Burial insurance is a type of life insurance designed specifically for final expenses. It is sometimes called funeral insurance or final expense insurance. You may be looking at this type of life insurance if you need to provide funds for your family to pay for a funeral and some additional small expenses. But if you’re looking to provide a large amount of money to your life insurance beneficiaries, burial insurance isn’t the way to go.



What Is Burial Insurance?


Burial insurance is typically a whole life insurance policy with a small death benefit, such as $5,000 to $25,000, that’s meant to take care of final expenses and funeral costs. Paying for a funeral is the only reason why many older consumers may buy a life insurance policy. But burial insurance can be expensive, and you may have better options.


Burial insurance policies aren’t meant for people raising families and who need the best life insurance to cover bigger obligations, such as a mortgage, kids’ college tuition and income replacement during their prime working years.


Burial insurance for seniors is often marketed to people with tight budgets and poor health. They may not have savings or other life insurance that a family could use for funeral costs.



How Does Burial Insurance Work?


When you apply for burial insurance, you choose the amount of coverage you want and name a life insurance beneficiary (or beneficiaries). Burial and funeral insurance policies generally do not require a life insurance medical exam, and the application may ask only a few health questions—or no questions at all. Rates are based primarily on age and gender.


When you pass away, your beneficiary files a claim with the life insurance company, and usually must provide a certified copy of the death certificate.

Burial insurance is typically one of these varieties of whole life insurance:

  • Simplified issue life insurance: The application process will have no medical exam and only a few health questions, but a “yes” answer to any of them could disqualify you. For example, simplified issue applications often ask if you’re currently living in a nursing home or if you have HIV.
  • Guaranteed issue life insurance: There are no health questions or medical exams to apply. You can’t be turned down.


The downside to these easy applications is that the policy will usually have a graded death benefit. If you pass away within two or three years after buying the policy, your beneficiaries will receive only a refund of the premiums you paid, plus some interest, or a small percentage of the policy’s coverage amount. However, accidental deaths are typically covered in full from the start of the policy, such as a death in a plane crash.



What Is Covered By Burial Insurance?


Burial insurance can help your beneficiaries pay for the costs for your funeral and burial or cremation services. Here’s a list of expenses that beneficiaries can pay for with a life insurance payout:

  • Burial plot
  • Burian vault
  • Caskets
  • Cremation
  • Flowers
  • Funeral home services
  • Grave opening and closing
  • Headstones
  • Obituary notices
  • Transportation
  • Urn services


Burial insurance can also be used to pay outstanding debts you leave behind after you pass away, such as:

  • Credit card debt
  • Legal services
  • Medical bills
  • Mortgage, car loan or other outstanding debt



Types of Burial Insurance


Simplified issue life insurance


When you apply for simplified issue life insurance you answer some questions about your health but you won’t be required to take a medical exam. Additional information about you is usually gathered by the insurance company through third-party sources. This might include details about your driving record and prescription drug use.


With simplified issue life insurance, you can usually find out if you’ve been approved within minutes of filing the application.


One advantage of having a simplified issue life insurance policy to pay for your funeral is that it generally costs less than a guaranteed issue life insurance. Simplified issue policies also usually have higher death benefits than guaranteed issue policies. These types of policies will usually have a graded death benefit, meaning your beneficiaries won’t get a full payout if you pass away within the first couple of years after buying the policy.


Guaranteed issue life insurance


If you buy a guaranteed issue life insurance policy to pay for your burial, you won’t have to answer any health questions, you skip the medical exam and you can’t be denied coverage.


While buying guaranteed life insurance is an incredibly easy way to get burial insurance, there are significant downsides:

  • It’s a very expensive way to buy life insurance.
  • It also usually has low maximum coverage amounts, such as $25,000 or less.
  • You typically need to be at least age 50 to buy guaranteed issue life insurance.
  • It usually has a graded death benefit.


Pre-need insurance


Pre-need insurance is sometimes available from the funeral home where you plan to have your services. You contract with the funeral home for the services you want. The funeral director can sell you pre-need insurance when they are also a licensed life insurance agent. When you pass away, the policy’s payout goes directly to the funeral home to pay for the arrangements you’ve selected.



Burial Insurance vs. Pre-Need Insurance


The biggest difference between burial insurance and pre-need funeral insurance is that burial insurance makes a payout to your beneficiaries, while pre-need insurance typically pays a funeral home where you have arranged funeral details.


If flexibility is a concern, burial insurance is a better purchase. Here’s a look at the major differences between the two.


Burial insurance:

Purchased from a life insurance company

Your beneficiary receives the payout and can spend it how they choose

If you move, your beneficiary has the flexibility to pay for a funeral in a different state


Preneed funeral insurance:

Often purchased from a funeral home where a funeral director is also a licensed life insurance agent

Funeral options are chosen and paid to a funeral home when you die; difficult to make changes if locked into a contract

Your plan may not be “portable,” meaning you won’t be able to take it to a different funeral home



Can Burial Insurance be Denied?


Burial insurance is usually a guaranteed issue policy, which means anyone who applies receives a policy. There’s no medical exam, and you might not have to answer health-related questions.



How Much Burial or Funeral Insurance Should I Buy?


If you want a life insurance policy that’s only meant to cover funeral expenses, you want to make sure you buy enough insurance to cover the kind of funeral you want. Funeral costs can vary considerably depending on what arrangements you want, including flowers and music. Here’s a funeral cost calculator provided by New York Life Insurance Co.



How Much Does an Average Funeral Cost?


The national median funeral cost with a viewing and burial cost $7,848 in 2021, according to the National Funeral Directors Association. That price does not include the cost of a vault, which is typically required by a cemetery. The median cost is $9,420 when a vault is included.

The national median cost for a cremation with a cremation casket is $6,970.

These figures do not include expenses such as a monument or marker, obituary or flowers.



Pros & Cons of Burial Insurance


If covering funeral expenses is The primary reason you want life insurance, burial insurance is an option. But there are some drawbacks if you go this route. Here’s a look at some pros and cons for burial insurance.


Pros

  • Typically does not require a health exam.
  • Application typically asks few (if any) health-related questions.
  • You can’t be turned down for certain policy types, such as “guaranteed issue life insurance.”


Cons

  • With no health exam, you won’t get a discounted rate if you are in good health.
  • With little to no health information, the cost of the policy can be very high.
  • Your policy will likely have a “graded death benefit,” which generally pays out only a refund of the premiums if you die within two to three years after buying the policy.



Is Burial Insurance Worth It?


Whether burial insurance is worth it depends on your health, how much coverage you need and why you want a life insurance policy.

Burial insurance doesn’t provide a high amount for the death benefit, so it’s not a good choice if you want a policy to cover your mortgage or income replacement. You also get less value from a burial insurance policy than other policies that have an underwriting process to gauge your health and risk factors.


However, a burial insurance policy could be a good choice if you want a simple life insurance policy that:

  • Offers guaranteed coverage
  • Helps your loved ones take care of final expenses
  • Doesn’t have an application with a medical exam



Burial Insurance vs. Pre-need Funeral Insurance


Burial insurance and pre-need funeral insurance are two different products. The biggest difference is burial insurance makes a payout to your beneficiaries, while pre-need insurance typically pays a funeral home where you have arranged funeral details.

If flexibility is a concern, burial insurance is a better purchase. Here’s a look at the major differences between the two.


Burial insurance

  • Purchased from a life insurance company
  • Your beneficiary receives the payout and can spend it how they choose
  • If you move, your beneficiary has the flexibility to pay for a funeral in a different state


Preneed funeral insurance

  • Purchased from a funeral home
  • Funeral options are chosen and paid to a funeral home ahead of time; difficult to make changes if locked into a contract
  • Your plan may not be “portable,” meaning you won’t be able to take it to another state



Alternatives to Burial Insurance


Burial insurance is one type of life insurance among many options. It’s good to be familiar with the other choices to make sure that you’re buying the right one.


Whole life insurance


Whole life insurance is a life insurance policy that builds cash value and provides lifelong coverage. The amount of the death benefit is guaranteed to your beneficiaries no matter when you die. The cash value grows at a predictable rate and the premiums stay the same. With a regular whole insurance policy, you can get much more coverage than you would with a burial insurance policy. A payout can be used to cover burial expenses.


Universal life insurance


Universal life insurance is an option for lifelong coverage that can be less expensive and works differently than how whole life insurance works. Not all universal life insurance policies will build much cash value, but universal life can be less expensive than whole life insurance. It can be used by your family for burial and other expenses.


Variable life insurance


Variable life insurance is another option for permanent coverage. With this type of policy you’ll choose investment sub-accounts for your cash value. You’ll need to keep track of the ups and downs of your cash value. A variable life insurance policy guarantees a death benefit won’t fall below a certain amount.


What are some other ways to pay for a funeral?


Payable on death (POD) account

A POD account lets you put money aside for a funeral, and you name who can access the money when you pass away. A POD account is a good way to avoid having the funeral funds tied up in probate. Your beneficiary cannot access the money while you’re alive, but you can withdraw (or add) money to the account at any time. POD accounts are also called “Totten Trusts.”


Funeral trusts

This is an agreement where you can set aside money for a funeral and name a trustee. The trustee can withdraw from the account to pay for your funeral after you pass away.


Trusts

In this agreement, a trust owns the life insurance policy. When you pass away, the trustee makes the claim, and the money is distributed according to the wishes you outlined in the trust documents.


Savings account

You can use a regular savings account to pay for a funeral, but the money could be tied up in probate (unlike a POD account). You may be able to avoid this problem by adding a beneficiary to a joint savings account but keep in mind that they will have full access to the account while you’re alive.



What Happens If a Family Can’t Afford a Funeral?


Federal government assistance

If you cannot afford a funeral or burial, you may be able to get assistance from a federal program such as:

  • Veterans benefits: If you are a veteran, you can be buried in one of the 141 national cemeteries at no cost. Spouses and children of veterans could also qualify. Veterans might also qualify for a burial allowance up to $2,000 for veterans who died on or after Sept. 11, 2001, and $1,500 for veterans who died before Sept. 11, 2001. Check with the U.S. Department of Veterans Affairs for eligibility requirements.
  • Federal Emergency Management Agency (FEMA): For deaths as a result of an event that was declared a major disaster or emergency, you may qualify for FEMA Funeral Assistance to help with expenses such as a casket or urn, burial or cremation, and the cost of a marker or headstone.


State government assistance

Many states have programs to help if you cannot afford a funeral or burial. In states that have programs, you’ll have to apply for assistance at the county or municipal level. Here is a list of programs by state, compiled by Funeralwise.


Crime victim compensation programs

Some states have funds to help pay for funerals for victims of violent crimes. Here is a list of state programs from the National Association of Crime Victim Compensation Boards.


Personal loans

If you cannot afford funeral expenses, you could apply for a personal loan through your bank, credit union or other lenders. While this is sometimes called a “funeral loan,” it’s really a personal loan that you can spend any way you like. Personal loans are typically “unsecured,” meaning they do not require collateral (like a lien on your car) and tend to carry high interest rates, which could range between 16% to 35%, according to AARP.


Crowdfunding

Also called “crowdsourcing,” crowdfunding generally refers to raising money through donations from the general public. Many people have raised funeral funds on sites like GoFundMe, as well as through donations from churches and other organizations.



Tips to Save on Burial and Funeral Costs


Funerals can be expensive, but you can shop around. Costs can vary for the same type of service in the same town.

Here are some tips to save money:

  • Get price information over the phone. Under the FTC’s rules, funeral directors are required to give you prices over the phone if you ask for it. Here’s a funeral cost and pricing checklist from the FTC.
  • Only buy what you want. Under the federal funeral rule, you have the right to buy goods and services separately, like a casket, memorial service and burial. You do not have to accept a funeral home’s package that has services you don’t want.
  • Don’t buy a casket. If you plan to have a cremation or use an alternative such as a green burial, you may not need a casket. If you want to hold a viewing, you may be able to rent a casket from the funeral home.
  • Have a friend or family member help you negotiate prices. It’s a good idea to have someone you trust with you to speak on your behalf during a stressful and time-sensitive situation.






Author: Jason Metz

Source: ©2023 Forbes Media LLC

Retrieved from: forbes.com

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