In this article, you’ll learn the difference between life insurance and burial insurance, who needs burial insurance, and tips for finding the best policy.
When deciding if you want traditional life insurance or funeral insurance, it’s helpful to know the differences.
Below is a table that outlines some of the unique features of a final expense policy compared to traditional life plans.
|Traditional Life Insurance
|Final Expense Life Insurance
|High coverage amounts ($50K-$1 million+)
|Small coverage options ($2K-$50K)
|Meant to pay replace income, pay off mortgage, estate planning, or supplement retirement
|Meant to pay for the cost of a funeral and other final bills
|Can take weeks or months to get approved
|Approvals are typically instant or within a couple of days
|Can be term life insurance or universal life which expire after a number of years
|Never expires at any age
|Often require medical exams
|No exam required
|Usually require good health to qualify
|Very lenient underwriting accepting of high-risk health conditions
|Guaranteed approval is not an option
|Some policies are guaranteed approval (no health questions)
|Payout can take months
|Approved claims are typically paid within 48 hours
|Can have a premium increase in the future
|Locked in prices for life
Burial insurance is also called “final expense life insurance” and “funeral insurance.” They are all the same thing.
The goal of a final expenses life insurance for seniors is peace of mind.
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.
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.
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.
To be more specific, final burial insurance is a simplified whole life insurance policy with a small death benefit- typically $50,000 and under. The rates will never increase, the policy won’t expire, and it will build cash value.
The premiums are affordable since you only buy a small amount of coverage. In contrast, traditional 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.
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 non-accidental death during the waiting period will only result in a refund of your premiums. You must answer health questions to qualify for burial insurance with no waiting period.
The truth is that not everyone needs a burial policy. Some companies will tell you it’s a must have for everyone, but that simply is not true.
Realistically, there are only a handful of reasons to purchase a final expense 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.
- Pay off small debts such as a car note or credit card bills.
If you decide to buy a burial policy, be sure to compare multiple providers before signing on the dotted line. Every company varies in terms of the rates they charge, the underwriting, and if there is a waiting period.
If you have the cash to make a lump sum payment, you can purchase a prepaid burial plan directly from a funeral home. That will more than take care of your funeral arrangements and the cost.
While less than ideal, you could also commit to putting money into a savings account to save up enough before you die, hopefully. If you elect this option, be sure you don’t dip into those funds when a financial emergency arises (which it will one day); otherwise, you won’t have the money to pay for your funeral.
Regardless of your end-of-life planning option, stick with it so you don’t saddle your loved ones with a hefty bill. The National Funeral Directors Association reported in 2021 that the median cost of a funeral was nearly $10,000. That’s a sum of money most families simply do not have.
Burial insurance is a type of permanent life insurance meant to pay for your funeral expenses. The payout is a tax-free cash payment to the beneficiaries of your choice, and they can spend the money on anything.
A burial policy, also known as final expense or funeral insurance, is a type of whole life insurance plan meant to pay for your funeral. Because it’s life insurance, the insurance company will quickly pay cash to a funeral home or your loved ones.
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.
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.