Paying for Care
Final Expense Insurance Waiting Periods: Graded Benefits in the First Two Years
A final expense policy with a waiting period pays a graded benefit if death from natural causes comes early in the policy. See how graded benefits work before you buy.
Key takeaways
- A final expense policy is small whole life cover meant for funeral and last costs.
- Some policies pay the full amount from the first day. Those tend to cost more and ask more health questions.
- Some policies have a waiting period early in the policy. Death from natural causes in that span pays a graded benefit, not the full amount.
- A graded benefit in that early span is most often a return of the premiums paid, plus interest. The exact terms are in the policy.
- Death from an accident is treated in a unlike way in most graded policies. Most pay the full amount for an accidental death, even early in the policy. Read your policy to confirm.
- No waiting period length or graded rate is stated here as a rule for all policies. Each company sets its own terms. Your policy states yours.
A final expense policy is a small whole life policy. Families buy it to pay for a funeral and last bills. Ads stress that no health exam is needed. What ads stress less is the waiting period. If death from natural causes comes early in the policy, the family may not get the full amount. This guide shows how a graded benefit works, so you know what you are buying. See our Paying for Care section for more insurance guides.
Two kinds of final expense cover
The first kind is level cover. It pays the full face amount from the first day of the policy. To get it, you answer health questions. If your health is poor, the company may say no, or offer the second kind.
The second kind is graded or guaranteed cover. It takes all or most people who apply, with few or no health questions. In trade, it has a waiting period. That trade is the heart of this topic. You get cover you could not get in the first kind. The company guards its risk by paying less if death comes early from natural causes.
Neither kind is wrong in itself. Harm comes when a buyer thinks she bought the first kind and holds the second. The papers you sign state which kind you hold. Read that page before you pay the first premium.
How a graded benefit works
In the waiting period, the benefit is graded. That means it is paid in part, on a scale set by the policy, in place of the full face amount.
For a death from natural causes in that span, a graded policy most often pays back the premiums paid to date, plus interest. Some policies pay a part of the face amount that grows with time. The policy table states which form yours uses and how the amount is set.
Once the waiting period ends, the full face amount is in place for death from any covered cause. From that point, the graded scale no longer rules the claim.
For a death from an accident, most graded policies pay the full face amount at once, even in the early span. The policy states its own rule for what counts as an accident. Do not assume. Read that line too.
Why the start of the policy is the risky part
The early span is when a family is most at risk of a short payout. The policy has had time to take in only a few premiums, yet the need for funeral funds can come at any time. That is why the graded scale sits there. It is also why two policies with the same face amount can leave a family in very different spots if death comes soon after the start date. One pays the full amount at once. The other pays the graded amount set in its table. The start date, the kind of cover, and the cause of death all shape which result a family gets.
Who pays for what
- Original Medicare does not pay for funerals or last bills. It pays for covered health care only.
- Medicaid does not pay a life benefit. In set cases a person can set aside funds for burial under program rules, but that is not a policy payout.
- Your final expense policy pays its beneficiary the face amount, or the graded amount if death from natural causes comes in the waiting period, per its terms.
- You pay the premiums. If you stop paying, the policy can lapse and pay nothing.
- Private pay, from family funds, covers funeral costs a graded benefit does not reach in an early death.
Sample situation
Dorothy is 76. She buys a graded final expense policy after a mail offer. She answers no health questions, and the papers state a waiting period with a graded benefit. She pays her premiums each month. In the first year, Dorothy dies of heart disease, a natural cause. Her son files the claim and expects the full face amount for the funeral. The company pays the graded benefit the policy states for an early natural death: the premiums she paid, plus interest, per the policy terms. That sum is far less than the face amount. The family pays the rest of the funeral cost from savings. Her son does not blame the company. The terms were in the papers. But he wishes the family had read the waiting period page as a group before she signed.
Questions to ask before you buy
Our final expense insurance guide covers how these small policies work as a whole. Our term life vs whole life guide shows how this cover differs from term cover. Slot 11 in this group covers what long-term care insurance does not cover. Read it if you hold both kinds of policy.
If you already hold a graded policy, do not drop it in anger after you read this guide. A policy well into its span may be close to full cover. A new policy would start a new waiting period. Ask a trusted adviser to compare the dates and terms before you act.
Keep the policy papers where your family can find them. Tell the beneficiary the policy exists, which company holds it, and whether it is graded. A benefit no one knows to claim helps no one.
- Is this level cover or graded cover? Say the words and have the agent say them back.
- If it is graded, what does the policy pay for a natural death in the early span? Ask for the policy table, not a verbal sketch.
- What does it pay for an accidental death in that span?
- When does the full face amount start? Get that point in the policy terms.
- What health questions, if any, stand between me and level cover at a like price?
- Can I see the full policy terms before I pay, and a free look span after I buy?