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Final Expense vs Term Life Insurance

Final expense insurance vs term life insurance

Life insurance can be confusing. With multiple policy types and purposes, it can be difficult to know what you need. Two of the most common life insurance policies are a final expense life insurance policy and a term life insurance policy.

Final expense is a permanent life insurance policy – a policy that covers your whole life and will not expire – specifically purchased to cover costs associated with the end of life, such as final medical bills and funeral and burial expenses.

Term life insurance is a life insurance policy that covers you for a set period of time, usually during your working years. Typically set for 10, 20 or 30 years, term life insurance offers a guaranteed death benefit if you pass away during the time you are insured. Its primary purpose is to replace your loss of income and cover your dependents’ living expenses.

The difference between final expense and term life insurance

Both final expense and whole life insurance provide your beneficiaries some peace of mind in the event of your passing. However, these policies differ in a few ways:

  • Purpose – One of the primary reasons for a term life policy is to cover loss of income while final expense policies are meant to specifically cover end-of-life costs.
  • Death benefit – Term life policies typically have a significant death benefit while the average final expense policy usually maxes out at around $20,000.
  • Policy length – Under a term life insurance policy, you are only insured during the term length of your policy, usually 10-30 years. With a final expense policy, your death benefit is guaranteed and does not expire as long as your premium payments are up-to-date.
  • Premium cost – Since final expense insurance has a lower death benefit, its premiums are often less expensive than term life policy premiums. However, some employers offer term life policies to their employees which makes them more affordable.
  • Medical exam requirement – Final expense policies do not require a medical exam, making them accessible to a wider range of people than certain term life policies.

Final expense or term life insurance: which do I need?

Unlike most term life insurance policies, a final expense insurance policy does not typically require you to pass a medical exam to purchase a policy. It also features a smaller death benefit.

However, you may find that you want to leave more to your beneficiaries than your final expense plan will cover. If you have family members that depend on your income for living expenses, a term life policy would leave them a more significant sum. However, a term life policy only covers its term, usually either 10, 20, or 30 years, whereas a final expense policy never expires.

Some people find that having both a term life and final expense insurance policy gives them the coverage they need for both loss of income and funeral expenses.

Does term life cover funeral costs?

The primary purpose of a term life insurance policy is to cover your loss of income so your family has time to adjust to a new level of income. Technically, your family can use your term life benefit however they need, including to pay for your funeral.

However, if your family will need to rely on your term life coverage to cover their everyday needs, you may find that you want to supplement your term life plan with a final expense plan to have dedicated funds available specifically for your end-of-life costs.

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