What final expenses does burial insurance cover? And is funeral insurance right for you?
By: Linnea Crowther
29 days ago
Burial insurance is a type of life insurance that's specifically used to cover the costs of a funeral, burial, and other end-of-life expenses. Other names for this are funeral insurance and final expense insurance. You make a monthly payment to the insurance company, and after your death, money will be paid out to the beneficiary you choose in order to cover your end-of-life expenses.
Burial insurance might be a great idea for you, or it may be unnecessary. You might be a good candidate for burial insurance if:
• You do not have a lot of money in savings
• You do not have a large life insurance policy
• You are not planning to pay for your funeral expenses in advance
But if any of the following apply to you, it might make more sense for you to skip burial insurance:
• You have a large estate that will be able to cover your funeral expenses while also providing for your survivors
• You already have a life insurance policy that will be able to cover your funeral expenses
• You have already pre-planned your funeral and paid all expenses for it
Even if you do have a large estate or a great life insurance policy, you might still opt for burial insurance. It's a good way to make sure your survivors are able to pay for your funeral expenses without much added stress at a difficult time. Your assets could be frozen in the weeks and months after your death, making them hard or impossible for your survivors to access. A burial insurance policy will ensure that your estate and life insurance benefits aren't depleted by your final expenses. It'll allow for more money to go to your survivors in the end.
Your age and health also play a role in whether burial insurance is a good choice for you. If you are young and healthy, your death may be decades off. In this case, your monthly insurance premiums could eventually add up to much more than your final expenses will end up costing — so burial insurance isn't necessarily a wise investment just yet. You might want to hold off and purchase it later in life.
On the other end of the spectrum, if you currently have a serious illness that gives you low life expectancy — two years or less — you're also not a good candidate for burial insurance. It's more difficult to find an insurer who will provide a policy when you have a severe pre-existing condition, and those that do are likely to require a two-year waiting period before benefits can be paid out. If you were to die less than two years after you first purchased the policy, your family would only receive a refund of the premiums you had paid.
If you fall somewhere in between those two scenarios, and your estate or existing life insurance policy won't be able to cover your end-of-life expenses, it's a good idea to look into burial insurance. Read on to learn how to choose a burial insurance policy.
Your first step in choosing a policy is to determine your budget for burial insurance. This is going to hinge on two things: how much you expect your funeral expenses to be, and how much you can afford to pay monthly for a burial insurance policy.
The cost of a funeral can vary a lot depending on what kind of final send-off you have in mind. If you want a traditional funeral, with visitation, service, and burial in a cemetery, you can expect it to cost somewhere in the neighborhood of $8,000 to $10,000 total. If you're choosing cremation rather than burial, you'll pay less, with the average ranging from about $2,000 to $5,000. (Note: If you choose cremation instead of burial, your burial insurance policy will still cover costs even though there's no actual "burial" involved.)
If you're concerned about taking on a large monthly insurance premium, you might lean toward the less expensive option of cremation so that you can purchase a burial insurance policy with a lower level of coverage. If you feel strongly about a traditional funeral and burial, you should be prepared to pay for a larger insurance policy.
A burial insurance policy typically has a lower coverage level than a life insurance policy. Burial insurance might be capped at $25,000 to $50,000, whereas life insurance policies can have a cap of $50,000 or more. Unless your situation is very unusual, the lower coverage level should still be enough to provide for your funeral expenses. Any remaining money after funeral expenses are covered can be used by your survivors to pay for your final medical expenses or any other expenses incurred at the end of your life.
Not all burial insurance policies are created equal, so now you'll need to determine what kind of policy is right for you.
You probably won't need to have a medical exam in order to qualify for a burial insurance policy. However, you may need to answer a questionnaire about your health and medical history, and the answers you provide may determine what kind of policy you're eligible for.
One kind of policy is called a Simplified Issue policy. It is a fairly robust and affordable policy that will generally be limited to people without health risks such as smoking or certain pre-existing conditions. You'll need to provide your medical history, and it's possible that you'll be denied coverage based on that information.
Another kind of policy is called a Guaranteed Issue policy. Almost everyone is eligible for this type of policy, even if you have risk factors in your medical history. However, you are likely to pay more for this type of policy than you would for a Simplified Issue policy. It may be a good choice if you can't qualify for a less expensive policy, though. Note that a Guaranteed Issue policy is very likely to have a two-year waiting period, as explained above.
Another choice you'll need to make is between a Whole Life and a Term Life policy. A Whole Life insurance policy doesn't expire — or if it does, it's likely to be valid until you're 100 or another similarly advanced age. Term Life comes with an expiration date, which may be a specific length of time or may be when you reach a certain age, like 80.
A Whole Life policy is likely to cost more, but it may also be a safer bet. It would be a shame to pay into a burial insurance policy for years, only to have it expire before it's useable. However, something like a 20-year Term Life policy could be a solid and affordable choice for someone who is already in their 70s or 80s.
Once you have a budget in mind and understand the different types of burial insurance, it's time to shop for a policy. You might have a trusted insurance agent you already work with, and it's a good idea to request a quote on burial insurance from them. But you don't have to go with that company if you get a better quote somewhere else. It's smart to request several quotes so you can compare the prices, the benefits and coverage they offer, and any restrictions they include.
If you're not sure which insurance companies to try, you can check for companies that have strong ratings with A.M. Best. You can search a company's name on their website to determine their credit rating. If a company has at least an A+ rating from A.M. Best (their ratings scale goes up to AAA for the highest-rated companies), it should be in a very stable financial position and able to meet its financial obligations. You should only choose companies with an A+, AA, or AAA rating from A.M. Best.
Once you've received quotes, be sure to read the policies and ask questions about anything you don't fully understand. You'll want to make sure the insurance policy gives you exactly what you think it's giving. If you feel concerned that you're not getting straight answers about the fine print, move on to another agency.
You'll need to choose a beneficiary as you purchase your policy. This is the person you designate to receive the money from the policy after your death. It's a good idea to choose a beneficiary who is a trusted family member or friend — someone who you know will use the money as it's intended. That's because there's no restriction on how your beneficiary can use the money after it's paid out.
Most insurance companies have a "free look period." This allows you to continue to review your policy even after it's been purchased, and cancel with no penalty within a certain period of time. This could be anywhere from 10 to 60 days after signing your contract, depending on the agency. It's a great way to make sure you're not rushing into a decision, so take advantage of this opportunity to really understand your policy before you commit.