Is Burial Insurance Worth It?
To my clients and their families, I always stress the importance of estate planning. Estate planning is a comprehensive end of life plan older adults put into place, so their loved ones know exactly what to do when they pass away. Some of the documents included in estate planning are wills, powers of attorney, health care proxies, and advanced medical directives to name a few.
Many adults also invest in life insurance paying a premium throughout their life to ensure their loved ones have financial help when they are gone. There are many different types of life insurance, with one type being burial insurance.
Burial insurance is a smaller life insurance policy family members can use to cover funeral and burial costs when their loved one dies. But for those who have term life insurance, is additional burial insurance necessary?
On this page, I will go over everything you need to know about burial insurance, the differences between insurances, and how to go about purchasing burial insurance. Keep reading because when you’re done, you’ll know everything you need to decide if burial insurance is the right investment for your needs.
What is Burial Insurance?
Simply speaking, burial insurance, which can be one part of estate planning, is a smaller form of life insurance usually used to pay for funeral services. However, the money received from the insurance policy can technically be used for any expenses, not just burial ones. The premiums for burial insurance usually stay the same throughout the insured’s life, whereas life insurance premiums can go up as the insured person gets older.
FYI: Annuities provide an alternative way to pay for the costs of funerals.
Additionally, most burial insurance policies are cash ones, meaning they accrue a cash value over time. Unlike other life insurance policies that require you to invest large amounts of money, you can usually buy burial insurance for less, with a death benefit of anywhere between $5,000 or $25,000.
Burial insurance may also be called final expense insurance or funeral insurance, so when looking for burial policies, keep in mind, these are all synonymous with the same type of coverage.
Burial Insurance vs. Prepaid Funeral Plans
Burial insurance is an insurance policy in which the policyholder pays a set price and the policy builds up a cash value. Once the policyholder passes away, the family members get the money, which they can use to pay for end-of-life expenses like funerals, caskets, plots, or cremations.
Alternatively, a prepaid funeral plan is a set of arrangements a person makes with a funeral home before their passing. With a prepaid funeral plan, a person makes the arrangements for themselves or their loved one by paying in advance for the funeral as well as accompanying merchandise.
While pre-paying for your funeral seems like a compassionate and kind gesture to do for your family, some pros and cons come with going in that direction as opposed to investing in burial insurance. Below is a look at the differences between burial insurance and pre-paid funeral plans:
|Burial Insurance||Prepaid Funeral Plans|
|Flexibility||Burial insurance covers funeral plans anywhere in the world.||Prepaid funeral plans can only be used at the designated funeral home where you make the arrangements. If you move away from that funeral home or the funeral home closes before you pass away, you don’t get your money back.|
|Allocation of Money||The money received from this policy is paid directly to the beneficiaries.||There is no allocation of money with this plan. Instead, the person setting up their funeral plans pay money directly to the funeral home.|
|Policy Benefits||Burial insurance policies have the possibility of coming with other benefits available to policy riders and can usually be split between multiple beneficiaries or organizations.||There are no added benefits and policies can only be paid to funeral homes.|
|Funeral Prices||Families can look around at different funeral homes and decide which they want to use based on different prices.||The prices are set by the funeral home, and there is no option to shop around or get a better deal.|
|Cash Value||Burial insurance usually builds cash value that beneficiaries can withdraw.||Prepaid funeral plans may or may not build cash value.|
FYI: When you prepay for funerals, you can only get buried at the funeral home where you make the arrangements. With burial insurance, however, you can usually get buried or cremated through any funeral home in the country.
Who Needs Burial Insurance?
Those who do not qualify for term life insurance or who may not be able to afford it could be in the market for burial insurance.
Funeral costs are rising annually in the United States. According to the National Funeral Directors Association, the average cost of a funeral in 2019 was $7,640. If additional items were wanted, such as a vault, the price went up to an average of $9,135.
These expensive costs of funerals make burial insurance a nice option as it means your loved one will most likely have the funds needed to pay for the funeral and won’t have to stress about the price. With that said, life insurance can also provide these safety nets, so burial insurance isn’t always the best direction.
However, for those not in the best health or those who don’t have much in savings, burial insurance is something to consider. Especially for the nearly half of Americans without a life insurance policy, burial insurance can provide some financial relief after a loved one’s passing.
With term life insurance, customers usually need to go through a health examination and get approved for an insurance policy. However, with burial insurance, companies will often allow you to buy it without going through any type of medical exam. Because the policies are usually less than full life insurance, the payments can be less, making burial insurance a nice choice for those on tight budgets.
You Should Know: Burial insurance is easier to come by because most companies don’t require medical exams for coverage. The reason for this is burial insurance policies tend to hold less money than life insurance policies.
How To Find and Purchase Burial Insurance
Purchasing burial insurance is a piece of cake compared to buying full life insurance policies. It can be done either online, via the phone, or through an agent. Searching online for different insurance policies is the easiest way to find burial insurance. Many well-known companies like AARP offer burial insurance as a plan option and customers can get free quotes online.
When looking to buy burial insurance, it’s important to estimate how much you think your end of life expenses will cost and whether or not you believe you’ll have enough money when you die for your family to cover the cost of those expenses. If the answer to that question is no, then you might want to consider burial insurance.
What Does Burial Insurance Cover?
Burial insurance covers any expenses that have to do with funerals or merchandise to go along with funerals. Here are some examples of what burial insurance could cover.
- Funeral home service fees
- Transporting remains to the funeral home
- Viewing expenses
- Service cars
- Memorial service costs
It’s important to note that even though burial insurance is meant to cover funeral expenses, it’s not required for beneficiaries to use it in this way. Therefore, once the beneficiary has access to the money, he or she is free to spend it however her or she sees fit.
Types of Burial Insurance
When it comes to estate planning, there are so many options when it comes to deciding on which kind of wills to create, as well as the best insurance policies, both for long-term care as well as end-of-life coverage. Below are some different types of burial insurance:
Guaranteed Acceptance Burial Insurance is exactly what it sounds like—basically, everyone is accepted for insurance, guaranteed. Regardless of your medical history, you will be eligible for this type of insurance. In most cases, insurance companies that offer guaranteed acceptance burial insurance don’t make you fill out a health questionnaire.
Because this type of policy is riskier for the insurance company, the amount you pay could be higher than what you would pay for other life insurance policies. This is a good option for people who have health issues that make them ineligible for life insurance or for those who may not feel comfortable sharing their health information.
Simplified Issue Senior Life Insurance is a little tougher to qualify for than guaranteed acceptance, yet still easier than traditional term life insurance. With this policy, those looking for insurance are required to fill out a health questionnaire so the company can gather medical history.
The insurance company evaluates your answers and determines whether or not they want to provide insurance based on medical history. Companies can deny coverage based on lifestyle choices and health conditions. For example, smoking and pre-existing conditions such as Alzheimer’s have prevented clients of mine from obtaining this type of policy.
Fully Underwritten Life Insurance is one of the better options for homeowners or those with a family. This type of policy provides coverage for a set period, usually between 10 and 30 years. The policyholder pays a premium and when you pass away, the company pays a benefit to your beneficiaries. The average cost for a $250,000 fully underwritten life insurance policy is $160 per month.
Fully underwritten life insurance requires the person applying to answer a series of health-related questions as well as undergo a full medical exam. Because you must pass a medical exam to get accepted for coverage, this policy typically provides higher coverage amounts than burial insurance, though this coverage comes at a greater premium.
Prepaid Funeral Plans are put in place by a person who wants to make the planning process easier and less stressful for their loved ones. This is when a person plans and pays for a funeral in advance.
While the gesture is thoughtful, there are downsides to prepaying for your funeral. For example, if your family moves or the funeral home goes out of business, you are out of thousands of dollars. The money you are paying goes directly to the funeral home as opposed to a beneficiary like it does when you opt for burial insurance.
Cost of Burial Insurance
The cost of burial insurance varies based on your sex, age, and current health, and each company provides a slightly different rate. That being said, here is an average of what you can expect a $10,000 burial insurance policy plan premium to cost you:
|Age||Monthly cost of a policy that requires health information||Monthly cost of a policy that requires no health information|
Alternatives to Burial Insurance
Burial insurance is just one way to ensure your loved ones have the funds needed for end-of-life expenses and funerals. Here are a few other ways to make sure they have the money, without the premiums of burial insurance:
- Savings account or trust: By setting up a savings account with money in it for burial expenses, you guarantee your loved one will have the necessary funds to put into place your wishes for a funeral. With this option, you can designate the person who would pay your end-of-life expenses as the beneficiary. An upside to this is the person can withdraw the funds immediately upon your death, without having to wait for an insurance company to give them the money.
- Permanent or term life insurance: This is life insurance that usually provides beneficiaries with more money than burial insurance. The money from this type of policy can be used for end-of-life expenses, or whatever else the beneficiary sees fit.
Burial insurance is marketed to older adults as something needed to make their loved one’s lives easier once they pass. However, for those adults who have other forms of life insurance, burial insurance may not be necessary.
That being said, it is a good option for certain groups of people, like those who aren’t in great health and can’t get approved for other life insurance policies or for those who aren’t homeowners or don’t have families. The reason for this is because most times burial insurance provides a smaller amount of money and companies don’t always require medical exams to ensure coverage.
It’s also important to note the payout from burial insurance isn’t earmarked for only burial expenses, meaning the beneficiary can decide where he or she wants to spend the money. The same goes for term life insurance policies, meaning the beneficiary of that policy can use some of the money to pay for funeral expenses.
Therefore, before investing in burial insurance, we recommend you take a look at the other life insurance policies you have and your reasons for wanting burial insurance.
Frequently Asked Questions
- What does burial insurance cover?
Burial insurance covers the cost of a person’s final arrangements like a memorial service, casket, funeral home expenses, hearse, burial, or cremation. This type of insurance can also be used to cover other expenses you may have left behind that don’t have to do with funeral costs.
- How much burial insurance should I get?
Burial insurance is usually smaller than other life insurance policies, offering anywhere from $5,000 to $25,000 to the beneficiaries. The average cost of a funeral in the United States is between $7,000 and $10,000, so you want to make sure the policy you choose covers at least enough to pay for the funeral expenses.
- Do I need burial insurance?
Getting burial insurance is a personal preference but isn’t necessary if you have other types of life insurance. Before you buy burial insurance, we suggest you look into term life insurance, as you may getting a better bang for your buck.