Whether it has a gentle name like "final expense insurance" or “senior life insurance” or is bluntly called “funeral insurance” or “burial insurance,” a variety of plans are being sold to people who want to make sure they’ve tied up their financial loose ends before departing this life. Beyond the marketing, burial insurance is nothing more than a form of whole life insurance. Many life insurance companies sell it, from smaller ones you may not have heard of to household names like State Farm and AIG.
- Burial insurance is often marketed to seniors as something crucial that they should buy to protect their loved ones from big expenses after they're gone.
- It's actually just a form of permanent life insurance with a small death benefit that your beneficiaries can use for any purpose.
- Burial insurance is easy to get and does not require a medical exam.
- The more affordable policies with better death benefits require that you complete a medical questionnaire and not be terminally ill.
- Burial insurance may not offer as much value per premium dollar as a larger life insurance policy.
- Setting up a savings account for the express purpose of handling funeral and burial costs is another option for people who are older or ailing and want to help their family with final expenses.
The Burial Insurance Sell
Often marketed to seniors, burial insurance speaks to practical and emotional needs.
Easy to get
You can buy the policy online or on the telephone without being subjected to a medical exam—because who likes those? Applicants are asked about their age, tobacco use, and whether they have certain serious health conditions.
Some policies do not even have medical questions and acceptance is guaranteed. Unsurprisingly, they’re called guaranteed acceptance or guaranteed issue life insurance. These policies are designed for people who are so sick they cannot qualify for any other type of life insurance.
Guaranteed issue policies do not pay a death benefit (the amount paid out to beneficiaries) for the first two or three years that the policy is in force. If they did, everyone would want to wait until they were on their deathbed, pay premiums for one month, and have their heirs get $25,000. No insurance provider could stay in business if they allowed this. However, if the insured dies during the waiting period, the policy’s beneficiaries will get back the premiums their loved one paid, plus interest.
Burial insurance can be purchased for small amounts, such as $5,000 or $10,000, while other whole, guaranteed universal, or term life insurance policies may require substantially larger minimum coverage amounts of $50,000 or $100,000. The premiums for burial insurance may seem like a good deal, but it’s hard to tell without getting personalized, competing quotes for larger policies.
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. That said, it can be a good type of insurance for people who only want a small policy and can't qualify for a larger or less expensive policy because of their age or health.
Other Insurance Options: Similar Costs, Higher Benefits
Here’s why burial insurance can be a bad deal. The fact that a medical exam is not required means you’re being insured as part of a high-risk pool of people.
Yet many people, even with health issues, qualify for policies that offer a better value in terms of the payout your beneficiaries will get relative to the premiums you pay. Don’t assume poor health locks you out of other life insurance policies. Consider working with a broker who sells different types of life insurance (not just final expense) to see what you’re eligible for.
Term life is often presented as an alternative, but this insurance expires after a set period, so it may not offer enough coverage for someone who wants to be sure their heirs will get cash when they die. If you die after the term ends, your heirs won’t get a payout. Permanent life insurance, as the name implies, is guaranteed to cover your death at any age as long as you pay the premiums. Term policies also may not be available to older adults or the premiums may be cost prohibitive.
Burial insurance is designed for a specific type of person. If you are that type of person, it can be a valuable product. Where burial insurance gets a bad rap is that some insurers, brokers, and agents care more about making the sale than about matching their customer to the best insurance product for their situation.
$5,000 to $25,000
is the typical death benefit of burial insurance policies.
The Savings Account Option
If your concern is to make sure your wishes for burial, cremation, and/or a memorial service will be funded and followed, consider funding a savings account or trust and designating the person who would otherwise pay your final expenses as the beneficiary. This money can be withdrawn immediately if needed after you die, so survivors won’t have to wait for the insurance check or probate.
You can also investigate prepaying funeral expenses at the funeral home your family generally uses. However, this involves investing money in a business that may or may not be viable or well run by the time your family actually needs to arrange your funeral. A savings account or trust provides more flexibility.
It’s also important to discuss your wishes with your family and put them in writing. Planning your funeral is just one part of a broader estate planning process that makes sure your loved ones know what you want and your assets go to the right people when you die.