Death and funerals aren't exactly favorite family dinner conversation topics.
They may make excellent settings for comedic films, but in the real world, a funeral means a loss, and it's something we'd prefer not to prepare for until it's on our doorstep.
As difficult as it is, talking about funerals is essential if only to learn about your loved one's end-of-life wishes and the associated cost.
According to the National Funeral Directors Association, the average cost of an American funeral is now $11,000. Much of the $11,000 is non-negotiable. It covers the basics: the professional services fee, cost of embalming and preparation, funeral transportation, and the casket.
Paying for a burial can add stress to your grief, but there are ways to prepare for it with life insurance produces. Burial life insurance is a policy that covers the cost of a funeral so that you don't have to worry about it.
How does burial insurance work? Keep reading to find out.
What Is Burial Insurance?
Burial insurance is an insurance policy offered as part of life insurance services. You can buy it online or from your current insurance agent, and most major providers provide it.
Some refer to it as funeral insurance or final expense insurance or even the less common senior life insurance.
It's a common practice that's advertised regularly on television, in magazines, and online.
Who Qualifies for a Burial Insurance Policy?
These plans typically target people from 50 or 55 and up. Many plans have an upper limit of 80 or 85 years of age.
Unlike other types of life insurance, burial insurance doesn't require a medical exam. Applicants do answer questions about their health like age, health conditions, and behaviors like smoking. Still, it's much easier to qualify for burial insurance compared to premium life insurance policies.
How Does Burial Insurance Work?
Burial insurance falls under the umbrella of "cash policies."
Cash policies build up a cash value over time based on what you pay into the plan.
Unlike life insurance, burial insurance policies feature small amounts of money, often $5,000-$25,000 per policy. As a result, your monthly premiums are far lower than life insurance policies because you aren't building an egg of $50,000 or even $500,000.
When the policyholder dies, the insurance company pays out the cash to the named beneficiary on the account. The recipient may then use the money to pay bills related to the funeral and burial or in a way that makes the most sense to them.
Some policies also make it possible to split the benefit between two people.
Restrictions and Waiting Times
Cash accumulates over the life of the policy to pay out a lump sum benefit after the policyholder dies. But there are rules, restrictions, and waiting times in place that complicate the death benefit in some circumstances.
Policies come with clauses that may prevent or limit the payout. For example,
Like most life insurance products, burial insurance traditionally includes a suicide exemption. Beneficiaries do not receive the payout if the policyholder's death is ruled a suicide.
Do I Need Burial Insurance?
Funeral expense planning is an essential part of end-of-life planning, and both are conversations that should be shared in good time.
Burial insurance isn't the only way to plan for expenses. It's a dedicated account, but it performs the same function as other products.
Beyond paying cash, your two other options in this realm are life insurance and pre-need funeral insurance. Although they perform similar functions, the differences between the products make them more useful for some than others.
Burial Insurance vs. Life Insurance
Burial insurance is a type of life insurance - so why not stick with one premium and use life insurance to pay for funeral costs?
It's possible to do just that, but here's what you need to know first.
Life insurance requires a medical exam, and the best policies are harder to get once you cross an age and health threshold. Those who make the most of their life insurance policies do so because they purchase them when they're young and healthy.
Term life insurance isn't ideal for burial coverage because it expires. If you buy it young and you don't need it within that period, you either need to reapply or you lose the death benefit. Reapplying for term insurance may be difficult if 20 years passed and your health declined.
If you're going to use life insurance to cover end-of-life expenses, then whole life insurance is the most practical choice.
Burial Insurance vs. Pre-Need Funeral Insurance
Burial insurance isn't the only product in the industry. Pre-need funeral insurance also helps families pay for funeral expenses in a more manageable way.
Pre-need funeral insurance sets aside money to pay for funeral expenses in the months and years before you need the money. Pre-need insurance covers the same costs as burial insurance: funeral home services, church and burial services, and fees.
The primary difference between the two is the beneficiary. Burial insurance policyholders name a beneficiary on their policy, usually a surviving spouse or child or another close family member.
Pre-need policies pay out directly to funeral homes to cover the costs immediately.
Because pre-need policies work with funeral homes, those who choose this coverage never get a bill as long as their costs didn't exceed the value of the policy.
However, these plans lock you into a single service provider, which limits flexibility.
Why Families Choose Burial Insurance
Burial insurance isn't right for everyone, and like most insurance policies it's better to buy it well before you need it.
Although burial insurance receives some criticism, there are some advantages compared to using life insurance policies alone.
First, funeral policies reach the beneficiary faster compared to traditional life insurance. Relying on life insurance means you may need to reimburse yourself for funeral costs if your loved one's estate was unable to cover them. With a funeral policy, everything is paid quickly and prevents outstanding debts.
Funeral policies are also tax-free. A savings account and other financial instruments may end up shrinking after tax.
Families who use burial insurance also report greater flexibility. If you create a plan directly with a funeral home, you have no room to compare prices. Additionally, if you and your loved one move, you're still stuck in your previous contract.
Funeral benefits can be used anywhere because they come in the form of a check paid to the beneficiary.
Burial Insurance FAQs
Like all insurance policies, burial insurance comes with a string of conditions and questions that differ according to policy provider and the individual applying.
Here are some of the most common questions people have about buying funeral insurance.
Do premiums change?
No, premiums remain the same throughout the policy.
Once you apply and receive approval for a burial insurance policy, your premium is set until it gets paid out.
Premiums don't change, but there may be restrictions on your payout. The policy notes all limitations and exclusions. Be sure to speak with your agent about these potential exclusions before signing up for the policy.
What happens when I cancel my policy?
If you want to cancel your policy, let the insurance company know and stop paying your monthly premium.
Canceling is easy, but it does mean your policy becomes invalid.
Before canceling, talk to your insurance agent. Your invalid policy won't pay out a death benefit, but it also won't be fully refundable. In most cases, you only receive a percentage of the premium paid.
Most insurers only issue a full refund in the event of a mistake or fraud in the policy.
Will I be denied if I have health issues?
Usually not. Most people find themselves in a position where they qualify for cover.
Insurance companies don't require a medical check to issue health insurance, but your premiums will become more expensive if you report these issues. Some of the things that may cause an uptick in premiums may include:
- Alcohol abuse
- Strong history of cancer, heart disease, or stroke
- Recent hospitalizations
Buying younger and when you're in good health typically secures the lowest premiums
Burial insurance usually isn't available for people 90 years and older.
How much do policies cost?
Policies costs depend on many different factors including:
- Policy size
- Current health
Get a free quote from multiple insurers to see how much burial insurance might cost for you.
Is Burial Insurance Right for You?
End-of-life planning is difficult, but it's important for your wishes to be known so that everyone can prepare.
Burial insurance helps families who are concerned about the possibility of paying for a funeral. For some, it makes end-of-life planning simpler by acting as a kind of savings account that can then be used to pay for funeral costs and other bills.
Are you thinking about adding burial insurance to your life insurance coverage now that you know how does burial insurance work? Click here for a free quote.