If you're like most people, you don't want to think about your eventual demise. It's not that death is taboo, it's just that we don't like to talk about our eventual death.
But, as the joke goes, the only two constants in life are death and taxes, and unfortunately, death can be even more expensive than taxes.
This is where funeral insurance can help your loved ones. That's why we're breaking down what funeral insurance is, what it covers, why you need it, and the options available to you.
What is Funeral Insurance?
First, the basics: what is funeral insurance?
Also known as burial insurance or final expense insurance, funeral insurance is a type of life insurance used to pay for funeral expenses and merchandise costs after death. It can also include things like final expenses (i.e. legal fees, debts, and bills left behind after your death) though this depends on the policy in question.
Why You Need Funeral Insurance
Sure, you're thinking, that sounds like it could be helpful, but why is it so important to have funeral insurance?
It's important because funerals are more expensive than you think, and there are plenty of things a funeral director won't tell you (or that you won't think to ask while grieving).
This is in part because most people don't realize everything that must be paid for during a funeral. These include things like:
- Professional services fee
- Transfer of remains
- Casket or urn
- Body preparation and embalming (when relevant)
- Cremation (when relevant)
- Funeral viewing and ceremony
- Funeral transportation
- Opening and closing of the grave
- Burial vault
- Grave liner
- Plot or mausoleum fee
- Newspaper obituary
- Clergy honorarium (when relevant)
- Extra copies of the death certificate
You'll also need to account for any end-of-life expenses, such as bills that are due at the time of your death, debts that must be paid off after your passing, legal fees required to sort out your estate, any remaining medical bills for end-of-life care, and various other fees.
Most people only think of the casket and the burial, but the truth is, funerals are a bit of an undertaking (pardon the pun) and that means they can get expensive fast.
Average Cost of a Funeral
When you tally up everything we just listed, take a deep breath, because the bill will probably be higher than you were hoping.
There are dozens of factors that can affect the final cost for a funeral, but the easiest way to find a ballpark number is to first decide whether you want a burial or a cremation, which can add or subtract several costs.
If you want a burial, you'll have to account for things like the casket, the plot or mausoleum, the grave liner or burial vault, the grave marker, body preparation, etc. A good turnout for a traditional, basic burial starts at $5,000 but can easily reach up to $15,000.
Then, there's cremation, which can remove several steps depending on what you want to be included. A simple, direct cremation can start at $600, while a cremation with service and extra disbursements (i.e. flowers, obituary, viewing, etc.) can go up to $4,500.
Keep in mind, however, that this varies depending on what province you live in. In some areas of Quebec, you can get a direct cremation for as little as $587, while in Vancouver, the low end is $995 and in Toronto, the lowest price is $1,400.
You should also keep in mind that final costs include any end-of-life care. In Canada, the average cost of end-of-life care in the last six months of life is around $21,840, with more than half of Canadian patients dying in hospitals.
Even if you don't anticipate major health issues at the end of your life, final bills and debts will need to be paid off after your passing, which all count as part of final expenses.
Types of Funeral Insurance
This is where funeral insurance can help.
Chances are that you and your loved ones don't have an extra several thousand dollars lying around for funeral expenses. This is especially true for seniors who are living off their retirement savings, which keeps shrinking every year.
Funeral insurance policies help bridge the gap between your available funds and the cost of your final expenses. There are a few types of insurance that can meet this need for you.
The most commonly known type is burial insurance.
Put simply, burial insurance is designed solely to cover the funeral costs of the insured, handled at the discretion of a named beneficiary. Usually, this is a family member or loved one, though it may be a funeral director or your preferred funeral home depending on the policy.
Usually, these policies are purchased with a whole life benefit, which comes with a lower premium. After your death, your beneficiary receives the funds and disperses them to pay expenses as they see fit. This usually means covering funeral expenses but it can also be used to pay off debts and other expenses.
Pre-Need Funeral Insurance
Pre-Need funeral insurance is different from final expense or burial insurance because of the structure.
Basically, under pre-need insurance, you're paying for your funeral ahead of time. This can come in the form of life insurance with the funeral home as the beneficiary or as a pre-need contract with the funeral home itself.
This can be attractive because you're paying for certain aspects of the funeral in advance which may be more expensive later on.
However, if there's a gap between what you paid into the plan and what your funeral ultimately costs (for example, if your plan is worth $10,000 and your funeral only cost $9,000) then the remainder will not be disbursed to your family to deal with other end-of-life expenses.
There are also life insurance policies that are structured to include end-of-life expenses.
This is attractive because, unlike pre-need or burial insurance, the policy is designed to account for final expenses as well as funeral expenses--thus, it can be used to pay remaining bills and debts in addition to specific funeral costs.
Regardless of what specific subset of life insurance you choose, it's a good idea to purchase a whole life policy rather than a term life policy, since you can't be sure exactly when you're going to die and you don't want the policy to expire before it can be used.
Determining If You Need Funeral Insurance
This brings us to our next question: do you need funeral insurance?
In general, that's a discussion that should occur between you and your family. Funeral insurance policies are a specialized product that cannot be used for anything outside of final expenses, which means they're most useful to families who do not have the resources to cover funeral costs out of pocket.
Here's a step-by-step process to determine if you and your family could benefit from funeral insurance. Either way, you should have an open dialogue with your family on the subject to make sure everyone is on the same page.
Estimate Final Expenses
The first step is to estimate your anticipated final expenses.
The cost of the funeral is the single largest cost, and it will account for much of the fees incurred during this time. The easiest way to do this is to first figure out what you want your funeral to include and use that to tally the costs. Be as specific as possible, as this will serve as a guideline for your wishes later.
However, you also need to account for other costs outside of the funeral. For example, any of your outstanding debts must be paid upon your death (like credit card debt), as well as any bills that come due around that time, and medical expenses for end-of-life care.
Even if you don't anticipate any major health problems, it's a good idea to add some expenses into your final amount in that area just to be safe.
Determine If You Will Leave Behind Enough Money
Once you have a rough estimate of your anticipated final expenses, you need to determine if you'll leave enough money behind to cover these final expenses.
There are two key questions here:
- Will there be enough money in your estate to cover final expenses?
- Will this funding be immediately available to loved ones after your passing?
Keep in mind that even if you do have enough money to cover final expenses, that money won't do your loved ones any good if it's locked up in probate for several months after your death, as funeral providers and cemeteries expect payment at the time of service.
If you won't leave behind enough money, or if you're concerned that your estate will wind up in probate, it may be useful to get funeral insurance. A financial advisor can help answer these questions and get your estate in order to try and avoid probate altogether.
Decide on the Type of Insurance You Want
From there, you need to decide on the type of funeral insurance that would be most useful.
It's a good idea to shop around to get a sense of what different policies offer, what they cost, and what you can afford. Always look for a policy with the following features:
- A whole life policy
- Level premiums (won't increase as you get older)
- No medical exam (though you will have to answer some medical questions)
- Provided by a top-rated insurance company
You'll also need to account for whether you want a simplified issue or guaranteed issue insurance policy.
Check it out here for a closer look at all of our insurance providers.
Ready to Find the Right Policy for You?
Losing a loved one (or preparing for your eventual death) is hard enough. Funeral insurance can make the whole process a little bit easier.
If you're ready to take a weight off the shoulders of your loved ones and you know what kind of policy you're interested in, click here to get a quote. Or, if you have any questions, don't hesitate to contact us.