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Final Expenses

What are Final Expenses?

Final expenses are the end-of-life costs an individual incurs shortly before and shortly after they die. That could include final medical bills and funeral costs. Some life insurance policies can be used to cover final expenses for the people the now-deceased individual leaves behind.

Quantifying final expenses

Final expenses vary from person to person. Someone who spent months in the hospital will leave behind a larger sum of final expenses than someone who was healthy up to the point when they died.

Beyond that, the choices an individual makes impact their final expenses. For example, cremation is much more affordable than burial, especially since the casket alone can easily cost a thousand dollars or more. Individuals who tell their families they want to be cremated will generally leave behind fewer final expenses than people who choose to be buried.

In fact, if you know you want to be cremated, telling your family about that wish can save them money and clear up a potential area of confusion after your death. Across the board, clarifying your end-of-life preferences now can emotionally and financially streamline things for the people who matter most to you.

Ultimately, though, while you can predict some final expenses, others depend on your health at the end of your life. You most likely don’t want to leave your friends or family with any financial burden after you’re gone. That’s why many people choose to buy life insurance.

Life insurance to cover final expenses

With a life insurance policy on themselves, individuals get a way to leave the people they value with a sum of money to cover their final expenses.

When you buy life insurance, you name certain people or entities as the policy’s beneficiaries. Then, when you pass away, the named beneficiaries get the policy’s death benefit. This tax-free sum of money can protect them from financial challenges after you’re gone.

When it comes to covering final expenses, there are two broad categories of life insurance.

  • Final expense insurance. If you want a streamlined, low-cost way to cover your funeral costs, you can consider final expense insurance. These whole life insurance policies come with a small death benefit (e.g., $10,000) designed to cover the insured’s end-of-life costs. They usually don’t require a medical exam and, due to the low face amount, come with significantly more affordable premiums than other types of life insurance.

  • Traditional life insurance. Most life insurance policies, including term and permanent life insurance, likely cost more than final expense insurance and may require a medical exam. The upside is that they offer a significantly more sizable death benefit (e.g., $500,000 or $1 million). If you choose this type of life insurance, you can leave your beneficiaries with a large sum of money. They will only need to use a portion of that to cover your final expenses, leaving them with plenty leftover to designate as they see fit. They could use the remaining monies to pay off a mortgage or credit card debt or pay tuition for your children, for example.

Because final expenses often cost thousands of dollars, if not much more, many people choose to financially plan for them using life insurance, whether that’s final expense insurance or another policy type.

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