Term Life vs Final Expense

Do I need term life or final expense insurance?

Often, insurance can be confusing and complex to understand. Sometimes we’re just not sure which type of insurance best fits our needs or what the exact purpose and benefits a life insurance policy provides. As we explore the details of term and final expense insurance, key factors will stand out that decide the most affordable and beneficial policy you’d best consider. These crucial determining factors will include your age and health history to help figure out your eligibility and best chances of getting approved.

It’s your specific needs and qualifications that need further review before a perfect choice is apparent. But in the end, you’ll be able to make a more informed decision and have confidence in how to best protect your family and loved ones when you pass. Term life insurance and final expense whole life insurance are two different types of insurance, each with distinct objectives. To get a better understanding, let’s first review the pros and cons of each.

Final Expense Insurance

Let’s keep this simple and straight forward since buying insurance can sometimes feel very overwhelming. Final expense insurance, also referred to as burial insurance or funeral insurance, is commonly used to pay your funeral costs and other final expenses. Here’s a list of the pros and cons worth considering before buying a final expense insurance policy:

Pros:

  1. Final expense insurance provides a specific payout amount that is typically enough to cover funeral expenses, medical bills, and other outstanding debts. This ensures that your loved ones aren’t burdened with these costs after your passing.
  2. Final expense insurance is typically easier to qualify for and has a simplified application process compared to other types of life insurance. It often requires minimal to no medical underwriting, making it more accessible for individuals with pre-existing health conditions.
  3. Final expense insurance is permanent whole life insurance that remains in force until death, as long as the premium continues to be paid. Importantly providing peace of mind, knowing that coverage will be there till the end.
  4. Final expense policies come with fixed premiums, meaning the cost remains the same throughout the life of the policy. This can help with budgeting and planning.

Cons:

  1. Final expense insurance typically offers lower coverage amounts compared to term life insurance policies. The purpose of this insurance is to cover specific end-of-life expenses, so it may not provide the same level of financial protection as term life insurance.
  2. Final expense insurance premiums may be higher compared to term life insurance for an equivalent coverage amount. This is due to the simplified underwriting process and the fact that the policyholder is typically older with more health problems.
  3. Final expense insurance is primarily designed to cover funeral expenses rather than provide investment or savings opportunities. It may not offer the same level of cash value accumulation or potential for investment returns as other types of life insurance.

Term Life Insurance

On the other hand, with term life insurance it’ll provide coverage for a specified period, typically ranging from 10 to 30 years. Here’s a list of the pros and cons worth considering before buying a term life insurance policy:

Pros:

  1. Term life insurance policies often provide higher coverage amounts compared to final expense insurance. This can be beneficial if you have significant financial obligations such as mortgage payments or dependents who rely on your income.
  2. Term life insurance premiums may tend to be lower compared to final expense insurance for an equivalent amount of coverage. This is because term policies are typically bought at a younger age when individuals are healthier and have a longer life expectancy.
  3. Term life insurance allows you to choose a policy term that aligns with your specific needs, such as the duration of your mortgage, college fund or until your children become financially independent. It provides more flexibility in terms of coverage duration.

Cons:

  1. Unlike final expense insurance, term life insurance policies have an expiration date. Once the term is over, you no longer have coverage unless you renew the policy, usually at a much higher premium. If you outlive the policy term, you don’t receive any benefit unless you have a separate rider for return of premium or conversion options.
  2. Term life insurance typically involves more burdensome medical underwriting, which means you may need to undergo a medical examination and provide detailed present and past health information. These extra hurdles could make it more challenging to qualify for coverage, especially if you have pre-existing health conditions. There are new term life insurance policies with less medical underwriting, but the monthly premium is significantly higher.

Summary

In summary, final expense insurance can be a suitable choice if your primary concern is covering specific end-of-life expenses like funeral or burial expenses, and especially if you’re on a fixed income like social security, disability, or retirement. While term life insurance offers higher coverage amounts and flexibility but comes with an expiration date, leaving you with no insurance if you outlive the term. This will require you to buy a new, more expensive insurance policy at a much higher premium due to your older age and the probability of new existing health conditions. Of course, this will also increase your risk of being eligible for coverage.

It’s natural to have more questions, please contact us today to speak with a licensed insurance agent.