When it comes to planning for the future, one important consideration is insurance. Two types of insurance that often come up in discussions are final expense insurance and life insurance. While they may seem similar, there are some key differences between the two. In this article, we will explore the nuances of final expense insurance and compare it to traditional life insurance policies to help you make an informed decision.
How Life Insurance Works
Life insurance is a contract between the insured and the insurer. In the event of the policyholder’s death during the policy term, the insurer pays a sum of money, known as the death benefit, to the beneficiaries. The policyholder pays premiums to maintain their coverage. There are two primary types of life insurance policies:
- Term life insurance: This type of policy provides coverage for a specific term, typically ranging from 10 to 30 years. If the policyholder does not pass away during the term, the policy expires, and no death benefit is paid out.
- Whole life insurance: Unlike term life insurance, whole life insurance provides lifelong coverage as long as the premiums are paid. Additionally, whole life insurance policies have a cash value growth component. A portion of the premiums goes into this component, which can grow tax-deferred at a fixed rate. When the cash value reaches a certain level, policyholders may be able to withdraw or borrow from it. Surrendering the policy may also entitle them to receive the cash value minus surrender charges.
At Aflac, we offer both term life insurance and whole life insurance policies that provide extensive coverage customizable to your needs.
How Final Expense Insurance Works
Final expense insurance is a small permanent insurance plan designed specifically to cover expenses such as funeral costs and medical bills. While the death benefits of final expense insurance are typically smaller than those of traditional life insurance policies, the premiums are often lower as well. One of the advantages of final expense insurance is that it may not require a medical exam. Instead, applicants usually need to answer a few medical questions on the application. Final expense insurance provides coverage for life and allows you to build cash value. By securing a final expense insurance policy, you can prevent your loved ones from experiencing financial stress while they grieve.
Aflac offers final expense whole life insurance that provides the coverage you need.
Differences between Final Expense Insurance and Other Life Insurance Policies
Here are some key differences between final expense insurance and other life insurance policies:
Coverage Amount
Final expense insurance typically offers death benefits ranging from $5,000 to $25,000. According to the National Funeral Directors Association, the median cost of a funeral was nearly $8,000 in 2021. Therefore, a final expense policy can help cover most, if not all, of your funeral costs. Furthermore, you may even opt for a larger death benefit to plan for additional expenses.
On the other hand, other life insurance policies often come with larger death benefits. A general rule of thumb with traditional policies is to have coverage worth around 10 times your salary.
Premiums
Final expense insurance generally offers lower premiums due to the smaller death benefit. For instance, a 50-year-old male may secure $10,000 of coverage for just $47 per month on average, while a 50-year-old female can qualify for premiums as low as $34 per month for the same coverage amount. This can help reduce the cost of life insurance without compromising lifelong coverage. Traditional life insurance policies with larger death benefits often come with higher premiums.
Coverage Lengths
Final expense insurance coverage lasts for your entire life. By purchasing a policy early on, you can lock in the lowest premiums and maximize the time available to build wealth through cash value. On the other hand, term life insurance policies offer temporary coverage, meaning the policy will eventually expire.
Policy’s Purpose
While many traditional life insurance policies are designed to help with the loss of income, debt repayment, children’s education, and emergency savings, final expense insurance specifically caters to end-of-life expenses such as funeral costs. The smaller death benefit reflects this specific purpose.
Which Type of Life Insurance is Right for Me?
Choosing the right life insurance policy depends on several factors:
- Your loved ones’ financial needs: If your loved ones will require assistance with your loss of income or paying off debts after your passing, whole or term life insurance may be more suitable. However, if they only need help covering funeral expenses, a final expense insurance policy may be the better option.
- Your budget: If minimizing life insurance costs is a priority and you are comfortable with a smaller death benefit, a final expense plan can be an excellent choice.
- Your own financial goals: Final expense insurance offers a middle ground between term and permanent life insurance when it comes to wealth building potential. While it does provide cash value, it may grow slower than whole life insurance due to lower premiums. Consider your financial goals and the desired cash value you want to build when making your decision.
Get a Quote for Aflac Life Insurance
While traditional life insurance policies, such as term and whole life insurance, offer more comprehensive coverage, final expense insurance serves a specific purpose. If your family is financially stable but needs assistance covering end-of-life costs, final expense insurance can ensure they receive the necessary funds without the burden of debt.
At Aflac, we understand the importance of choosing the right insurance policy. Whether final expense insurance or another life insurance policy is the right fit for you, our agents are ready to help. Start chatting with an agent today to learn more and get a quote.
FAQs
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Conclusion
Selecting the right insurance policy requires careful consideration of your needs, budget, and goals. Final expense insurance provides coverage specifically for end-of-life expenses, offering lower premiums and a smaller death benefit. On the other hand, traditional life insurance policies provide more comprehensive coverage and larger death benefits.
At Aflac, we offer a range of life insurance options to meet your specific requirements. Our knowledgeable agents are here to assist you in making an informed decision. Contact us to learn more about our policies and get a quote today.
