disqualified and cannot purchase an insurance policy. In some instances, someone in poor health may still qualify for life insurance coverage but their premiums will be extremely high. Burial insurance requires no physical examination and you may only need to answer a few simple health-related questions to qualify for final expense coverage.

As such, if you are a senior whose health is deteriorating, you may only qualify for burial insurance. Other forms of life insurance such as term or whole life may not be options for you.

Your Financial Responsibilities

When you have dependents and a lot of financial obligations, burial insurance may not cut it. Leaving a mortgage behind or credit card debt while you still have people who depend on you financially all means you need much higher coverage than burial insurance can offer you. Burial insurance coverage amounts are usually much lower than life insurance coverage. Life insurance can offer you a death benefit in the hundreds of thousands, even millions of dollars, while burial insurance often caps out at around $40,000 in coverage on the high end.

Seniors who have people who depend on them for financial stability and are leaving behind several financial obligations might find that life insurance is a better choice.

Whether you decide to buy a term or whole life insurance policy or a burial insurance policy, you’ll need to get a few things together to make that purchase. For life insurance, gathering your medical records may be helpful, although you may also have to give permission to your underwriter to access your official records. You’ll also have to agree to a physical examination. When you purchase burial insurance, you won’t have to do either of these things, but it’s still a good idea to have your medical records on hand so you can answer some simple questions regarding your health.

When purchasing in person, your insurance provider will require identification to confirm your birth date and age, as well as documentation confirming your place of residence. You may also need to provide financial information to set up premium payments.

Purchasing burial insurance and other types of life insurance is similar in many ways, but below are a few pointers and tips for each.

Buying Burial Insurance

When you set out to buy burial insurance, decide first on the coverage amount you want. Consider the cost of funerals and all associated expenses (e.g. the cost for loved ones to travel in from out of town to say goodbye), as well as any medical bills or debts you may be leaving behind. You’ll also have to select a beneficiary. We recommend choosing someone trustworthy who is most likely to carry out your wishes to the best of their ability.

Buying Life Insurance

The process for buying life insurance is different from burial insurance because you’ll need to meet a lot more qualifications to be eligible. Like burial insurance, however, you can start by thinking about the amount of coverage you want. For instance, married couples with a mortgage might take out enough life insurance coverage to pay the entire mortgage, freeing the surviving spouse from that obligation. Consider what expenses you want the death benefit to cover for your dependents or loved ones.

Once you know how much coverage you want, think about who your beneficiary will be. Often seniors choose their surviving spouse but in the event that’s not possible, a child, sibling or parent is an excellent choice.

You’ll then have to find an insurance provider to purchase your policy. Here’s where things slow down a little bit. You’ll have to undergo a physical examination and answer a lot of questions regarding your health and family history. You’re going to need to have access to key medical information. Once all of your medical questions and exams are complete, the insurance provider will either approve your application or deny it based on health risks.

If you are approved, you’ll begin paying your premiums right away.

There is a lot to think about when choosing between burial insurance and life insurance. Your age, your health and the coverage amount are just a few of these important factors. Understanding the difference between burial life insurance and other types of life insurance can make things easier.

Our content is created for educational purposes only. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Everdays encourages individuals to seek advice from their own investment or tax advisor or legal counsel.