What is a burial insurance policy? How is it different from a traditional life insurance policy and do I need one?
These questions often come up when assessing the current life insurance situation of a client. Having an understanding of what exactly a burial insurance policy is will help you to determine if it is something you should consider or not.
With so many insurance options out there, the choices can seem overwhelming. Believe me, you are not the first person to go looking for information about burial insurance. Let’s start with the obvious.
What is Burial Insurance?
In very simple terms, burial insurance, sometimes also called funeral insurance or a final expense policy, is a small life insurance policy that can be used to cover expenses that are left behind after someone passes away. Commonly these expenses are funeral arrangements and burial, but the proceeds can also be used for things like hospital bills and credit card bills.
Burial insurance policies typically have lower coverage limits than traditional life insurance option like term life insurance. On the low end, they often start around $5,000 and usually do not go over $20,000.
Funeral insurance policies normally do not require a medical exam and have a very simple application process. Most companies selling burial insurance have a minimum age requirement of 50, although you can find a few who will go as low as 40. They typically have a maximum age of 80 to 85 to purchase and allow you to keep the policy up to age 100.
Burial Insurance vs Prepaid Funeral
Sometimes people confuse a burial insurance policy with a prepaid funeral, but they are not the same thing. Prepaid funerals are paid directly through a funeral home of your choice and is non-transferable.
A burial insurance policy is purchased through an insurance company and the death benefit can be used at any location chosen.
The reason most people choose a final expense policy over a prepaid funeral is they can apply for a death benefit that is more than they will likely need for the funeral and have funds left to cover any unforeseen costs, minimizing the risk that their loved ones are going to have to pay for anything out of pocket. Also, if you prepay for a funeral, but then later move out of the area, most funeral homes will not give you a 100% refund if you decide to cancel to make arrangements elsewhere.
Should I Buy A Funeral Insurance Plan?
After learning about what a burial insurance plan is and how it works, the next question I often get asked is, “Should I buy one?” The reason for buying a burial insurance policy is pretty straight forward. Nobody wants to leave their loved ones behind with a big financial tab. Grieving for a loved one is hard enough without having the financial burden of paying for a funeral added on.
When you start adding up the cost of flowers, a casket, a burial plot, a headstone, the funeral service and a viewing, and the costs of transporting and caring for your body, the total cost can run anywhere from $5,000 for simple arrangement to around $15,000 for more expensive tastes.
Having a funeral insurance policy in place offers an affordable way to transfer this burden from the loved ones you leave behind over to the insurance company for those who are not leaving much behind in the way of liquid assets.
Another advantage that a burial insurance policy offers is that they are often available to individuals who cannot get approved for traditional life insurance plans? Health conditions may exclude someone from being approved from a typical life insurance plan, or if they can get approved, the premiums are outrageous and out of their budget. A burial insurance policy offers less strict health requirements and lower premiums due to the lower death benefit.
Burial insurance can also be a good option for more elderly individuals. Purchasing a term life insurance policy with a more traditional sized death benefit can get very costly as we age. Because the premiums get so expensive, a lot of older individuals instead opt for a burial insurance policy to take care of their final arrangements and keep the burden from family and loved ones.
Everyone’s financial and life situation is different. There is no product that is right for everyone, and burial insurance is no different. For people who have a lot of money in savings and large insurance policies already in place, paying for their final expenses is probably not going to be an issue. A burial insurance policy probably does not make much sense in that situation.
For others who are not leaving much wealth behind, burial insurance can be a great way to take the risk off of leaving behind any financial burdens for their loved ones.