Burial Vs. Life Insurance Coverage Comparison
When deciding if you want traditional life or burial insurance, knowing the differences is helpful.
It’s important to remember that the term “life insurance” is very general. It’s similar to the word “automobile.” Just as there are many different kinds of automobiles (cars, trucks, SUVs), there are many different kinds of life insurance, like term life, whole life, or burial insurance.
Generally, traditional life insurance policies offer financial protection to beneficiaries, including income replacement, the ability to pay off debts and provide long-term financial security.
A burial insurance policy is a particular type of life insurance. A burial or cremation only happens when a life ends, which is why insurance to cover funeral costs is a type of life insurance.
The goal of burial life insurance for seniors is peace of mind, knowing that if you die, the policy will ensure your family isn’t saddled with the financial burden of unpaid final expenses.
Below is a table that outlines some of the unique features of a burial insurance policy compared to traditional life insurance plans.
| Features | Life Insurance | Burial Insurance |
|---|---|---|
| Purpose | Income replacement, mortgage repayment, estate planning, or to supplement retirement | Pays for the cost of a funeral and other final expenses |
| Beneficiaries | Family members, a trust, your estate, or an organization | Family members, a trust, your estate, or funeral home |
| Coverage | High coverage amounts ($50K-$1 million+) | Small coverage options ($2K-$50K) |
| Expiration | Can expire after a certain number of years | Never expires at any age |
| Premiums | Can have a premium increase in the future | Locked in prices for life |
| Requirements | Usually requires good health to qualify and often requires a medical exam | Very lenient underwriting accepting of high-risk health conditions, and no exam is ever required |
| Approval | It can take weeks or months to get approved, and guaranteed approval is not an option | Approvals are typically instant or within a couple of days, and some policies are guaranteed approval (no health questions) |
| Benefit Payout | The payout can take months to pay out and is either paid out as a lump sum or in periodic payments to beneficiaries | Approved claims are typically paid within 48 hours and usually disbursed out as a lump sum to cover funeral expenses |
How Does Burial Insurance Work?
Burial insurance works like a simplified whole life insurance policy with a small death benefit — typically $50,000 and under — to cover the costs associated with funeral and burial expenses. The policy proceeds are ultimately paid as a lump sum cash tax-free payment to your family members or funeral home. The policyholder chooses the beneficiaries, which is typically their family and loved ones.
Like all forms of life insurance, the money can be spent with no restrictions. So if your loved ones don’t use all the money to cover your burial or cremation, the remaining amount is theirs to keep. The rates will never increase, the policy won’t expire, and it will build cash value. Below are some other intricacies of the coverage:
- Premiums: The premiums are affordable since you only buy a small amount of coverage. In contrast, life insurance plans offer very large death benefits to replace your income, pay off a mortgage, or supplement retirement, which is why they typically cost much more.
- Requirements: You don’t have to be in good health to qualify. No medical exams are necessary, and seniors with pre-existing conditions can still obtain a new policy. Some plans are guaranteed acceptance because they don’t require you to answer health questions or complete an exam.
However, it’s important to remember that plans without a health questionnaire have a two-year waiting period. Any nonaccidental death during the waiting period will only result in a refund of your premiums. You must answer health questions to qualify for life insurance with no waiting period.
Who Needs Burial Insurance?
Not everyone needs a final expense policy, but here are a handful of instances when it makes sense to purchase a burial life insurance policy:
- You have no financial means to cover your burial expenses.
- There is existing coverage, but it’s not enough to pay for a funeral.
- You’d like to leave a little money behind to someone special as a gift.
- You want to pay off small debts such as a car note or credit card bills.
Some companies will tell you it’s a must-have for everyone, but that simply is not true. People who buy this type of policy do so because they want to ensure they don’t saddle their loved ones with the financial burden of unpaid funeral expenses.
Alternatives
If you’re unsure whether you need burial insurance, consider these other options:
- Prepaid burial plan: If you have the cash to make a lump sum payment, you can purchase a prepaid burial plan directly from a funeral home. This will more than cover your funeral arrangements and costs.
- Set up a savings account: While less than ideal, you could also commit to putting money into a savings account to save up enough before you die. If you elect this option, be sure you don’t dip into those funds when a financial emergency arises. Otherwise, you won’t have the money to pay for your funeral.
- POD Account: A payable on death (POD) account is a special type of bank account in which you name beneficiaries who will receive the funds in the account when you die. It’s also referred to as a Totten trust.
Regardless of your end-of-life planning option, stick with it so you don’t leave your loved ones with a hefty bill — the median cost of a funeral was $9,995 in 2023.
Frequently Asked Questions
Funeral insurance is an excellent option if you have no other financial means to pay for your end-of-life expenses. It can provide immediate peace of mind to ensure your surviving loved ones don’t have to come out of their own pockets to pay for your funeral.
However, you should consider life insurance if you will need help covering large, long-term expenses like paying for a mortgage.
Burial insurance is life insurance. A funeral happens when a life ends, which is why insurance to cover final expenses is going to be a type of life insurance.
All forms of life insurance result in a payout of cash (tax-free) to the beneficiaries of your choice. There are no restrictions on how the money is spent. Your beneficiaries can use the life insurance money to pay for your burial or anything else.
Use Insurance To Help Pay Your Final Expenses
Preparing in advance is the most effective method to alleviate the financial strain of funeral expenses and other end-of-life costs for your family and loved ones.
Final expense insurance enables you to manage your end-of-life affairs, reassuring those closest to you. Get a free quote now to help you compare insurance prices.
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