Burial insurance is a type of life insurance coverage that is made just for final expenses. It is designed to cover the expenses associated with burial and other final expenses. This policy is usually a much smaller benefit amount ($5,000–$25,000) and can be used to pay the policyholder’s debts, such as credit card bills, personal loans, medical bills, and mortgage loans.
In other words, burial insurance is not just designed to leave a huge amount to the beneficiaries. Instead, it is a good way for the policyholder to provide good financial support after they pass away. So that families don’t have to run up bills while trying to carry out funeral activities.
How does Burial Insurance Work?
When you sign up for burial insurance, you decide how much coverage you need and who will receive the payout when you pass away. Typically, this policy doesn’t involve a medical exam or many health questions. Instead, your rates are mainly determined by your age and gender. When you pass away, your beneficiary simply needs to file a claim with the insurance company and provide a certified copy of your death certificate.
This plan works differently depending on whether you choose a final expense policy through a funeral home or a traditional life insurance policy that covers burial expenses. Nevertheless, below are the main types of burial policies.
Simplified Life Insurance
In a simplified life insurance policy, you answer some basic health questions, but you don’t need a medical exam. These types of burial insurance plans are cheaper than guaranteed-issue policies. However, with simplified life insurance, if you pass away within a few years of getting the policy, your beneficiaries might not receive the full payout.
Guaranteed-issue Life Insurance
Guaranteed issue policies are straightforward. You need to be at least 50 years old to qualify, and there are no health questions or medical exams required. You’re guaranteed coverage, regardless of your health status. However, these policies can have high premiums, and the death benefits they offer may be relatively small.
Pre-need Insurance
This kind of burial plan isn’t provided by regular life insurance firms. Instead, funeral homes offer pre-need funeral insurance to cover funeral expenses and related costs. But there’s a catch: the funeral director must be a licensed insurance agent, and the full death benefit goes directly to the funeral home to cover funeral expenses.
Choosing a life insurance company or burial insurance firm over a funeral home has its perks. With a whole-life policy from an insurance company, there’s cash value. So, after your beneficiaries cover your funeral expenses, the extra funds can be used for other final expenses, like medical bills.
What is covered by the Burial Insurance?
This policy can help your beneficiaries pay for funeral expenses, burial, or cremation services. Below are some of the expenses your beneficiaries can pay with the life insurance payout:
- Caskets
- Flowers
- Funeral home services
- Headstones
- Obituary notices
- Music
- Transportation
- Memorial service fees
- Preservation or Embalming
- Burial plot
- Burial vault
Just like I have mentioned above, the insurance plan can also be used to pay outstanding debts left behind by the insured, such as;
- Mortgage
- Car loan
- Medical bills
- Legal services
- Credit card debt and other outstanding debts.
You can consult the United States Consumer Financial Protection Bureau to know what happens to debts after death and who is responsible for financial
Life Insurance Policy vs. Burial Insurance Policy
Most burial insurance plans are actually a form of life insurance. In fact, some insurance companies don’t offer burial insurance as a separate policy.
Burial insurance is essentially whole or universal life insurance, but with a smaller death benefit. It’s meant to cover the final expenses of the deceased person. On the other hand, term life insurance provides a larger death benefit intended to replace the income of the deceased person to support their beneficiaries.
If you’re under 50 with a young family, a term life insurance policy with its generous death benefit might be more suitable for you. But if you’re over 50 and retired, the lower cost of burial insurance could be a better option.
How much does the policy cost?
Burial insurance doesn’t cost too much, especially for older people. But how much you pay and what you get can vary. If you’re okay with answering a few health questions, you might pay less. Companies like eFinancial say monthly rates start at $53, covering anywhere from $5,000 to $35,000. Choice Mutual breaks it down further, showing that folks aged 50 to 70 can pay anywhere from $12 to $193 a month based on age, gender, health, and coverage.
How much Burial Insurance should I buy?
Considering that funerals can cost over $7,000 on average, depending on whether they involve cremation or burial, burial insurance policies usually start with a death benefit of $5,000.
To determine the coverage amount you need, you can check the funeral costs listed on the Federal Trade Commission (FTC) website or utilize the New York Life online funeral cost and final expense calculator.
Pros and Cons of Burial Insurance
If the main reason you want to purchase a life policy is to cover funeral expenses, burial insurance is a good option for you. Let’s take a look at some of the pros and cons of the policy:
- It does not require a health exam.
- You will only be asked a few health-related questions during the application
- You won’t be turned down for certain types of policies, such as guaranteed-issue life insurance.
Cons
- Without the health exam, you won’t be able to get a good rate if you are in good health.
- With little or no health information, the policy cost can be very high.
- The policy will likely have “graded death benefits,” which will only give a refund of the premium you purchase if you die 2-3 years after purchasing the policy.
The simple application process for these policies comes with a trade-off: the death benefit is often graded. If you pass away within the first two or three years after purchasing the policy, your beneficiaries may only receive a refund of the premiums paid, along with some interest, or a small portion of the coverage amount. However, accidental deaths are usually covered fully right from the beginning, including instances like a death in a plane crash.
Alternatives to burial insurance
If you are still deciding if this policy is worth it or if you want to save more money, you should consider the other alternatives:
- Trust: With the help of a lawyer, you can create a trust to hold funds for your funeral expenses. A trustee will manage the money and distribute it when needed, based on your wishes.
- Payable on Death (POD): Some banks offer POD accounts where you can designate a beneficiary to receive the funds upon your death. This avoids probate delays and ensures quick access to the money.
- Savings Account: You can also save money in a joint savings account for funeral expenses. However, keep in mind that these accounts may go through probate, so they might not be the fastest option for covering immediate end-of-life needs.
Is Burial Insurance Worth it?
Whether this policy is worth it or not totally depends on your health, why you want a life insurance policy, and how much coverage you need. Just like I have mentioned above, it does not provide a huge amount for death benefits. So, it may not be a great choice if you want a policy that covers your income replacement or mortgage. However, it could be a great choice if you want simple life insurance that offers guaranteed coverage, no medical examination, and helps your loved ones take care of the final expenses.
You can purchase a burial insurance policy from top insurance companies such as State Farm, AARP, Ethos, and Mutual of Omaha. If you cannot afford this funeral, you may be able to get federal government assistance or state government assistance from different programs. You can also take out personal loans through a credit union, bank, or other lender.
