← All Articles

Final Expense Insurance When Terminally Ill: What Is Still Possible, and What Helps

Looking into final expense insurance when terminally ill, for yourself or for a parent in hospice care, leads to one hard answer and several more useful ones. The hard answer: no new policy will pay its full amount right away to someone who is already terminally ill. The useful answers are the policies the person may already own, ways to set money aside for the funeral now, and what Medicare's hospice benefit actually covers.

Final Expense Insurance When Terminally Ill: The Short Answer

One kind of new policy is still available within a carrier's age range, but its limit matters most when time is short. As Guaranteed Issue vs. Simplified Issue: Which Is Right for You? explains, simplified issue policies ask health questions; on the applications quoted below, a terminal diagnosis or hospice care ends the application. Guaranteed issue policies ask none, but the ones quoted below pay only a limited benefit for a death from illness in the first two policy years. For health conditions in general, see Can You Get Final Expense Insurance With Pre-Existing Conditions?

What a Simplified Issue Application Asks

These applications open with knock-out questions: a yes ends the application for that product.

Foresters Financial's medical reference guide for its PlanRight policy defines terminal illness as a condition expected to cause death within 12 months and marks it "No Coverage," as it does receiving hospice care or being advised to. Its producer guide says a yes to any of the first six medical questions rules out every PlanRight plan, including Basic, the plan with a limited early benefit.

The 2020 edition of Liberty Bankers Life's application worksheet for its SIMPL plan asked whether the applicant had ever been diagnosed with a terminal illness, defined as one expected to result in death within 24 months, and whether in the last year they had been bedridden at home or in a nursing home, hospice or similar facility. A yes in that first part stopped the application.

Guaranteed Issue: Accepted, but With a Limited Benefit

Guaranteed issue policies ask no health questions, so a diagnosis cannot disqualify anyone within the carrier's age range; they limit the early payout instead. Gerber Life states that for a death from any cause other than an accident in the first two policy years of its Guaranteed Life plan, the benefit is 110 percent of earned premiums, while an accidental death is paid in full. Corebridge Financial's Guaranteed Issue Whole Life pays 110 percent of premiums paid for a death from sickness or natural causes in its first two years, and State Farm's guaranteed issue policy returns the premiums plus interest, at a rate set in the contract, for a natural-cause death in its first two years.

Put plainly, for someone whose doctors expect months, a policy bought now would most likely pay back what went into it plus that small addition, not its face amount. As an illustration only, with a made-up premium: $50 a month for eight months is $400, and 110 percent of that is $440, whatever the face amount. Past the two years, Gerber's plan pays the full face amount. Level, Graded Death Benefit, or Modified: What Your Policy Actually Pays explains these structures, and the Graded Death Benefit Calculator: What a Guaranteed Issue Policy Pays Early shows what a real quote would pay.

Why No Policy "Pays Now" for Someone Already Ill

A policy that pays its full face amount from day one does exist, but it is the simplified issue kind, sold only to applicants who can answer no to questions like those above. The kind that skips them limits early payouts for that reason. If anyone offers a full benefit from day one with no health questions, ask to see that in the policy, in writing, before paying.

Leaving the diagnosis off does not get around this. Answers are checked: Mutual of Omaha's Living Promise guide lists an MIB check (a database insurers share) and a pharmaceutical check, and Foresters runs an MIB check before deciding. A misstatement found later can undo the policy; Corebridge, for one, reserves the right to contest a policy for two years from issue over material misstatements or omissions. The Contestability Period Explained: A Policy's First Two Years covers that review.

Start With the Policies That Already Exist

An accelerated death benefit

Many policies let the insured take part of the death benefit early after a terminal diagnosis. The Alabama Department of Insurance explains that the payment is deducted from what the beneficiary later receives, that the insurer usually reduces it for paying early, and that group policies can offer it too. The Illinois Department of Insurance notes that some older policies lack it, so ask the insurer, and that premiums must continue for the rest to be paid.

Terms vary: Mutual of Omaha's rider on its Living Promise level plan requires an illness expected to cause death within 12 months, Foresters' pays up to 95 percent of the eligible death benefit once, and both attach it only to full-benefit plans. Illinois warns that a payment may affect Medicaid or other government benefits. IRS Publication 525 says accelerated benefits, including qualifying viatical settlements, are fully excluded from income when a physician certifies that death is expected within 24 months.

Selling a policy: a viatical settlement

The NAIC explains that when someone with a terminal or chronic illness sells a policy for less than its death benefit, that is a viatical settlement: the buyer becomes the owner, pays the premiums and collects the death benefit, so the original beneficiaries receive nothing from it. States regulate these sales. Illinois tells sellers to confirm that the provider and any broker are licensed, requires written disclosures before signing, and allows canceling until 30 calendar days after signing or 15 after payment, whichever comes first. The NAIC adds that creditors could claim the proceeds, that Medicaid can be affected, and that no offer has to be accepted.

Setting Money Aside for the Funeral Now

A preneed contract with a funeral home

A preneed contract pays for the funeral now with money the person already has; funded through a trust or bank account, it involves no health questions. In New York, the state Department of Health explains, the funeral director must deposit prepaid money in an interest-bearing account or government-backed investment within 10 days, and a revocable agreement can be withdrawn with interest at any time; a Medicaid applicant must use an irrevocable one, which can move to another funeral home but cannot be refunded. The California Cemetery and Funeral Bureau notes that prepayment may be funded by insurance as well as trusts, so ask which you are buying, whether prices are guaranteed, and who holds the money. Tell someone which funeral home holds the plan, New York advises, or the family may pay again elsewhere. Final Expense Insurance vs. Prepaid Funeral Plans: Which Is Better? covers the trade-offs.

A payable-on-death bank account

The FDIC describes a payable-on-death account as one where the owner signs an agreement directing the bank to transfer the funds to named beneficiaries at death, and it does not consider those beneficiaries owners of the money. There are no health questions or waiting period, and every dollar deposited is there from day one. Name someone who will use it for the funeral; the California bureau notes that telling the family and the funeral provider about such an account is up to you.

What Medicare's Hospice Benefit Covers, and What It Does Not

Medicare Part A covers hospice care when the hospice doctor, and the regular doctor if there is one, certify a life expectancy of six months or less, and the person chooses comfort care over treatment to cure the illness. Medicare.gov says hospice care from a Medicare-approved provider costs nothing, apart from up to $5 per prescription for pain and symptom drugs and possibly 5 percent of the approved amount for inpatient respite care.

The plan of care can include doctors' and nursing services, equipment and supplies, drugs for pain and symptoms, aide and homemaker services, therapy, social services, respite care, and spiritual and grief counseling for the family. All of it is care. Room and board at home or in a nursing home is not covered, and nothing in the benefit pays for a funeral. For those costs, see Funeral Assistance Programs: Where Help Actually Exists and The Social Security Death Benefit: $255, and What Else Survivors Can Claim.

For the Family Member Reading This

If you are helping a parent or spouse, none of this needs a decision today.

• Find every existing policy, including paid-up and employer or union coverage, and call each insurer with the policyholder. Ask about an accelerated death benefit, who the beneficiary is, and whether premiums are current.
• Write down funeral wishes and where the papers are kept. Funeral Planning Checklist: Planning Your Own Arrangements in Advance includes a one-page document list.
• If hospice care will be at home, read What to Do When Someone Dies: A Checklist by Time now. Its first section covers an expected death at home under hospice care.

More on this topic: How to Find Out If Someone Had Life Insurance · What Happens If You Stop Paying Your Final Expense Premiums

Carrier documents and official pages are cited where noted. Products and state rules vary and change, and nothing here is legal, tax or medical advice. Check the actual policy and ask the insurer.

Frequently Asked Questions

Can you get life insurance while in hospice?

Not through a simplified issue policy from carriers such as Foresters, which treats receiving hospice care, or being advised to, as no coverage. A guaranteed issue policy asks no health questions, so it can be bought within the carrier's age range, which Gerber Life sets at 50 to 80, or 50 to 75 in New York. On Gerber's plan and the others described here, though, a death from illness in the first two policy years returns the premiums plus a stated percentage or interest rather than the face amount.

Is there burial insurance that pays out right away with no waiting period?

Yes, but only for people who qualify on health questions. A simplified issue policy can pay its full face amount from the first day, and those questions are what screen out applicants who are terminally ill or in hospice. The guaranteed issue policies from Gerber Life, Corebridge and State Farm, which ask no health questions, limit what they pay for a death from illness in the first two years.

Can a terminally ill person cash out their life insurance?

Often, in one of three ways: an accelerated death benefit if the policy includes one, a loan against or surrender of any cash value, or a sale to a licensed viatical settlement provider. Each one reduces or ends what the beneficiaries receive. Ask the insurer first which options the policy has, and check with a tax preparer and any benefits office before taking money, since Medicaid and other benefits can be affected.

Does Medicare pay for a funeral if the person was in hospice?

No. Medicare's hospice benefit pays for care, such as nursing and doctors' services, drugs for pain and symptoms, medical equipment and counseling, and it does not pay for a funeral, burial or cremation. Social Security makes a small one-time payment to an eligible surviving spouse or, if there is none, to certain children, and the family must apply within two years of the death.

Can I buy a life insurance policy on my parent who is dying?

Your parent is the one answering the health questions, and carriers such as Foresters require the person being insured to be able to answer them on their own. If your parent is terminally ill or in hospice, the simplified issue applications quoted in this guide rule them out, and a guaranteed issue policy would pay a limited benefit for a death from illness in its first two years. Helping your parent set up a preneed contract or a payable-on-death account often does more for the funeral.