How Does Burial Insurance Work?
All the ins and outs on Burial Insurance.
We can never be too prepared for anything life throws at us. Whether it is a curveball in your career path or a health complication that reduces your lifespan, anything can happen. Which is why it is always a good idea to have a safety net to fall back to in case anything were to happen to you. And this safety net is often called burial insurance.
What is Burial Insurance?
This is a type of insurance coverage that ties up all financial loose ends for people before they depart this world. It is also known as final expense insurance.
It is a type of life insurance that is used to pay for funeral services and other burial costs after a death. This policy can be bought online or by telephone. It does not require a medical exam and the only thing applicants are asked about is their age and whether they have any serious medical conditions. Usually for some policies, acceptance is guaranteed. However, some policies have a two year premium paying period after which collection will be possible and might only be for individuals above the age of 100.
Burial Insurance vs. Funeral Insurance
It is not uncommon for people to be confused between burial insurance and funeral insurance. However, there is not much difference between the two policies.
While burial insurance pays out a death benefit to the insured’s named beneficiary who then can use the money for whatever they wish, funeral insurance is a tad bit different. Although it serves the same purpose as burial insurance, funeral insurance helps the insured plan their funeral before their death. Which means all the costs of the funeral are taken care of beforehand. And the payout can solely be used for the funeral costs. Whereas in burial insurance, the beneficiaries can choose whether they want to use the death benefit for a funeral or for whatever they wish.
How Does Funeral Insurance Work?
Funeral insurance provides an individual with a pre-planned funeral. It covers all the costs of the funeral and makes sure that you have a say in your own funeral that other policies do not allow. This also helps protect you from the rising costs and inflation as you lock in the funeral costs of today. So even if you pass away in a few years when the funeral costs have increased, you will still get the same costs from years ago. It can be offered as a permanent policy or a term life policy. However, unlike burial insurance, the money from the payout is directly sent to the funeral service provider instead of being paid to the beneficiary. At the time of the insured’s death, the proceeds from the funeral insurance are immediately made payable to an assignee that is typically the funeral home so there is next to no delay. Funeral insurance for parents works the same way. However, you would have to get the parents insured in order for them to receive the proceeds on their passing.
How Much Does Burial Insurance Cost?
Burial insurance policies depend on the life insurance company selling them. However, the death benefit of a burial insurance policy is usually low. It would typically range between $5000 to $25,000 which is enough to cover funeral costs. Since the death benefit is low, the cost of premiums is low as well. This is because burial insurance is designed for people above the retirement age who can only manage to pay the premiums from their pensions. Since pensions generally are not a lot, the entire policy has been specifically designed to be affordable and easy to manage.
In case the funeral expenses are about $10,000 which is the same amount an average funeral costs, and the beneficiary has received a total death benefit of $15,000, they can use the remaining $5000 for any outstanding charges you may have left behind such as medical bills, legal bills, etc. Or the beneficiary can choose to use this amount for whatever they wish.
If you are buying burial insurance specifically to cover your funeral costs, you need to find out what kind of funeral you want. If you want a simple funeral, you should go for a coverage option that does not have expensive premiums since the kind of funeral you want would be done with a low death benefit. However, if you want an extravagant funeral with viewings and a service afterwards, you should go for a wider coverage option so that your funeral costs are covered by the insurance. If you want additional money to cover up any household or medical expenses for your family after your death, you should purchase a plan accordingly, making sure that the death benefit you are getting is enough to cover all the costs you want to cover.
However, funerals can generally be expensive and it would be a good idea to shop around and see what the costs around you are like according to what you want your funeral to look like. If you still have trouble managing your money, here are a few tips on saving money when buying burial insurance:
- Get price information on the phone.
According to the Funeral Trade Commission’s rules, all funeral homes and funeral service providers are required to give you funeral costs on the phone if you ask for them. You can also find a full funeral pricing and cost checklist on FTC’s website.
- Buy only the things you want.
You do not have to accept any funeral service providers’ packages if they include any service(s) you do not like. You should only buy what you need.
- Do not buy a casket.
If you plan on having an alternative for a burial service like cremation or a green burial, you may not need a casket and buying one would only be a waste of money while adding to your overall funeral costs. However, if you want to buy a casket so you can hold a viewing, you may rent one from your funeral service provider.
- Have a close one help you negotiate prices.
It can feel overwhelming negotiating for your own funeral. You should always have a trustworthy and supportive family member or friend who can negotiate on your behalf and talk to them about the arrangements if it all gets too emotional for you.
Is Burial Insurance Worth It?
Burial insurance is usually marketed to seniors and that is why it has many advantages to make it an easy and affordable process for them. Here are a few reasons why burial insurance is worth it:
- The policy is easy to get. You can buy it on the phone or online without being subjected to any medical exams. Applicants are only asked easy questions about their age and their medical history including their tobacco use. Some policies do not even have any medical questions and acceptance is guaranteed. These policies are known as guaranteed acceptance or guaranteed issue life insurance. These policies have been specifically designed for people who are too sick to get other insurance policies. Guaranteed acceptance life insurance policies do not get the payout immediately for the first two or three years the policy is in force.
- Inexpensive policies. Burial insurance policies have seemingly cheaper packages and can be purchased for small amounts making it affordable for everyone.
- Sentimental value. Burial insurance is the most important last thing you can do for your family as you are leaving. You can take care of your funeral expenses so they do not have to worry about the financial strain the funeral can cause, besides the emotional one. You can save them the trauma of having to lose you and also worry about paying for your funeral costs. Burial insurance can be a good idea for people who want a smaller policy and cannot afford to pay high premiums for a good funeral plan.
However, burial insurance can be a bad choice in a few circumstances as well. For example, since burial insurance does not conduct a medical exam and often times asks no medical questions, you will be included in the pool of high risk individuals. Which is why people tend to opt for burial insurance when they can apply for other life insurance policies with a better payout that your beneficiaries will get in terms of the premiums you pay. Many people assume having poor health automatically disqualifies you from other life insurance policies. To determine which policy you can be eligible for, you should consider working with an insurance agent or broker so they can advise you on which life insurance policy will be better for you.
Term life insurance is sometimes an alternative for burial insurance. However, since term life insurance expires after a set period of time, it may not be the best option for individuals who want to make sure their family and beneficiaries receive a good sum to take care of the financial burden since in term life insurance, if you die after the set time period has ended, your beneficiaries will not get a death benefit. However, if you die during the term of the policy, your beneficiaries will get the amount of the total premiums you have paid until then. Depending on the type of coverage you have bought, it could be more than the death benefit burial insurance is providing. Term life insurance policies may have an age restriction or the premiums may be cost prohibitive.
Another alternative is permanent life insurance that guarantees to cover your death and protect your family regardless of when you die as long as you have paid all your premiums. It is a type of permanent insurance, as the name implies, that only ends when you die. The disadvantage of this is that the amount paid in premiums throughout your life could exceed the amount you would get as the death benefit if you live longer than expected.
Burial insurance is designed for a specific type of individual. It is important when looking at insurance options to determine what exactly is it that you need so you can decide on a life insurance policy effectively. It is also important to find an insurance agent or insurance broker who is more focused on guiding you than they are on making the sale and getting their commission. It is only an insurance broker that can make sure you buy a policy that fits your needs perfectly and is a suitable option for you.
Other Funeral Options
Other options you can look into if covering funeral costs is your main goal:
- Payable on death (POD) account: A POD account requires you to put aside a sum for your funeral that only a beneficiary you name can access when you pass away. Having a POD account is beneficial as it can be a good way to avoid keeping the funeral funds tied up in probate. POD accounts are also known as “Totten Trusts” and allow the owner of the account to add or withdraw money at any time. Moreover, your beneficiary would only be able to access the money after you are dead as they would be restricted while you are alive so the safety of the account is ensured.
- Funeral trusts: This is an agreement which allows you to set aside money for the funeral and name a trustee who can access the money after you pass away. The money should be used to pay for your funeral as the aim of the trust is for a funeral.
- Trusts: This is an agreement where the trust owns the life insurance policy. You outline your wishes in the trust document according to which the money is distributed after you pass away. However, a trustee that you name would have to make a claim after your death for the money to be accessible.
- Savings account: You can use a regular savings account for a funeral as well. However, unlike a POD account, the money could be tied up in a probate.
What if you Cannot Afford a Funeral?
In case you cannot afford a funeral or burial insurance, there are other ways you can make sure you have the proper final send off. For example, federal assistance. If you are unable to afford a funeral or burial, you can request assistance from a federal government program that can provide you with benefits such as:
- Veteran benefits. If you are a veteran, you can easily be buried in any of the national cemeteries with zero cost. Your spouses and children can also be buried at a national cemetery. Veterans can also qualify for a burial allowance that can be up to $2000 if you died on or after September 11, 2001 and veterans that died before that date will be given $1500 as burial allowance. You can check for eligibility requirements with the S. Department of Veteran’s Affairs.
- Federal Emergency Management Agency (FEMA). If you died as a result of a declared major event or disaster, you can qualify for FEMA Funeral Assistance to help pay for the costs of a casket, urn, burial or cremation and the cost of a maker or headstone.
- State government assistance. Many states offer programs to help people who cannot afford a funeral or burial on their own. To apply for these programs in a state that is offering them, you will have to apply for assistance at the county or municipality level. You can check out Funeralwise’s list of all these programs by state.
- Crime victim compensation program. Some states offer funds to pay for funerals of victims of violent crimes. The National Association of Crime Victim Compensation Board has compiled a list of state programs that you can check for eligibility requirements.
- Personal loans. You can choose to opt for personal loans from your bank, credit union or other lenders. It is also known as a funeral loan. However, it is a kind of personal loan that you can use for whatever you like. Personal loans do not require collateral, like a lien on your car, which is why personal loans are typically “unsecured.” They also tend to have high interest rates that, according to AARP, can be in the range of 16% to 35%.
- Crowdfunding. It is also known as crowdsourcing. Crowdfunding generally refers to using donations from the general public to raise money. Many people use sites like GoFundMe to raise money or use donations from churches and other organizations.
What is the Next Step?
So now we know what burial insurance is and how does burial insurance work. The next step for you should be to contact your insurance provider and find out whether or not you can qualify for other life insurance policies. If you can, it would be best to purchase those policies since they will give you a larger payout.
However, if you fit the requirements that a person choosing burial insurance should have then it should be the best option for you. It just depends on a variety of factors that, after all this information, you can easily figure out on your own. Then the only thing left to do would be to find an insurance company with your insurance broker. This way, although you cannot save your family from the emotional trauma of losing you, you can protect them from the financial burden and strain that will come with your death.