“There are two types of products in the insurance market for final expenses. Traditional life insurance pays out a death benefit, while funeral expense insurance is specifically designed to cover immediate costs, including potential debts,” explains Dominique Biron-Bordeleau, Assistant Vice-President, Public and Government Affairs (Quebec), at the Canadian Life and Health Insurance Association (CLHIA).
“Outside Quebec, many insurers offer funeral expense insurance,” she continues, referring to the model that uses life insurance as a financing mechanism for prearranged funeral arrangements, also known as preneed insurance. “In Quebec, this type of product has not existed for many years,” adds Dominique Biron-Bordeleau, as explained in our article Funeral expense insurance: illegal in Quebec.
Many names, similar products
Insurance to cover final expenses can have many names on the market, but mostly refer to a type of life insurance policy that pays out a modest lump sum—typically between $5,000 and $25,000, depending on the plan—to a designated beneficiary or beneficiaries. As a result, it is generally more affordable than other types of life insurance products and is particularly popular among seniors and those with limited budgets.
This type of life insurance can also be a good option for individuals with health issues. The underwriting process often involves few or no medical requirements, making it simpler than that of more traditional life insurance. However, several insurers will only reimburse the premiums paid—rather than disbursing the full benefit—if the policyholder dies within two years of purchasing the coverage.
It also offers more flexibility than funeral expense insurance (or preneed insurance) because the death benefit can be used not only to cover funeral costs, but also to pay off debts, taxes, and medical bills. It is also a tax-free benefit.
These products are marketed by both specialized players—such as TruStage and Canada Protection Plan (CPP)—and generalist Canadian insurers such as Sun Life.
This isn’t a standalone product, according to Michael Van Alphen, Vice-President, Insurance Solutions, at Sun Life. “It’s more about how the death benefit from a life insurance policy can be used to cover funeral costs.” He adds that the company recently reduced premiums for its permanent life insurance products to make them more broadly accessible.
Traditional life insurance products
According to Stéphanie Corbeil, Senior Director of the insurance premium comparison platform Assure Direct, the variety of terminology doesn’t matter much. In the end, “it’s a life insurance policy someone takes out to make sure that, upon their death, their beneficiaries receive a tax-free amount to take care of funeral costs,” she explains.
She points out that insurers commonly offer permanent life insurance products. Most of these start at $10,000, $25,000 or $50,000—suitable for many people looking to cover final expenses with amounts ranging from $7,500 to $25,000.
Premiums are determined based on the applicant’s age, health, and smoking status at the time of purchase. Standard products are intended for those in good health and include a full medical questionnaire. However, simplified options involve only about ten questions.
Stéphanie Corbeil notes that insurers such as iA Financial Group, Assumption Life, and Empire Life are particularly active in this space. “Not everyone can afford to pay $5,000 [upfront] for their funeral expenses,” she says. “Life insurance is tax-free, paid monthly, and if there’s money left over, it becomes part of your legacy.”
