Dear Toddy,
I have $25,000 in final expense insurance and am curious about what it can be used for if I die unexpectedly. I’m 40 with no debt or medical issues, and I don’t want a fancy funeral (I plan to be cremated with no fanfare). Does my family have to use that money for end-of-life things, or can they use it to buy a new car or start a college fund for my kids?
Thanks, Mostly Curious
Dear Mostly Curious: That’s a great question. While the name “final expense insurance” implies the proceeds from the policy can only be used for funeral-related expenses, your beneficiaries can use them for anything. To help you better understand the policy you have, I’ve put together some essential things you should know about your final expense policy below. I hope it helps!
More than Just Burial Insurance
The average cost of a funeral is between $7,000 and $12,000. Most people don’t have an extra $7,000 to pay for a funeral, so burying a family member can be financially challenging. That is where final expense insurance comes in. Final expense insurance is a type of whole life insurance policy with a small death benefit that usually ranges between $2,000 and $35,000. The policy is meant to pay out a small death benefit to help beneficiaries cover funeral costs, potential medical bills, or other outstanding debt.
Contrary to popular belief, beneficiaries can use the small death benefit for anything, not just burial costs.
So, how can my beneficiaries use my funeral insurance death benefit?
In short, beneficiaries can use the final expense death benefit for anything – outstanding bills and debts, property taxes, a new car, a shopping spree, or even a vacation! There are no limitations on how beneficiaries use the money.
In your case, Mostly Curious, your beneficiaries can expect to have excess funds after taking care of your remains thanks to your considerable death benefit of $25,000. What they do with that money is mostly up to them, however…
You have some control.
Yes, you read that right. If you prefer, you can include your life insurance in a trust or appoint a trustee if you have specific plans for your death benefit. A trust is a legal agreement – similar to a will – that designates someone to handle and distribute your assets when you die. Policyholders often do this if they believe their heirs or beneficiaries will be irresponsible with the payout. Putting the life insurance policy in a trust enables policyholders to:
- set guidelines on spending decisions,
- create stipulations on when the money gets distributed,
- invest some of the death benefits before giving them to the beneficiaries,
- establish incentives,
- and much more.
Have you considered extra coverage?
At 40 years old, final expense insurance is a necessary policy to have. Yet, even with its benefits, it doesn’t prepare you for the rest of your life.
First of all, it’s very rare to be debt free and healthy at 40, so congratulations! However, this is the time to think about the next 20 to 60 years of your life. No matter how hard you may try, you can’t predict financial or health emergencies. If and when these types of emergencies occur, having extra coverage could be the difference between financial hardships and financial freedom for your family.
Now is the time to research life insurance policies that fit your future financial goals. If you wait to buy coverage until you actually need it, it may be too late – and it definitely will be more expensive. If you’d like help finding affordable coverage that can prepare you and your family for the future, our experienced life insurance advisors are just a call away.