Whether it has a gentle name, like "final expense," "memorial" or "pre-need insurance," or is bluntly called burial insurance, there are a variety of plans being sold to people who want to make sure they’ve tied up all their financial loose ends before they depart this life. Burial insurance is, in fact, a form of life insurance, and can be a term or permanent life policy. Many insurance companies sell it, and it is sometimes included in the pre-need packages offered by funeral homes.
- Burial insurance is often marketed to seniors as being something crucial that they should buy to protect loved ones from big expenses after they're gone, but it's actually just a form of life insurance.
- Burial insurance is easy to get, with some companies requiring no medical exam; it's inexpensive and is presented as a kindness an aging person can leave to loved ones.
- Burial insurance offers middling benefits for beneficiaries, compared to what life insurance pays out; meanwhile, the premiums for both are roughly the same amount, depending on what time you choose.
- Many people, even those in poor health, qualify for life insurance; if you pick term insurance, you may have issues renewing once the term ends, but with permanent insurance, you won't have such problems.
- Setting up a savings account for the express purpose of handling burial costs is another option for people who are older or ailing and want to help their family with expenses.
The Burial Insurance Sell
Often marketed to seniors, burial insurance speaks to many powerful practical and emotional needs.
Easy to Get
You can buy the policy online or on the telephone without being subjected to a medical exam. Applicants are asked about age, smoking history and whether they currently have some serious conditions, and for some policies, acceptance is guaranteed. Some require a two-year premium-paying period before you can collect and only insure you to 100 years of age. This may not seem like a problem, but one out of 10 people who survive to age 65 are now expected to live past 95.
Burial insurance can be purchased for small amounts, such as $5,000 or $10,000, while other whole or term life insurance may require substantially larger minimum coverage. As a result, the premiums for burial insurance may seem like a good deal but look closely before you decide it’s a bargain.
A Vehicle of Love
The ads can be touching, touting burial insurance as one of the most important things you can do for your family so they don’t have to struggle to pay for your funeral and settle your bills. This is a worthy goal, but burial insurance is neither the only—nor necessarily the best—way to achieve it.
If your concern is to ensure your wishes for burial, cremation and/or memorial service will be funded and followed, and the demise is expected in the next few years, consider making pre-need, pre-paid arrangements with a funeral home.
Life Insurance: Similar Cost, Much Higher Benefits
Consumer advocates have raised red flags about burial insurance. It’s “a predatory type of insurance,” according to J. Robert Hunter, director of insurance at the Consumer Federation of America. People who buy it tend to be less educated, minority and low-income, and they get a poor deal. Hunter reports he recently helped a woman buy a 20-year term life policy with $75,000 in coverage for the same premium as a $5,000 burial policy.
Here’s why burial insurance is usually a bad deal. The very fact that a medical exam is not required and acceptance is guaranteed means you’re being insured as part of a high-risk pool of people. For the insurer to make a profit, the premiums have to be high relative to the benefit.
Yet most people, even with severe health issues, qualify for policies many times better than burial insurance. Don’t assume poor health locks you out of underwritten term or permanent life insurance policies. Term life insurance expires after a set period, and you may need to go through the process again and not be eligible at that point, so find out what the options are when the term expires. Permanent life insurance, as the name implies, is guaranteed to cover you as long as you pay the premiums.
$5,000 to $25,000
The typical death benefit or the amount paid out to beneficiaries named in burial insurance policies.
A Third Option
Another strategy for making sure your survivors have money to pay for final costs is to contribute regularly to a savings account for that purpose, set up either as a trust or simply as a joint account with your designated survivor. This money can be withdrawn immediately if needed after you die, so survivors won’t have to wait for the insurance check or probate.