Final Expense Insurance Explained for Arizona

Final expense insurance is a small whole life insurance policy, usually bought in your 50s, 60s, 70s or later, to pay for a funeral, burial or cremation and the last bills so your family does not have to. It is sometimes called burial insurance. Coverage amounts are smaller than traditional life insurance, the application is short, and many policies ask a few health questions instead of requiring a medical exam. The death benefit is paid to the person you name, who can use it for any purpose. For a sense of scale, the National Funeral Directors Association, a trade group, reported a 2023 national median of $8,300 for a funeral with viewing and burial. Social Security pays a one-time $255 death payment to certain survivors. This guide explains how these policies work so you can decide whether one fits.

How final expense insurance works

Most final expense policies are whole life insurance. That means three things: the coverage is meant to last your whole life as long as premiums are paid, the premium is set when you buy and is designed not to rise with age, and the policy builds a modest cash value over time. Terms vary by insurer and policy, so always read the contract.

When the insured person dies, the insurer pays the death benefit to the beneficiary. The IRS says life insurance proceeds received as a beneficiary because of the death of the insured are generally not included in gross income, although any interest paid on the proceeds is taxable.

The beneficiary is not required to spend the money on a funeral. That flexibility is the main difference between an insurance policy and a pre-need funeral contract, which we cover below.

Underwriting: simplified issue and guaranteed issue

Underwriting is how an insurer decides whether to accept you and at what price. Final expense policies usually fall into one of two types.

• Simplified issue: you answer a set of health questions on the application, with no medical exam. Insurers may also check prescription history. If your answers qualify, coverage often starts at the full amount from day one.
• Guaranteed issue: no health questions, as long as you fall within the insurer's age range. Because the insurer cannot screen for health, these policies usually cost more per dollar of coverage and use a graded death benefit in the first years.

Graded and modified death benefits

A graded or modified death benefit means the full amount is not paid if death from natural causes happens in the first policy years. In that window, many policies instead return the premiums paid, sometimes with an added percentage. Accidental deaths are commonly covered in full from the start. The exact terms vary by insurer and appear in the policy.

If you can qualify for a simplified issue policy with a level benefit, it usually makes sense to compare it before accepting a guaranteed issue policy with a waiting period. Our guide to simplified versus guaranteed issue life insurance goes deeper on that choice.

How much coverage to consider

Start with what you would actually want paid for, then subtract what is already set aside. A simple way to think about it:

• Funeral or cremation costs. The NFDA 2023 national medians were $8,300 for a funeral with viewing and burial and $6,280 for a funeral with viewing and cremation. Prices vary a lot by provider, so ask local funeral homes for their price lists.
• Cemetery costs, which are often separate from the funeral home: plot, opening and closing, and a marker.
• Final bills: the last medical bills, a credit card, utilities, or travel for family.
• Minus money already available: savings set aside for this, existing life insurance, or the $255 Social Security lump-sum death payment if a survivor qualifies.

The Social Security death payment

Social Security pays a one-time lump-sum death payment of $255. According to the Social Security operations manual (POMS RS 00210.001), it goes first to a surviving spouse who was living with the worker, then to a spouse or children who are getting or eligible for benefits on the worker's record. It generally must be claimed within 2 years of the death. It helps, but it is far smaller than typical funeral costs.

Final expense insurance versus a pre-need funeral plan

A pre-need plan is an arrangement with a specific funeral home to plan and often pay for your funeral in advance. A final expense policy is life insurance that pays cash to a beneficiary. Here is how they compare in general terms.

Your rights when you shop for a funeral

The Federal Trade Commission's Funeral Rule protects you whether you pay with insurance, savings or a pre-need plan. The FTC says you have the right to buy goods and services separately, funeral homes must give you written price lists, and you can supply your own casket or urn. The FTC also notes that funeral laws vary from state to state.

Questions to ask before you buy

• Is this whole life insurance, and is the premium designed to stay level for life?
• Does the full death benefit start on day one, or is there a graded period? How long, and what is paid during it?
• What health questions are asked, and how is prescription history used?
• What happens if I miss a payment? How long is the grace period?
• Who is the beneficiary, and does my family know the policy exists and where the paperwork is?
• Would a different type of coverage, such as term or a larger permanent policy, fit my goals better?

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The bottom line

Final expense insurance is a simple tool for one job: keeping the cost of a funeral and last bills off your family. Size it to real costs, compare simplified issue before guaranteed issue, read the waiting period terms, and tell your family where the policy is. Our final expense calculator gives a quick estimate, and Jacob Otero and the Rise Up team can compare options with you, with no pressure.