Types of insurance to consider for end of life
Death is one of the few certainties in life. But it’s something that few of us prepare for. Find out what insurance options you have for end of life expenses.
Planning for your death may not be the cheeriest task, but it can help to save your loved ones heartache and money.
Funerals are expensive – on average they cost between $8,000 and $10,000, and can be a significant expense for families.
There are usually two ways to plan for end of life expenses. if you have an existing life insurance plan you can assign some of your death benefits for your funeral expenses. If you don’t have a whole life insurance plan, you can opt instead for setting up a funeral trust or final expense insurance.
The different types of insurance cover for end of life
It might surprise you to know there are several different types of insurance for end of life expenses, including:
- Final expense insurance.
- Graded benefit final expense insurance.
- Burial insurance.
- Preneed insurance.
Let’s look at each in more detail.
Final expense insurance
If you’re worried about the financial burden you may leave your family when you die and don’t have enough money to invest in a whole life insurance plan, you could opt for final expense insurance cover.
Final expense insurance is a whole life insurance with death benefits and is usually bought by the elderly who are thinking of their cremation and the ways to plan for that expense. This plan is particularly useful for people who don’t support others financially, but don’t want to burden anyone with their burial costs.
A retired person who may not have a life insurance policy and cannot afford a policy due to high premiums associated with age and health might decide to choose a final expense policy. As it covers the risk of certain medical issues, senior citizens can still get final expense insurance, despite health issues.
Final expense insurance is meant to cover burial costs, but unlike prepaid insurances that cover only burial costs, final expense insurance covers outstanding debts, fees, medical bills and other expenses too.
The flexibility of the plan allows you to choose a beneficiary who can efficiently allocate the benefits. It also allows for a choice in service providers, which means that you’re not locked down to using one particular provider. This is especially beneficial if there’s a significant gap between choosing a policy and its execution.
Graded benefit final expense insurance
In this type of policy, if the insurer dies in the first year that the policy is in force, they will get 40% death benefits. If the insurer dies within two years of the policy being in force, the benefits will be 70-80%. However, if the insurer dies after two years of the policy being in force, the company will pay 100% death benefits.
Burial insurances are small insurance policies ranging from $5,000 to $25,000. The premium for this type of insurance is very affordable as the death benefit it covers is very small.
A burial policy is easy to obtain and can be bought from any insurance company. Though a medical check up is required, it still covers people with certain medical conditions, unlike other life insurance policies.
After your death, the insurance company will pay the death benefit to the beneficiary to use the money. This mean that if your beneficiary has already paid for the burial, they can use it to pay your bills.
Most people choose close relatives or partners as their beneficiaries for this policy – someone they can trust with the proper allocation of funds and who will carry out their last rites to their wishes.
Preneed funeral insurance
Preneed funeral insurance is another type of policy that helps you take care of the financial aspect of end of life expenses, without burdening your loved ones.
Preneed funeral insurance sets aside funds for your funeral before the need arises. In preneed funeral insurance, the amount goes directly to the service provider you’ve chosen, rather than a beneficiary.
To set up your preneed funeral, it must be purchased from a specific funeral home and specific arrangements have to be planned. Preneed funeral insurance can have guaranteed services and non-guaranteed services.
If you purchase a guaranteed service, then the amount can be locked at today’s price and inflation won’t be a problem. In non-guaranteed services, however, inflation is taken into account and your family or beneficiaries have to pay the difference.
So standard funeral home services, church and burial services covered in this insurance can be locked at today’s prices for service and merchandise, keeping your policy inflation safe.
Why choose a final expense insurance?
There are a number of reasons why you may choose a final expense insurance. Here are four.
1) No financial dependents
If you’re above the age of 70, your family is likely to have grown up and taking care of their own financial needs. In this case, you may not need an insurance that would cover the cost of raising a family, but enough to pay for your end of life expenses.
2) Cash value
As a final expense insurance comes with cash value, your policy will continue to grow in value as you pay the premiums. You will also be able to take a partial loan on it.
3) Pre-existing health conditions
If you have any pre-existing health conditions, final expense insurance could be ideal for you. People with pre-existing health conditions can qualify for it, and won’t get terminated until the premiums are paid.
A final expense insurance policy can be very affordable as the premiums generally don’t increase over time. Though the death benefits are lower than whole insurance policies, the premiums are also priced low.
Choosing the right insurance
When choosing an insurance policy, look for a company that you can trust. Get in touch with your financial advisor and enlist their help to find out which policy will work best for you. A finance professional can prevent you from making some of the common mistakes people make when buying a policy.
While choosing your insurance plan, it’s advisable to select a policy that at least covers your final expenses. While a final expense insurance plan will also cover a host of other expenses and can give you more value and flexibility, a pre-need funeral insurance will ensure all arrangements are made by you before the need arises.