• Laura Lenox

What's the Difference? Final Expense Insurance vs. Life Insurance


As we grow old, we almost always begin to think of the end in mind. It might be that we climb up high in the career ladder, we work several decades in the service of our company, and we save up enough money for retirement. This financial and material security often includes investing in life insurance coverage for ourselves and for our family.

Here’s the problem: getting the right insurance coverage may seem like a pretty complicated decision. We might even be unsure which option will give us the maximum benefits we need.

We might also be filled with questions about insurance. For instance, if you’re in the prime age of 65, how can you get insurance? What if you’ve gotten a late start on retirement savings? Will insurance companies still cater to your needs? Can you get insurance for a specific situation, say, for instance, in preparation for your funeral and burial expenses?

In your quest to find answers to these questions, you likely came across the phrase “final expense insurance.” This option covers a list of other things compared to traditional life insurance policies.

We want to help you make the right decision that perfectly suits you and your family’s needs. In this article, we explain how life insurance and final expense insurance work respectively, and then compare the differences between the two.

Life Insurance, Explained Life insurance coverage ensures that you and your family are protected in case you retire or you pass away. The right life insurance coverage will provide enough benefits to maintain your family’s current way of living or pay off any outstanding debts.

This is how life insurance works: the lump sum will be given to the family of the policyholder after their death. Life insurance coverage guarantees payment of a death to designated beneficiaries. Additionally, the lump sum will also be given if the policyholder suffers an injury or a life-threatening illness that’s listed down under the coverage. Lastly, the lump sum will also be given if the policyholder experiences physical disability and is no longer able to work.

There are several types of life insurance policies in the market. Some of these include the whole life insurance, term life insurance, variable life insurance (VUL), and the universal life insurance. The VUL is a type of life insurance with a built-in savings component that allows for the investment of the policyholder’s cash value to produce greater returns.

The three major components of traditional life insurance coverage include the following:

  1. Death benefits: As mentioned above, the policyholder’s beneficiaries will receive the payment. This lump sum, however, will be based on estimations of the future needs of the surviving family members and beneficiaries. If the insured qualifies for the insurable interest based on the underwriting requirements, the insurance company will determine the coverage.

  2. Premium: The factors that influence the cost of the premium include the age of the policyholder, occupational hazards, medical history, and personal risk propensity. The cost of insurance will be determined by the insurance company and this will cover administrative fees, mortality costs, and other maintenance fees. The amount of premium contains the cost of insurance. For universal or permanent policies, the premium consists of a cash value amount and the cost of insurance.

  3. Cash value of permanent life insurance: Lastly, the cash value is a savings account that can be used during the life of the insured. There are restrictions on withdrawal depending on the use of the money.

Final Expense Insurance, Explained On the other hand, final life expense insurance is a whole life policy that specifically covers end-of-life costs. Final expense insurance is often called the burial insurance or the funeral insurance, but for some companies, this policy also covers payment for outstanding medical bills and other debts left behind by the policyholder. Any remaining lump sum will be given to the beneficiary.

The Difference between Final Expense Insurance and Life Insurance

The main difference between these two policies is that final expense life insurance is perfect for those who do not want to commit to a universal or permanent life insurance. Final expense life insurance can be paid in monthly premiums that often cost much lower than that of traditional life insurance. Meanwhile, traditional life insurance can stop as soon as you choose not to pay premiums.

Furthermore, final expense life insurance assures you that your final wishes are fulfilled because it gives you the freedom to choose how you want your funeral and burial to take place when you’re gone.

Lastly, even if you own a VUL or a universal coverage, getting final expense life insurance can supplement your needs and can serve as a “backup plan” in case your term life insurance gets cut off. If you have a whole life policy, having a final expense life insurance means more financial benefits will be left to your family which could provide relief in the event of your passing. While your end-of-life plans are taken care of, so too, is your family.

Are you ready for the inevitable? We hope this guest post by author Laura Lenox has helped you identify the differences between Final Expense Insurance vs Life Insurance so you can make the best decision for your loved ones. Have additional tips? Please share with us in the below comments.

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