What is final expense insurance?

Final expense insurance is a small whole life insurance policy meant to pay for a funeral and other end-of-life bills. The benefit is modest, sized to a funeral rather than to replace an income, and the coverage lasts for life as long as premiums are paid. When you die, the insurer pays your beneficiary, who can use the money for the funeral, medical bills or anything else.

How final expense insurance works

You choose a benefit amount, answer whatever health questions the policy asks, and pay a premium. Because it is whole life coverage, the Texas Department of Insurance explains, it stays in effect for your entire life unless you cash the policy in or stop paying premiums. There is no end date to outlive.

The money goes to the beneficiary you name, not to a funeral home. That gives your family room to decide. They might pay the funeral director, cover a final hospital bill, settle a credit card, or pay for travel so relatives can attend.

Insurers sell these policies under several names. You may see burial insurance, funeral insurance or senior life insurance. The label matters less than the policy's actual terms, which are what the rest of this guide covers.

How it differs from term life insurance

Term life insurance, in TDI's words, offers protection for a set period of time. When the term ends, so does the coverage, unless you extend it. Term policies are usually bought to protect a family during working years, while a mortgage is being paid or children are at home.

Final expense insurance is whole life, so it doesn't expire at a certain age. The benefit is usually much smaller than a typical term policy, because the goal is a funeral and a few final bills rather than years of household income.

How it differs from a prepaid funeral plan

A prepaid (or preneed) funeral plan is an arrangement you make with a specific funeral home or cemetery, paying now for goods and services you choose now. The FTC points out that prices may go up over time and that businesses may close or change ownership. State laws govern these plans, and the FTC says protections vary widely; some state laws offer little or no effective protection. Some plans can be transferred if you move, the FTC adds, but often at an added cost.

A final expense policy pays cash to a person you pick, and that person can use any funeral home in any state. Neither option is right for everyone. Some people want the funeral chosen and settled in advance, and others want the family to keep the choice.

TDI makes a related point: a regular life insurance policy or savings might be a better way to pay for a funeral than prepaid funeral insurance, which can be expensive and may not cover the full cost if you die before you have paid a required amount.

Who it tends to fit

Final expense coverage tends to suit people who:

• want their family to have cash for a funeral without dipping into savings or selling property quickly;
• don't have other life insurance, or have a term policy that will end before they expect to need it;
• are older, or have health conditions that make larger, fully underwritten policies hard to get.

It fits less well if you already have enough savings set aside for a funeral, or a life insurance policy large enough to cover it. In that case the main thing to check is that your beneficiary designations are up to date.

What to check before you buy

The benefit amount against real funeral costs

The National Funeral Directors Association's latest General Price List Study put the national median cost of a funeral with viewing and burial at $8,300 and a funeral with viewing and cremation at $6,280. Those medians leave out cemetery charges, a headstone, flowers and an obituary. Our guide to how much a funeral costs breaks those lines down, and final expense insurance cost by age walks through sizing a benefit.

Waiting periods and graded benefits

Some policies pay only part of the benefit if you die in the first years. The New York Department of Financial Services describes graded death benefit plans in which, generally for the first two or three years, the payout is a return of premiums (sometimes with interest) or a reduced amount. DFS describes this structure on plans sold without a medical exam. See guaranteed issue life insurance for how they work.

The free-look period

Texas policies have a free-look period of at least 10 to 20 days, according to TDI, during which you can cancel and get a full refund. Other states set their own windows. Read the policy as soon as it arrives so you can use that time.

The contestable period

TDI explains that life insurance policies have a two-year contestable period. If you die within that window, the insurer may review your application for wrong or missing information. Answer every health question completely and keep a copy of your application.

The beneficiary

Name a beneficiary, and consider a backup. TDI notes you can name more than one. If no living beneficiary is named, it says, the company pays the death benefit to your estate, and your heirs may owe taxes on that money. Tell the person you name that the policy exists and where the paperwork is kept.

The premium schedule

Ask how long premiums are due, whether the premium can change, and what happens if you miss a payment. Get the answers in writing.

The free Final Expense Cost Guide collects these checks on a single page. Get the free guide, or call us at (888) 410-2975 if you have questions about any of them.

Frequently asked questions

What does final expense insurance cover?

A final expense policy pays a set benefit to your beneficiary when you die. The money isn't restricted to funeral bills, so your beneficiary can use it for the funeral home, the cemetery, medical bills, debts or travel. The policy is meant to cover end-of-life costs, which NFDA puts at a median of $8,300 for a funeral with viewing and burial in 2023.

Is final expense insurance the same as whole life insurance?

Final expense insurance is a type of whole life insurance with a smaller benefit. Like any whole life policy, the Texas Department of Insurance says, it stays in effect for your entire life unless you cash it in or stop paying premiums. Term life, by contrast, covers a set period and then ends.

Is final expense insurance the same as a prepaid funeral plan?

No. A prepaid funeral plan is a contract with a specific funeral home or cemetery, governed by state law, and the FTC notes that protections vary widely between states. A final expense policy pays cash to the beneficiary you name, who can choose any funeral provider and use any money left over for other bills.

Can I cancel a final expense policy after I buy it?

Yes, during the free-look period you can cancel a new policy and get a full refund. The Texas Department of Insurance says Texas policies have a free-look period of at least 10 to 20 days. Check your own state's window and the date the policy arrived, and read it right away.

What happens if I die soon after buying the policy?

Some policies pay the full benefit from day one, subject to the two-year contestable period TDI describes. Others have a graded benefit; New York DFS explains that in the first two or three years these often pay back premiums, sometimes with interest, or a reduced amount instead of the full benefit.

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