Funeral Trust or Final Expense decisions are easier with good information.
Final expense insurance plans are generally whole life policies with death benefit amounts from $2,500 to $25,000 and issued between the ages of 50 – 80. There are policies for younger folks that can begin at birth. Their purpose is to cover the final expenses (burial, cremation, life celebration, etc.) of the insured.
They typically offer simplified applications and underwriting. Usually there are 5 to 10 questions where the applicant must answer “No” in order to be issued a policy. There are no physical or paramed exams with Final Expense plans.
Because they are whole life policies they do build cash value but are more expensive than straight term life. However, they are permanent insurance plans that remain in force as long as the premiums are paid.
There are many insurance companies offering final expense life insurance with a variety of plans. Graded death benefit plans pay increasing percentages of the death in the first couple of years and full face value after the third year.
For example, the death benefit may be 25% the first year, 75% the second year and 100% in the third. On a $10,000 policy, if the insured dies in the first year the policy is in force, they would receive $2,500 and so on. The graded benefit allows more people to qualify for the insurance while helping to keep the premiums low.
Who would want a Final Expense Insurance Policy?
- Not everyone is a big believer in life insurance. Many folks only decide to get a little coverage later in life so family members won’t be burdened with burial or cremation expenses.
- Some folks may have been battling certain illnesses earlier in life which made purchasing life insurance too expensive or not an option.
- There is also the situation where children are born with disabilities that will make getting life insurance exceedingly expensive and difficult as they grow older.
As with all life insurance, Final Expense death benefits are tax free. Because they build cash value, the policy maybe considered an asset for the purpose of determining eligibility for Medicaid. If the insured must apply for Medicaid for financial help in paying for health expenses or long term care, they may have to forfeit their policy in order to “spend down” their assets in order to qualify for Medicaid.
Irrevocable Funeral Trusts
One way to insure that money will be available for final expenses, and not be subject to Medicaid eligibility rules, is to create an irrevocable funeral trust. Funeral trusts are generally exempt from most pre-need regulations for financial assistance.
Funeral trusts are designated to pay only for final expenses through a funeral home or crematorium. Any left over proceeds will be allocated to the estate. Funeral trusts are portable and the proceeds can be used in all 50 states.
The maximum amount you can put into the funeral trust is $15,000. This can be done all at once or over time. The money earns interest from between 1% – 1.75%.
Contact me if you would like additional information on applying for a Final Expense plan or establishing a Funeral Trust in California. You will always have more questions and I am here to get you the answers.
Kevin Knauss Final Expense Life and Funeral Trust web page.
916-521-7216
CA LIC# 0H12644
