Like taxes, death is an inevitable part of life. And whether you plan on getting cremated or buried, funerals aren't cheap. According to parting.com, the average cost of a funeral service is $7,000 to $10,000.
Although morbid, it's in your best interest to plan ahead regarding funeral arrangements and expenses. This way, your family won't be left dealing with money issues during an already difficult time.
Burial, final expense, and preneed coverage
There are a lot of different terms you may see if you're shopping for this kind of coverage including:
- Burial insurance
- Final expense insurance
- Preneed life insurance
According to Jarvis M. Reeves III, Vice President of Taylor & Associates Insurance, burial insurance and final expense coverage are the same for the most part. There's one main difference between the two. Burial insurance generally names a mortuary or cemetery chosen by the policyholder as the beneficiary.
Although preneed coverage may be referred to as "preneed insurance," Reeves explains it is actually not an insurance product. Rather, it is a contract someone can enter into with a funeral home directly.
Preneed coverage is very similar to final expense insurance in that they both pay for funeral expenses. However, with preneed insurance, you are pre-paying for specific funeral costs.
This means you pick exactly what you want for your funeral and pay for those specific expenses. You may pay in advance for the headstone, casket, flowers, and funeral home among other things. Prepaying for these items also locks in the price you'll pay, so you won't have to worry about inflation.
There are some downsides to preneed contracts though. If you can afford it, you may have the option to buy an all-inclusive package. This should theoretically pay for all of your funeral costs. Reeves warns that sometimes "all-inclusive" doesn't always mean your entire funeral will be prepaid.
"I have seen seniors pay for this all-inclusive package. But the family finds out at the time of their death that the cemetery portion of the funeral is not represented in the package. Though mortuaries may be tied or even on the same grounds as the cemetery, they do not cover the cost of interment," Reeves said. "Interment may include the vault that the casket is placed into prior to burial and the work (manpower) necessary in order to bury [the] vault."
What it covers
When you buy final expense coverage you name a beneficiary who will receive the funds from your policy. It usually has a cash benefit that is paid out to the beneficiary when the policyholder passes away.
It is important to choose someone you trust as your beneficiary. Although final expense coverage is meant to pay for funeral costs, they technically can spend it any way they choose. To learn more about how to pick the best person to be your beneficiary, click here. As discussed, in some cases the mortuary might be named as the policyholder.
Burial insurance commonly pays for costs like:
- Casket
- Cemetery plot
- Grave digging
- Headstone
- Funeral service
- Funeral procession
- Flowers
- Refreshments
- Funeral procession
- Embalming
- Funeral director costs
- Cremation
- Any additional debt not paid (mortgage, retirement facility fees, credit card debt)
Term or Whole
Final expense insurance is a type of life insurance. You can buy either term life or whole life coverage.
Coverage is typically purchased from an insurance agent. Depending on your state, you may also be able to buy a policy directly from a funeral home.
Make sure to read over your policy carefully. Many companies will have a waiting period of two years until coverage takes effect. So if you die within the first two years of the policy, you will not receive a death benefit.
Term life policies provide coverage for a pre-determined period of time, for instance 10 or 20 years. If the policyholder doesn’t pass away during that period, there is no monetary benefit at the end of the policy. Term life policies do not accrue a cash value over time, unlike whole life insurance.
Whole life coverage will provide insurance for a person's entire life. Whole life policies generally have more expensive premiums than term life policies.
Many companies may limit the policy to only insure someone until they are 100 years old. Although it is a type of life insurance, burial insurance is easier to qualify for than a standard life policy.
If you're considering buying final expense or life insurance, shopping around is the key to finding the best rates. QuoteWizard can help you get rates from multiple insurers in minutes.
Cost and qualifying for burial insurance
The cost of burial insurance depends on several factors including your age, gender, health, and the size of your policy.
One of the biggest factors is usually an applicant's age. If you buy this type of policy when you're younger, it will cost significantly less. This is because you have a lower risk of dying when you're in your forties than a 74-year-old.
However, most companies have an age limit for buying this kind of coverage. It is generally available for people 45 to 85 years old.
If you're older than the maximum age or have serious medical issues, you could still qualify for burial coverage on a graded benefit policy. We will talk about this type of policy in more detail later in the article.
Premiums for this type of policy are usually paid weekly or monthly. You may also be able to pay the entire cost of the policy in one installment. Costs can be as little as $2 a week.
The final expense insurance premiums typically stay the same for your entire life. So if you buy it early, and get a low rate, you shouldn't have to pay higher premiums later.
Usually burial insurance covers between $5,000 and $20,000, although there are larger policies available. When choosing your plan, like any insurance, make sure to choose a policy with premiums you can afford to pay. An insurer typically can't cancel your coverage, but not paying your premium is one of the few reasons they could.
"I would recommend the policy that covers your wishes and is affordable," Reeves said. "The best policy may have to be abandoned during difficult economic times. So affordability is the one factor that should be paramount to all others."
Burial insurance may be a good option for someone who has trouble qualifying for traditional life insurance. It could also be perfect for a person who doesn't necessarily want a standard life policy. Someone who doesn't have children or other dependents may want to get a simpler policy, like burial insurance.
Final expense insurance can be pricey when compared to traditional life insurance and the smaller amount of coverage that you get. This is because people who are higher risk often get it since it is easier to qualify for. That is why you should carefully consider whether you need burial, standard life insurance, or both.
No medical exam.
One thing that isn't needed when determining your cost? A doctor's visit. Unlike other kinds of life insurance, medical exams aren't necessary.
You may still have to answer questions about your medical history. But some policies exist where you won't have to even do this. If you're receiving a level versus a graded death benefit, you're more likely to be asked extra medical questions.
Common questions include:
- Age
- Weight
- Gender
- Tobacco use
- Alcohol use
- Occupation
- Do you have cancer?
- Do you have AIDS?
- Do you have heart disease?
- Do you have a terminal illness?
Even though medical exams aren't needed for this type of insurance, there is a chance an insurer could reject your application.
"There are illness that the proposed insured may be battling that would preclude them from securing insurance. Some insurers will not insure someone who is currently in a nursing home or hospital," Reeves said.
In this case, you'll want to see if you can get final expense coverage with a graded death benefit.
Graded death benefit
People over the age of 80 or those with serious medical conditions like AIDS or cancer may have trouble getting final expense insurance. If you need this type of insurance, you may want to consider getting a graded benefit policy.
Normally, burial insurance has an immediate benefit or level death benefit policy. This means that the beneficiary will receive the full death benefit immediately after the policyholder passes away.
With a graded benefit, the beneficiary will receive a percentage of the death benefit based upon how long the policyholder has had the coverage. This is to protect the company when they are issuing a policy to a high risk applicant. Often, the policy becomes 100 percent effective after three years.
For example, a graded death benefit may look like this:
- 25 percent paid to the beneficiary if the policyholder dies within the first year of purchase
- 50 percent paid to the beneficiary if the policyholder dies within the second year of purchase
- 75 percent paid to the beneficiary if the policyholder dies within the third year of purchase
- 100 percent paid to the beneficiary if the policyholder dies after three years of purchase
Frequently Asked Questions
Q: Who should consider buying burial insurance? Should you be a certain age?
A: People often buy burial insurance because they can't qualify for a standard life policy. It doesn't usually require a medical exam, so insurers are less likely to deny coverage.
People who buy it are often older, but the younger you buy burial insurance, the cheaper it will be. This is important since you'll usually pay the same rate for the rest of your life.
Unfortunately, insurers often place an age limit on this type of coverage. You usually need to be 40 or older to qualify. If you're looking to get similar coverage at a young age, consider buying traditional life insurance instead.
Remember, final expense insurance is the bare minimum of what someone would need to cover expenses after they die. Unlike traditional life insurance, it isn't meant to make up for a person's salary after they pass away. Rather, it is only meant to cover someone's final expenses, such as funeral costs.
Q: What questions should you ask when applying for a policy?
According to Reeves, some questions you should consider asking are:
- Will my premiums change?
- If necessary, could I cash in this policy?
- Is there a medical exam necessary?
- Can I include others on this appointment?
- Can I have others notified if bill is not paid?
- Will I be contacted by the insurance company?
- What if I am killed by an accident?
- What happens if I am deemed terminally ill?
- Are there benefits for children/grandchildren with this policy?
Q: How can I get the best rate on burial insurance?
A: The cost of final expense insurance is largely dependent on the amount of your policy and your age.
But to find the best rate, you should always shop around. QuoteWizard can help you compare rates from multiple companies, so you can get the best deal.
Q: Should I just start my own savings plan instead of buying final expense insurance?
A: In theory, a savings plan would greatly benefit you when it comes to burial expenses. But many people don't end up saving for these kinds of costs on their own. And insurance has its own benefits.
"These policies exist to meet this need without having to have a huge outlay of cash on hand," Reeves said. "That is the benefit of having the insurance. Low monthly cost, level premiums, if need arrives prematurely still pays face amount in full."
Another advantage to final expense insurance is the accrued cash value. "Some plans, over time, build cash value and can be used as assets on certain financial applications," said Reeves.
References:
- Funeral Costs: How Much Does an Average Funeral Cost?
- What is Burial Insurance?
- Burial Insurance
- Know Before You Go — Four Benefits Of Final Expense Insurance
- What is Final Expense Insurance?
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