Final expense insurance

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No price appears on this page, and none is sent by email. What a contract costs depends on the person and the design, and no honest figure can be produced from three answers.

What decides a final expense contract

• Speed is the point, not sizeThe proceeds go to the named beneficiary without waiting for the will to be verified or the estate to be settled.
• A named beneficiary keeps the money out of the estateWhat is payable to a person named in the contract goes to that person directly. What is payable to the estate joins everything the liquidator must settle, and creditors are paid before heirs.
• Permanent means there is no expiry dateThe contract stays in force as long as it is kept in force. That is what makes it usable for a cost that has no date.

What final expense insurance actually is

Final expense insurance is a small permanent life insurance policy, bought so that a person who is named in the contract receives money quickly when somebody dies. The amounts are modest by the standards of the rest of the industry, the application is usually short, and the coverage is not built to end at a birthday. That is the whole of the design.

It is sold under several names. Funeral insurance, burial insurance, final needs coverage, and on some applications simply a small whole life plan. The name changes nothing underneath. It is a permanent contract in a small size, most often bought later in life by somebody who no longer has an income to replace and does not want to leave a bill behind for the people who will be busy enough already.

Two things follow from the word permanent. The coverage is meant to last for life rather than for a term of years, so it is still in force at the age when it is finally likely to be used. And most permanent contracts develop a modest value inside them over time, which is not a savings plan and is not the reason to buy this, but which is explained further down the page.

What it is not is a plan, a service, or an arrangement with anybody who will conduct a funeral. It is a contract with an insurer, and the insurer pays money. What that money buys, and from whom, is left entirely to the family. That distinction has its own section below, because it is the one people get wrong most often.

What the money is realistically for

The phrase final expenses sounds as though it means the funeral. It means more than the funeral, and understanding the rest is what stops a family from buying an amount that turns out to be too small.

The funeral or the cremation is the visible part. Around it sits a set of costs a household rarely thinks about until it meets them. Certified copies of the death certificate, ordered several at a time because every institution that has to be notified wants its own. Clearing and closing a home, or a month of rent that keeps running after the person has died. The last utility bills, the last instalment of property tax, the balance left on a card. And the flights and hotel rooms for the people who have to come, which in a country this size is often the largest line after the funeral itself.

Then there is time, which nobody prices. Somebody has to stop what they are doing to arrange all of it, and a week of unpaid leave is a real cost to a household living on what it earns.

None of those bills waits for an estate. Money inside an estate is not available to anybody until the estate has been opened, the paperwork accepted and the accounts released, which in most of the country takes months rather than days, while the funeral provider wants payment at the time of the service and an airline wants payment now. That gap, between what is owed this week and what will be available next season, is what this insurance exists to close. It is a liquidity product wearing a sentimental name.

What a funeral actually involves as a purchase

A funeral is a purchase, and it is unusual among purchases in that it is made in a state of shock, in an afternoon, by somebody who has never made it before, from a business whose staff make it every day. That is not a criticism of funeral providers. It is the reason to know the shape of the purchase beforehand.

It has two parts. There is what the funeral home itself provides: a professional services fee covering the arrangement meeting and the direction of the service, the transfer of the person into care, preparation, a casket or an urn or a rental container, rooms and staff for a visitation or a ceremony, a vehicle, and the paperwork of registering the death. And there is what it buys on the family’s behalf from other people: the crematorium fee, a plot or a niche, the opening and closing of a grave, a monument, a celebrant, flowers, a notice, food afterwards.

The distance between the smallest version of this and the largest is very wide. A cremation with no service is a different order of expense from a burial with a visitation, a plot and a stone. Costs differ by province, by city, by whether a cemetery is municipal or private, and by choices made quickly, so what a funeral costs depends on where a family lives and what that family chooses. Any single figure offered as the national answer is an average nobody actually pays.

Two practical things are worth knowing before the afternoon arrives. In most provinces a funeral provider must supply a written itemized price list on request and must set out the total in a signed contract before anything is supplied, which means a family is entitled to see the line items and to decline any of them. And nothing obliges a family to buy every item from the same supplier. Our page on final arrangements and funeral planning goes through the choices themselves.

The mechanism that decides how fast the money arrives

Everything a reader has heard about this coverage being fast comes from one line on the application, and a policy where that line was filled in carelessly does not behave that way at all.

A life insurance policy pays the person named in it as beneficiary. That naming is a term of the contract rather than a term of a will, and it operates on its own. Once the insurer has proof of death and a completed claim form it pays that person directly, with nothing to be opened, granted or approved first. In ordinary cases the money reaches the beneficiary within days or a few weeks and can be spent the hour it arrives.

If the policy instead names the estate, or names nobody at all, the money falls into the estate and waits there with everything else. It becomes part of the property that has to be administered, it can be exposed to the fee a province charges on the value of an estate, it is within reach of the people the deceased owed money to, and it is released when the administration allows and not before. A policy bought to pay for a funeral, paid into an estate, arrives after somebody else has already paid for the funeral.

So the most consequential act on a final expense policy is naming a living person, spelling the name the way that person spells it, and naming an alternate. It takes a minute, and it is the whole difference between the product working and the product failing.

One further point of timing, because families are rarely told it. A funeral provider will often accept an assignment of the proceeds, which means the insurer pays the funeral home out of the claim and returns any balance afterwards. That is convenient, and it hands the money to the vendor before the family has decided anything. It is a choice, not an obligation.

Insurance and a prearranged funeral are two different purchases

A prearranged funeral contract is bought from a funeral provider. The person chooses the goods and services in advance, signs a contract listing them, and pays the provider, either at once or over time. The money does not stay with the funeral home to spend: provincial law requires it to be held, generally in trust or through an insurance contract assigned to the provider, and the same law gives the buyer rights to cancel within a defined period and to recover the money on conditions that vary by province.

What that purchase does well is remove decisions. The selections are made by the person whose funeral it is, calmly, without a grieving family guessing in an arrangement room, and where the contract states that the price of the listed items is fixed it also settles what they will cost whenever the death occurs.

What it does not do is pay for anything that is not on the list: not a plane ticket for a son who lives across the country, not the rent that keeps running, not the last bills. It is also attached to one provider in one place, which matters if the person moves province or the business is sold, and both are worth asking about before signing.

Insurance does the opposite. It pays money to a person, who may spend it on anything, including a funeral bought from whichever provider the family prefers on the day, and it moves with the person because it is a contract with an insurer rather than with a business in one town. What it does not do is fix the price of a casket or spare the family one decision in the arrangement room.

The two are not rivals, and a household that has thought about it carefully sometimes has both: the selections written down so nobody has to guess, and money that arrives quickly and is not confined to a list.

How these policies are issued, and why that changes what you own

Three quite different things are sold as final expense coverage, and they are separated by how much the insurer asks before it agrees.

The first is a small permanent policy that is fully underwritten. Health questions are answered, the insurer may ask for records or a brief medical, and what it learns is reflected in the offer. It takes longer, and for somebody in reasonable health it usually buys more coverage for the same outlay than the routes below.

The second is simplified issue coverage. A page of health questions, no examination, and a decision quickly. Answering those questions honestly is the whole of the contract: an answer that does not match the medical record is the reason a claim is contested, and it is contested at the worst possible moment for the family.

The third is guaranteed issue coverage, where there are no health questions and acceptance does not depend on health. In exchange, these contracts carry a waiting period in the first years, during which a death from illness returns the premiums, commonly with interest, rather than the full amount insured. Death by accident is usually covered from the start. That waiting period is the price of admission and it is the thing to read first.

The order matters, and it is the opposite of the order in which these products are advertised. A person in ordinary health who answers a page of questions generally does better than the same person who answers none, and many people buy the no questions version without finding out whether they needed to. Our pages on coverage with no medical exam and life insurance for seniors set out that comparison in full.

Why an amount that is too small is the common disappointment

The most frequent complaint about this product is not that a claim was refused. It is that the money ran out. A family receives the cheque, pays the funeral provider, and discovers there is nothing left for the flights, the last bills and the weeks of overlap, which were the reason somebody bought the policy in the first place.

It happens because of how the purchase is made. Most people arrive at the amount backwards, starting from what the monthly cost can be, rather than from what the work costs. The amount that fits the budget becomes the amount insured, and nobody ever adds up the list.

The honest method is dull and takes an evening. Write down what this person would actually want: a burial or a cremation, a service or none, a plot or a niche or neither. Ask a local provider for the itemized list, because that is a local number no page can supply. Add the travel for the people who would come, a month or two of the costs that do not stop at a death, and the last bills. That total is the size of the job, and the decision is made against it rather than against a round figure that sounded reasonable.

There is a second reason a small amount disappoints, and it is time. A level amount bought in a person’s late sixties is the same amount in their nineties, while everything it is meant to pay for has moved. Some participating designs can grow the amount, because the dividend credited to the contract can buy additional paid up coverage, and a dividend is declared annually at the insurer’s discretion and is not guaranteed. The point is that a fixed amount and a rising cost move apart, slowly, for as long as the person lives.

Why the coverage is permanent, and what builds inside it

Term insurance covers a life for a stated number of years and is the instrument for a mortgage and for children still at home. It is the wrong instrument here for one reason: a term policy ends, and this coverage is bought for an event whose date is unknown and probably distant. Coverage that expires the year before it is needed has done nothing except cost money. Our pages on term life insurance and term twenty explain where that instrument does belong.

Permanent coverage is built to stay. Within it there are two broad shapes. Term to one hundred is permanent protection with a level cost and, in most designs, no value inside the contract at all: it is pure coverage, and it is usually the least expensive permanent shape for a given amount. Participating whole life costs more for the same amount and develops a guaranteed cash value over the years, and it may receive a dividend declared annually at the insurer’s discretion.

The value inside a permanent policy is worth understanding without being oversold. It can be reached through an advance made by the insurer against the contract, on the insurer’s terms, with the interest owed to the insurer. It can be taken by surrendering the policy, which ends the coverage and can produce a taxable amount. Neither is why a person buys a final expense policy, and a reader should meet both on a page rather than in a presentation that puts them first. Our page on permanent life insurance covers the mechanics in full.

Final expense coverage beside the arrangements it gets confused with

Four arrangements are proposed to the same person, often in the same year, and they do four different jobs.

The line that matters most: only one of these arrives as money the family controls, and only one of them fixes what the goods and services will cost. They are answers to two different worries, and a household is allowed to decide that it has both worries.

Tax, the estate, and the paperwork that decides both

The proceeds of a life insurance policy paid to a named beneficiary are generally received free of income tax in Canada, and they generally pass outside the estate. Premiums paid for personal coverage are not deductible. That is the ordinary treatment and it is why the product does its job at all: the amount arrives whole, and it arrives without waiting for anything else to be settled.

Naming the estate reverses both halves of that. The money joins the property to be administered, it can attract the fee the province charges on the value of an estate, it is within reach of creditors, and it is released on the estate’s timetable. An estate is sometimes named deliberately, because the money is meant to settle the estate’s own obligations, and that is a choice made with a lawyer or a notary rather than an oversight on a form. Where the obligation at death is larger than a funeral, a tax bill on a property or a business for instance, that is a different size of problem and is covered on our page about liquidity at death.

One administrative point undoes more policies than any clause. A contract nobody can find is a contract nobody claims. Insurers pay when a claim is made, and a small policy bought quietly years earlier, with premiums coming out of an account and no one told, can sit unclaimed. Tell the beneficiary the policy exists, tell them which insurer holds it, and keep the contract somewhere findable that is not a safety deposit box the family cannot open until the estate is settled.

Who this fits, and who should not be buying it

It fits a person whose income no longer supports anybody, whose estate is modest, and who does not want the people who are grieving to be arranging money in the same week. It fits somebody whose group coverage ended at retirement, who has discovered that the coverage they thought they had was never theirs. And it fits somebody whose health rules out the larger contracts, because a small amount in force is worth more than a large one that cannot be bought.

It does not fit a household that still has an income to protect. A family with children at home and a mortgage has a need many times larger than this, and meeting the small need first is the most expensive way to leave the big one open. That household should read about term coverage before it reads about this.

It does not fit somebody whose family can already reach money quickly, through funds held jointly with a person who will survive or holdings that already name a beneficiary. The honest question is not whether a person has assets, but whether somebody can get at them within a week.

And it does not fit a person who cannot comfortably carry the payments for life. A permanent policy that lapses in its later years usually returns little and leaves the household with neither the money nor the coverage. If the payment is a strain now it will not be easier at ninety, which is a reason to insure a smaller amount rather than to hope.

The mistakes this page exists to prevent

Leaving the beneficiary line to the estate, or leaving it blank. It is the one entry that decides whether the money arrives in days or in seasons.

Buying an amount sized to a monthly payment rather than to the list of what has to be paid. The disappointment on this product is almost always about size.

Taking a no questions contract without asking whether a few questions would have bought more, and without reading the waiting period that applies in the first years.

Assuming a prearranged funeral contract and an insurance policy do the same job. One fixes the goods and services with one provider. The other pays money that can be spent on anything.

Telling nobody. A policy the family cannot find is a policy the insurer is never asked to pay.

Questions people ask

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