Burial Insurance: What Is It and How Does It Work?
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Summary:
Burial insurance is a type of whole life insurance policy with a death benefit that’s meant to cover funeral costs and other final expenses. The insurance premiums can be high in relation to a relatively low death benefit, but they’re easy to obtain. This kind of life insurance policy is especially helpful for those concerned about how their family members would be able to pay for a funeral.
Planning for your own death isn’t exactly something to look forward to. However, it is important to have your affairs in order to minimize the negative impacts on the loved ones you leave behind. And a life insurance — or at least a burial insurance — policy is an important part of the estate planning process.
Read on to learn more about burial insurance, how it works, the different types of policies, and how much it might cost you. We’ll also take a look at some alternatives to burial insurance and what might be best for you and your family after you’re gone.
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What is burial insurance?
Burial insurance, also known as funeral insurance or final expense insurance, is a kind of whole-life insurance policy. Unlike other life policies, burial insurance is specifically meant to cover funeral expenses and other end-of-life expenses, like final medical bills or other outstanding debts of the deceased.
Here are some common examples of funeral and burial costs you might encounter.
- Burial costs, like the cemetery plot or vault
- Cremation costs
- Caskets
- Funeral home services
- Headstones
- Obituaries
- Flower arrangements
The death benefit from burial insurance isn’t high — typically between $5,000 and $25,000 — but if there is any leftover after the funeral, the beneficiary might use it to tie up some other loose ends associated with a death in the family. Here are some miscellaneous final expenses the death benefit could also help to pay for.
- Credit card bills
- Mortgage loans
- Legal services
- Medical bills
Pro Tip
Burial insurance, like permanent life insurance, is usually a cash policy, meaning it builds a cash value as long as you continue to make on-time payments. This means you can sometimes borrow against the cash value of the policy or withdraw from it.
However, this is usually only possible after a period of time from its inception, which could be years. Unlike other types of life policies, a final expense policy isn’t really meant to be a savings tool.
How does burial insurance work?
Buying a burial insurance policy is pretty simple. In fact, you can probably do it online or over the phone, but you may want to get some professional advice first. There is no medical exam and very few health questions to answer.
You basically pick the amount of coverage you want and, mostly based on your age and gender, the life insurance company will tell you how much your premiums are. You can usually choose whether you want to pay a monthly or annual premium for this life insurance coverage.
Next, you’ll need to pick your beneficiary (and possibly a backup beneficiary just in case). The beneficiary is the person who will contact the insurance company after your death to begin the claims process, facilitate the funeral proceedings, and, using the life insurance payout, pay for the funeral costs and any additional final expenses. The beneficiary will usually need to produce a death certificate before they can receive the death benefit.
You definitely want to make sure that your beneficiary is someone you trust to carry out your final wishes, says Matt Schmidt, co-founder of Burial Insurance Pro and 18-year insurance expert who’s personally written over 12,000 burial insurance policies.
“When choosing a beneficiary, it’s extremely important to list a trusted family member or friend to receive the death benefit at the time of your death,” Schmidt explains. “Since this person will be receiving the life insurance payout directly from the insurance company, there is no law stating they must use the proceeds to cover your funeral expenses.”
You might also want to check with your chosen beneficiary beforehand to make sure they’re up for the task of handling your funeral arrangements. Not everyone will feel comfortable taking on this important responsibility.
Pro Tip
“Insurance companies that specialize in these products will pay out death claims quicker than traditional life insurance. Ideally, we see claims paid out in 3 to 5 business days upon receiving the death certificate and a completed claim form,” says Schmidt.
Burial insurance vs. life insurance
To be clear, burial insurance is a very specific type of life insurance meant only to cover funeral costs and other end-of-life expenses, and it has a relatively small death benefit. A traditional whole-life policy or term life insurance can also cover final expenses, but it’s meant to do much more than that.
Most life insurance plans are put in place primarily to provide financial strength and income replacement for loved ones in the event of an untimely death. It’s important to note that whole and burial insurance are permanent policies, whereas term life insurance expires after a period of time — usually between 10 to 30 years.
Types of burial insurance policies
There are three basic kinds of funeral insurance policies: simplified issue, guaranteed issue, and pre-need life insurance. Both simplified and guaranteed issues are offered by life insurance companies, whereas a pre-need insurance policy can be provided by a life insurance company or, often, a funeral home.
1. Simplified issue
A simplified issue type of funeral insurance policy does not require a physical medical exam, but you will have to answer some health-related questions. Though this is one of the least expensive kinds of burial insurance policies, you could easily be denied coverage if you have certain pre-existing conditions, smoke, or engage in other risky behavior.
2. Guaranteed issue
A guaranteed issue life insurance policy, sometimes known as standard funeral insurance, is exactly what it sounds like: guaranteed. There are no medical exams or health questions and you won’t be denied coverage.
The flip side of that is relatively high insurance premiums for not a lot of coverage. Most burial insurance policies have death benefits between $5,000 and $35,000, which is low in relation to traditional whole or term life insurance.
3. Pre-need funeral insurance
As mentioned, pre-need insurance is offered by life insurance companies or funeral service providers. This type of final expense life insurance is more specific than standard funeral insurance in that you work out the details of your funeral with the funeral provider and they act as the beneficiary or trustee of the policy.
The only real downside to pre-need insurance is the policy is tied to a contract with a specific funeral home.
How much does a burial life policy cost?
The cost of a burial insurance policy is based mainly on the amount of coverage you want, your gender, and your age. Most burial insurance companies require applicants to be between 50 and 85 years of age. And women tend to live longer, so funeral insurance is less expensive for them.
On average, women can expect to pay between $30 and $160 a month for final expense insurance with a $10,000 death benefit. Men will be looking at anywhere between $50 and $200 for the same coverage. And, again, this will depend a lot on your age and the burial insurance company you choose.
Pro Tip
Don’t just pick the least expensive funeral insurance policy you can find. Be sure to do your research and compare multiple offers to find the best coverage. Also, make certain to read the fine print regarding the waiting period for full death benefit coverage to kick in.
To get a better idea of what a burial insurance policy may cost you, take a look at the life insurance policies below.
How much does a funeral cost?
It’s good to know how much funerals cost when you’re determining how much coverage you need. According to the National Funeral Directors Association (NFDA), as of 2021, the median cost of a funeral with viewing and burial is $7,848. A funeral with cremation is a bit less expensive at $6,970.
| Item | 2021 | 2016 | % Change |
|---|---|---|---|
| Non-declinable basic services fee | $2,300 | $2,100 | 9.5% |
| Removal/transfer of remains to funeral home | $350 | $325 | 7.7% |
| Embalming | $775 | $725 | 6.9% |
| Other preparation of the body | $275 | $250 | 10.0% |
| Use of facilities/staff for viewing | $450 | $425 | 5.9% |
| Use of facilities/staff for funeral ceremony | $515 | $500 | 3.0% |
| Hearse | $350 | $325 | 7.7% |
| Service car/van | $150 | $150 | 0.0% |
| Printed materials (basic memorial package) | $183 | $160 | 14.1% |
| Metal burial casket | $2,500 | $2,400 | 4.2% |
| Median Cost of a Funeral with Viewing and Burial | $7,848 | $7,360 | 6.6%* |
| Vault | $1,572 | $1,395 | 12.7% |
| Total with vault | $9,420 | $8,775 | 7.6% |
| *The overall rate of inflation was 13.98% for the same period. | |||
| Source: National Funeral Directors Association |
And, of course, those costs can vary a lot depending on where you live and what you want your funeral to look like. For example, if you want to forgo traditional funeral arrangements and just have a small memorial service instead, you could significantly save money.
“Every funeral home offers a unique [service] and pricing structure,” explains NFDA Research Manager Deana Gillespie. “Families should look for a funeral home that has a strong reputation with licensed funeral directors who understand their emotional needs and will be sensitive to their budget.”
Is burial insurance worth it?
Whether or not you need burial insurance depends a lot on your personal situation. However, there are a few questions you should ask yourself before you rush out and buy burial insurance.
- Do you already have another life insurance policy that would be enough to pay for funeral and burial services?
- Do you have savings or other means to pay for burial expenses?
- Would your death put an undue burden on family members if you haven’t left enough money to cover funeral costs?
If you answered yes to one of the first two questions, burial insurance may not be necessary unless you want a separate policy strictly for end-of-life expenses. If you answered yes to the final question and realize that your passing will create financial hardship for your family, you might do well to purchase a small burial life insurance policy.
On the other hand, if you really don’t want your loved ones to worry about life insurance plans or funeral arrangements while they’re already going through a difficult time, your best bet might be to purchase a pre-need insurance policy. Or, if you have the means, you could also just pay all of your funeral costs upfront.
This way you can make all the necessary decisions and work out all the details with the funeral provider. Not only does it take the burden away from a family member having to manage funeral costs on your behalf, but it also ensures that your final wishes are carried out to your exact specifications. Pre-need insurance is also a good idea for people without a clear beneficiary.
Pro Tip
“If you find yourself in a position where you have no trusted beneficiaries, you will benefit from assigning the policy to a funeral home or listing them as beneficiaries,” says Schmidt. “By doing so, they would receive the death benefit directly from the insurer, and any funds left over would be paid to your estate.”
Graded death benefit and waiting periods explained
When shopping for burial insurance, you may come across policies that include a graded death benefit and waiting periods. While these terms may sound intimidating, it’s important to understand what they mean and how they can affect your coverage.
Graded death benefits
“Graded death benefit” is a term used to describe a policy that pays out a reduced death benefit during the first few years of coverage. For example, a policy with a $10,000 death benefit may have a graded death benefit that pays out 30% of the benefit during the first year of coverage, 70% during the second year, and the full benefit after the third year. This means that if the insured were to pass away during the first year of coverage, the beneficiary would receive only $3,000 instead of the full $10,000.
Waiting periods
Waiting periods, on the other hand, refer to a specified period of time during which the policy will not pay out the full death benefit. This is typically a period of two to three years after the policy is purchased. During the waiting period, if the insured passes away, the beneficiary will receive only a refund of the premiums paid or a percentage of the death benefit. After the waiting period ends, the policy will pay out the full death benefit.
What is the purpose of waiting periods and graded death benefits
Graded death benefits and waiting periods are most commonly used for policies that do not require a medical exam or ask for health information from the applicant. In these cases, the insurance company is taking on more risk by insuring someone without knowing their full health status.
It’s important to note that not all burial insurance policies include a graded death benefit or waiting period. If you’re concerned about these features, be sure to ask your insurance agent or broker about the specifics of the policy you’re considering. In general, it’s a good idea to carefully consider your options before purchasing a policy with a graded death benefit or waiting period. If you have a pre-existing condition or are in poor health, you may be better off looking for a policy that requires a medical exam or provides a full death benefit from the start.
Alternatives to burial insurance
Burial insurance is just one type of life insurance policy, so it’s good to be familiar with other kinds of life insurance that can also be used to cover funeral costs. This can help you to make an informed decision about your insurance needs. It might also be useful to explore alternatives to pay for funeral arrangements.
Whole life insurance
Whole life insurance, also known as permanent or universal life insurance, provides coverage until you die as long as you pay your premiums on time. Its death benefit can be used for funeral expenses and is also meant to provide financial strength and income replacement to families who’ve unexpectedly lost a loved one.
Term life insurance
Term life insurance is similar to a whole life policy except that it expires after, usually, 10 to 30 years. This kind of life insurance is often purchased when policyholders are young and building a family so dependents and the surviving spouse have something to fall back on in the event of an early death.
Trusts
Money or property can be placed in a trust for virtually any reason and a funeral is one scenario where a trust might make sense. You just have to fund the trust, spell out your funeral preferences, and name a trustee to carry out your final wishes.
Payable on death (POD) accounts
A POD account is simply a bank account with a beneficiary. You set aside some money in an account and upon your demise, the beneficiary can access the money — probably after having to show a death certificate — and use the funds to pay for your funeral and other end-of-life expenses.
POD accounts are handy because the money won’t have to be tied up in probate; it can just go directly to the beneficiary.
Personal loans
Families who’ve lost a loved one and don’t have the money to pay for a funeral, or don’t want to use a credit card, could look into getting a personal loan to cover funeral expenses for the deceased. You can typically get a better interest rate than with credit cards and give yourself some time to pay the loan back.
Key Takeaways
- A burial insurance life policy is a type of whole life insurance that’s specifically meant to be used for funeral costs and other final expenses.
- The life insurance payout, or death benefit, is usually small — between $5,000 and $25,000 — and you can get one without a medical exam.
- A life insurance company that offers burial insurance usually requires applicants to be between the ages of 50 and 85, and the premiums are higher the older you are.
- Some policies may have a waiting period, also known as a graded death benefit, of two to three years before they pay out the full death benefit amount.
- If you already have a whole life or term life insurance policy, you may not need an additional burial insurance policy.
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