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For some families, meeting day-to-day expenses is hard enough without having to also think about estate planning or how they’ll one day pay for their funeral. Death can be an uncomfortable subject, and thinking about final expenses can amplify that discomfort.
Many people want their life insurance to cover any burial or funeral expenses, as well as help provide income for their families in the event of their death. Others, however, want specific plans that will pay for the type of burial they want or any other arrangements they desire. For some, insurance provides the benefit of helping them plan for their final resting place. For others, however, it can be a waste of money.
Is funeral insurance worth it for you? How about burial insurance? Here are some key factors to consider.
- What is Funeral Insurance?
- What is Burial Insurance?
- Best Companies for Funeral or Burial Insurance
- Advantages and Disadvantages
- The Verdict
What is Funeral Insurance?
Funeral insurance, also called burial or final expense insurance, is designed to be a small ($5,000 to $25,000) policy that is directly paid upon the insured’s death to either a designated recipient, such as the executor of an estate or family member making funeral arrangements. It can also be paid directly to a funeral home where you’ve made prior arrangements for your burial or funeral.
What It Covers
Funeral insurance covers expenses directly related to the funeral ceremony itself, cremation if you desire, and the burial. That means it also covers a headstone purchase, the cemetery plot, or an urn or other container for your ashes after cremation. It does not, however, cover end-of-life expenses such as hospice care, medications, or anything else you may need before you pass. Like life insurance, the policy doesn’t pay out until after your death.
When you designate a person to handle these funds upon your death, it’s important that you choose someone who will use them for the purpose they’re intended for. There is no oversight for how the money is spent. Theoretically, your family member could use the money for anything they like — they are not legally obligated to use the money for your funeral expenses.
What It Costs
On average, a burial insurance policy costs about $50 per month, and the most common plan is for $10,000 coverage. However, this monthly premium can be higher or lower, depending on your age, gender, health, and whether you want higher or lower coverage.
Still, the same monthly premium paid toward a term life insurance policy can get you much higher coverage than a funeral or burial policy would pay. Many financial and insurance experts say that this insurance is a “last resort” type of coverage, meant for those who cannot qualify for a term life policy, and have no funds saved up for their funeral.
What is Burial Insurance?
Burial insurance is often mistaken as a separate product from funeral insurance, but it’s essentially the same.
There are arrangements made and prepaid with a funeral home before your death. They’re technically called pre-need policies, but the public sometimes confuses them with funeral/burial insurance, which is a specific policy that pays out at your death, and not before. Because funeral insurance is also known as final expense insurance, burial insurance, and other names, it can be confusing for consumers. In most cases, however, burial insurance and funeral insurance are the same thing.
Best Funeral and Burial Insurance Companies
Many companies offer funeral/burial policies, each company with its own requirements, costs, and terms.
AIG, a long-term player in the insurance business, offers several types of funeral insurance, including both a term policy and permanent coverage. With a term policy, you’ll be covered if you die during the coverage period. After that time, the coverage will end, and you’ll need to purchase another policy — probably at a higher rate — to continue coverage.
If you’re between the ages of 50 and 85, you cannot be turned down for any health-related reason, and the policy offers between $5,000 and $25,000 of coverage. The premium will not increase for any reason during the length of your term.
This company started in 1905 and sells term life plans that can be used for burial expenses that are based upon your location, health history, sex, and other factors. Premiums can be paid yearly or monthly. They don’t publicize their rates. Instead, they offer free quotes if you contact them directly at their website. Terms start at 10 years and come with extra optional riders such as living benefits.
Mutual of Omaha
Mutual of Omaha offers whole life policies for funeral benefits that range from $2,000 to $25,000 worth of coverage, and those policies are available to applicants between ages 45 and 85. There are no medical exams or health questions to answer. Call 800-377-9000 to inquire about a rate quote.
Baltimore Life offers the Silver Guard I, II, and III whole life plans meant for final expenses. The policies cannot be canceled if the premiums are being paid on time. In addition, no medical exams or blood tests are required. There are, however, a few health questions you’ll need to answer on the application. You can also add accidental death or cash draft benefit riders to the policy as well, which offer additional funds when you need them. To find out more, call them at 800-628-5433.
The Foresters PlanRight policy is a whole life plan that can be used to cover funeral expenses. It covers applicants of all stages of life, up to 121 years old. All premiums are fixed for as long as you keep the coverage active by making on-time premium payments, and there are riders available to add accidental death coverage as well. Foresters insurance is only available through its agents. To find an agent near you, call 800-524-2803.
Advantages of Funeral and Burial Insurance
Having this type of coverage can be a good thing for certain situations. Not everyone can get a standard life insurance policy. Those with chronic diseases such as emphysema or diabetes, high-risk occupations like law enforcement, firefighters, and high-rise construction workers, and those who are elderly often have a hard time getting life insurance. In those cases, funeral/burial coverage can help offset the costs of your final expenses for your loved ones.
Another situation in which burial insurance might make sense is if you’re reaching retirement age or older and you’ve never saved money for your final expenses. Rather than put those expenses on your loved ones, you may opt for a small burial policy.
Even if you have another life insurance policy, having a separate funeral policy can ensure that all of the life insurance money goes directly to your beneficiaries for them to use, as opposed to having your final expenses cut into that amount.
Disadvantages of Funeral and Burial Insurance
You’ve probably figured out at least a few of the drawbacks. The high cost of funeral insurance compared to regular kinds of life insurance can be cost prohibitive to many. Some financial experts say you’re better off putting your money into a high-yield savings account — or even in your mattress — rather than spending it on monthly premiums to a policy that some say can be difficult to make claims.
Many funeral policies have a contestable period, usually about two years after you begin coverage. If you pass away during that period, the insurance company will investigate your death. If it’s found that you had been diagnosed with a medical condition that you did not disclose on your application, for instance, your family could be denied the death benefit.
Even cash value policies have their downsides. Investment experts say that the cash value policy may only net you a 1 percent to 3 percent return, even if you pay into the policy for 30 years or more. If your purpose is to possibly use the money later by cashing in the policy before your death, you’d make far more by looking into other investment options.
Other Options to Consider?
Rather than buy an expensive burial policy, you should look into a term life policy first. Not only are term life policies far less costly, but you can often get three times the coverage for the same price. There’s no limit to the number of term policies you can have. You can buy a number of term life policies, each with its own purpose — and you can set a different designated beneficiary for each one, based on what you want the policy to cover.
You can also use a money market or other savings account and simply take the money you would have paid for a policy, putting it in the savings account instead with your designated funeral coordinator as the joint owner or authorized signer. It may take longer to reach the desired amount, but it will also save your family from having to undergo an investigation — or risk not getting the benefit paid out.
While you can find experts on either side of the funeral insurance debate, the bottom line is that no one but you can decide whether you need a policy. If you cannot get life insurance, or you believe that your death will cause significant financial difficulties for your family, you may want to get some burial insurance. If, however, you have some emergency savings or can get a regular term life policy, it might be a much better buy for you in the long run.
Author: Jeff Gitlen