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Final Expense

Final expense insurance, also known as "burial" insurance, is often a vital part of estate planning, especially for smaller estates. This type of insurance is a life insurance policy that you purchase with systematic payments, known as premiums. Your beneficiary, who is typically a family member, would then be responsible, upon your death, for making a claim on the policy. The insurance company then pays the policy benefit amount to the beneficiary who, in turn, uses that money to carry out your final arrangements. (Important note: The beneficiary is legally free to use the policy proceeds any way he or she wants, so be sure that the beneficiary you choose is someone you can trust to carry out your final arrangements the way you would want.)

Additionally, if your final expenses cost less than the benefit amount of your policy, your beneficiary is entitled to keep whatever sum remains after paying all of the bills for your final arrangements. (As an example, if you have a final expense policy for $10,000 and your total final expenses cost only $6,000, your beneficiary is entitled to keep the remaining $4,000.) This is possibly something to keep in mind as you determine how much final expense insurance to buy (and as you determine the proportionate distribution of your estate.)

Final expense insurance policies are low face value (usually $5,000 to $50,000) term or whole life policies. (A "term life" policy covers you for a specific time period or until a certain age, then expires. A "whole life" policy covers you for the rest of your life.) Also, these policies are generally easy to obtain. Most are either "simplified issue" policies or "guaranteed issue" policies. For a simplified issue policy, the insurer asks you several medical questions but doesn't require you to take a medical exam. A "guaranteed issue" policy, as the name implies, is a "no questions asked" policy that is issued to anyone who applies. In a few cases, insurers may issue what's called a "graded death benefit" policy to people with serious health problems. Under this type of policy, your coverage increases as time passes and your beneficiaries receive only a fraction of the face value if you die before the passage of a certain period of time.

For smaller estates, final expense insurance can be an excellent way to leverage smaller premium dollars to help protect your family or loved ones from a financial burden caused by final health care costs or funeral expenses.