The Financial Costs of Dying without Life Insurance

It’s never easy to think about your death. But you never know what happens in life, so the last thing you want is to leave your family or loved ones with a huge financial burden. This is why it’s important to get life insurance coverage early on. Unfortunately, many have yet to realize the gravity of dying without life insurance.

It’s understandable why others ignore insurance, especially if they don’t have the money to sustain it. However, life insurance is about thinking ahead and ensuring your loved ones don’t go into financial crisis after your death.

This article will explain the cost of dying without life insurance and how a policy can help you protect your loved ones. You’ll understand how beneficial it’ll be to get life insurance before it’s too late.

Expenses Incurred After Death

If you’re still unsure about getting life insurance coverage, consider the financial cost of dying without life insurance.

Funeral and Burial Expenses

Funerals don’t come cheap. Based on data from the National Funeral Directors Association, the median cost for a funeral with a viewing and burial was $7,848 in 2021. While slightly lower, funerals with cremations were equally expensive, with a median price of $6,971.

Considering that these are just median prices, some funerals may cost even more. And beyond the actual funeral costs, families or relatives will also need to spend on travel and lodging. But again, they’ll have to shoulder these costs out of pocket without life insurance, putting them in significant financial distress.

Debt and Taxes

Another important cost to consider is debt and taxes. If you die and still have unpaid debt or taxes, the burden of paying these will go to your surviving family members or loved ones. Similarly, if you die of a health-related cause and have remaining medical bills to pay off, your family will need to shoulder this obligation.

Lost Income Replacement

If your income helps provide for the family, they’ll lose financial support if you die without life insurance. To remedy this, your family members will need to think about replacing your lost income, especially if your income was a major contributor to the household’s finances.

Lost Wages

Family members often need time to mourn the death of a loved one and process what has happened. But aside from grieving, they’ll also be handling the funeral arrangements and taking care of other important matters to figure out what happens next.

To adjust to a traumatic loss, most will need to take time off until they’re ready to go back to work, resulting in lost wages. While some companies offer bereavement loss to provide paid time off for such instances, it’s unlikely that this will be more than a few days. So if family members need more time, they’ll have to deal with unpaid time off.

Counseling

Dealing with a loved one’s death takes a huge toll on anyone. So in some cases, people may seek counseling or therapy to help process their emotions and cope with the situation. These can also be financially straining as counseling sessions can cost hundreds to thousands of dollars depending on how much support a person needs to heal.

Future Expenses

Beyond the immediate expenses that arise after your death, there’s also the potential burden of future expenditures you’ve committed to. For example, if you are planning to send your children to college, your family will need to consider how to cover these among the other expenses. 

How to Prevent Dying without Life Insurance

Ultimately, unexpected deaths come with not only emotional but also financial costs. Funeral expenses alone are already hard to swallow, and they’re just one of many other costs incurred when someone dies. Because of this, it’s important to plan for your death to avoid leaving a huge burden on your family and loved ones.

Life insurance is essentially designed for this purpose. Unlike other policies that protect you directly, life insurance benefits your loved ones. The policy pays them a death benefit after you pass away to help cover funeral expenses, debt settlements, and other relevant costs.

What are the other options to cover final expenses?

Besides life insurance, your family can take out a loan or ask the funeral home if they can get a payment plan. But the difference is that they’ll still need to shoulder the costs themselves.

These options give them quick access to funds or some leeway with payments. However, they’re still left to pay for the final expenses, and they may even be burdened with additional costs from loan interests.

Tips on Buying Life Insurance

Now that it’s clear how beneficial life insurance can be, the next question is what policy you should get. With several coverage options to choose from, it’s important to take your time comparing policies and prices to find the best rates. 

Here are some key tips to help you in your search for life insurance.

Determine How Much Coverage You Need

One of the biggest factors to consider when buying life insurance is the coverage you get since this affects the death benefit paid out to your beneficiaries.

To estimate this, consider what expenses your family is left with. Aside from the funeral expenses or debts like mortgage, you should also think long-term. For instance, you may want to add more coverage to support other payments like household bills, tuition fees, etc.

Decide What Type of Policy to Get

Generally, you can choose from two main types of life insurance:

• Term Life Insurance. This policy provides coverage for a certain period, usually between 10 to 30-year terms. While it’s more affordable than whole life insurance, it only pays the death benefit if the insured person dies during the term.
• Whole Life Insurance. Whole life insurance is permanent, so it provides lifelong coverage. Apart from this, it’s also more expensive since it builds cash value, which makes the policy double as an investment vehicle.

Each option has its pros and cons, so the right type ultimately depends on your needs and financial capabilities. For instance, term life insurance can be a good option if you have a limited budget. On the other hand, whole life or permanent insurance works well if you have the funds on hand and want the cash value aspect that allows you to grow your savings.

Alternatively, most term life policies allow you to convert to whole life insurance after your term expires. Thus, you can consider this option if you can’t afford a permanent policy yet but want to save up for it to switch your coverage later on.

Consider Factors That Affect Insurance Rates

Insurance companies consider different factors in calculating rates. For example, health and age usually carry the most significant weight for life insurance since companies want to assess the risk of death.

Generally, insurance is cheaper for younger policyholders since they’re assumed to be healthier and thus carry less risk. Similarly, people with poor health or preexisting conditions may be charged with higher rates due to the risk in their case. By tailoring your search to find policies that cater more to your budget, you can know what factors affect insurance rates and lower your premiums.

Dying without Life Insurance: The Bottom Line

It’s easy to think that life insurance is just another expense among many others. However, the financial cost of dying without life insurance is huge and can lead to long-term consequences for your family.

To avoid this, you should get a life insurance policy that provides adequate coverage for your beneficiaries. Planning for final expenses and future costs beforehand can ultimately give you the peace of mind that your loved ones will be in a good financial position when you pass away.