In this article, we’ll break down all the pros and cons of burial insurance and when and if it’s worth buying this type of coverage.
Burial insurance is a very worthwhile purchase for people who don’t have cash, investments, real estate, retirement funds, or other financial means to pay for funeral costs. These policies cover all your funeral costs, medical bills, credit card debts, or other final fees, so your family doesn’t have to go into debt paying these expenses.
However, only some people need or would benefit from a final expense insurance policy.
If you have the funds to buy a pre-paid funeral or cash that you can set aside specifically for funeral expenses, you don’t necessarily need a final expense policy. You can purchase one as a personal preference, but you don’t necessarily need it.
- Affordable premiums: Final expense life insurance is generally very affordable. The typical cost is $50-$100 monthly for $10,000 in coverage. It’s worth mentioning that your price will depend on your age, gender, state of residence, health, and how much coverage you buy.
- Rates that never increase: Burial insurance is a type of whole life insurance that has a fixed monthly premium.
- Lifetime coverage: Since a final expense policy is a type of permanent life insurance, it has no age limit and thus will never terminate due to age.
- No exam: Final expense policies are “simplified issue,” meaning no medical exam is required. Some policies don’t even require you to answer health questions.
- No waiting period options: Some final expense companies offer no waiting period plans that fully insure you 100% for natural or accidental death. It’s important to remember that you must qualify for an immediate coverage life insurance plan. You won’t have to take a medical exam, but you will have to answer medical questions (and be approved). All plans without health questions have a two-year waiting period.
- Living benefits with most policies at no extra cost: Most burial insurance plans offer a living benefit called the “Accelerated Death Benefit Rider.” You never pay for this rider. It’s always free. These riders allow you to access up to 50%-100% (varies by company) of the death benefit while alive if you’re diagnosed with a terminal illness and given a life expectancy of 12 months or less.
- Fixed death benefit: Your coverage is guaranteed never to decrease.
- No health questions plans are available: One of the biggest pros of final expense insurance is that there are plans available that don’t require you to complete a health questionnaire. These policies are commonly called “guaranteed issue life insurance.” In short, you’re guaranteed approval regardless of your previous health issues. Bear in mind that these policies all come with a two-year waiting period. The insurance provider will only refund your premiums if you die during the waiting period.
- Small coverage options: The best final expense companies offer very small death benefit options. Some will go as low as $1,000 in coverage.
- Lenient underwriting: Life insurance companies built these plans to accept applicants with a host of pre-existing medical conditions. That means seniors with diabetes, high blood pressure, and many other health conditions won’t be denied coverage. You don’t have to be in good health to qualify.
- Fast claim payments: Insurance companies typically pay out the death benefits within 24-48 hours once they approve a claim. They know policyholders primarily purchase these policies to cover funeral costs, which they know is a time-sensitive issue.
- Virtually all ages are insurable: Funeral insurance plans are available to children as young as 14 days old. On the other end, seniors over 85 can still qualify for a new policy. In many cases, burial insurance is the only way seniors over 80 can get life insurance.
- Lots of provider options: There are dozens of life insurance companies that offer final expense insurance plans. Having more options means you have a better chance of securing the lowest rate possible.
- Quick approvals: Most final expense insurance applications render approvals within minutes.
- A variety of application process options: There are multiple ways to complete a final expense insurance application. Generally, you can apply 100% over the phone, via email, directly online, or through the mail (paper application).
- Multiple payment modes: Most companies will allow you to make your premium payments monthly, quarterly, semi-annually, or annually. In most cases, you cannot mail in monthly payments. To pay monthly, you must do it via an automatic deduction from a checking or savings account (no pre-paid cards) on a day you choose. Some insurers will allow you to pay with a Direct Express card, but not many. For example, Transamerica and Prosperity Life Group will automatically withdraw monthly payments from a Direct Express card.
- The money can be used for anything: Since final expense coverage is a type of life insurance, the final result will merely be a tax-free cash payout. Your beneficiaries can spend the money on anything. There are absolutely no restrictions. That means they can pay for your funeral expenses, medical bills, credit cards, or other debts. Also, any unused money stays with your family.
- You can name any beneficiary(s) you want, even a funeral home: You decide how many beneficiaries you want. It’s best to name people, such as a loved one, as a beneficiary. However, you can designate a funeral home as the recipient of the funds if you’d like. Also, you can name multiple primary and secondary (contingent) beneficiaries. Lastly, you can change and update your beneficiaries anytime you want in the future.
- Someone else can pay for it: Someone else, such as a family member, can pay for your coverage. Children buying life insurance for their parents is quite common. Essentially, anyone else (even if they aren’t related to you) can be the payer of your policy so long as you agree to it.
- Cash value that grows over time: A burial policy is a type of whole life insurance that builds cash value. A small portion of each payment is directed to this account, and it usually earns interest. You are free to borrow from the money that accrues in the cash value account. Also, if you ever cancel your coverage, the insurer will refund you the policy’s cash value.
- Most policies have automatic lapse protection: Most companies include an Automatic Premium Loan Provision (APL) at no extra cost. If your policy has this feature, it will prevent your coverage from lapsing due to non-payment. The APL will automatically draw from the accrued cash value to make the premium payment(s) to keep your policy active.
- Tax-free benefit payout: A funeral insurance policy will always pay out a cash benefit tax-free. Your beneficiaries will not be subject to a tax burden from the IRS.
- It can be used as a charitable gift: The proceeds from a final expense policy can be a generous gift to a loved one or charity. The money does not have to be used for funeral expenses. Remember, the policy will pay out cash that can go to anyone and be used for anything.
- Multiple names that often leads to confusion: Final expense plans have many alternate labels that can confuse some shoppers. The terms “burial insurance,” “funeral insurance,” and “end-of-life insurance” are all synonymously used by companies that market these plans. Know that all these names mean the same thing.
- Beneficiaries can use the money any way they want: As mentioned before, your beneficiaries can spend the death benefit money on anything. They don’t have to spend it exclusively on funeral expenses. That can present challenges if you don’t have a person you can trust as your beneficiary.
- Large amounts of coverage aren’t available: Final expense insurers often limit their exposure to a maximum death benefit of $25,000 or $50,000. A burial insurance plan is likely not for you if you need a high amount of coverage, such as $100,000 or more. You’d either need to A) buy multiple burial policies or B) buy a traditional life insurance policy for a large amount.
- Premiums are more expensive than other types of life insurance: Funeral policies are generally more expensive (per thousand of coverage) than other types of life insurance.
- It may not be enough to cover all your funeral costs: A burial insurance policy does not contractually stipulate what your final wishes are or the net cost. Instead, the policy only provides a quick cash payout to your family so they can pay for your funeral. If you don’t have enough coverage to pay your funeral bills, your heirs will have to pay for the remaining amount. That’s why using a funeral cost calculator or a similar tool is useful to select the right amount of coverage.
- Misleading marketing is abundant: Final expense life insurance ads are on television, in the mail, and online. Sadly, dozens of companies regularly use deceptive marketing to confuse, mislead, and sometimes scam shoppers. The Colonial Penn $9.95 plan is one such example. Their ads give the impression that seniors can buy ten or twenty thousand dollars of coverage for just $9.95 monthly. However, the truth is that most seniors get less than $1,000 of coverage for $9.95 when they buy from Colonial Penn. Other common examples include ads that say things like “free funeral insurance,” “Coverage starting at just $10 per month,” “Policies cost just pennies per day,” “new state-regulated life insurance program,” or “government burial insurance.” While those statements aren’t technically a lie, they are very close to it. People who see these ads think they really can get very cheap burial insurance or coverage provided by the government (the VALife program for disabled veterans is the only type of government coverage). Please don’t take these ads seriously because 99% of the time, they are not a realistic representation of the true cost.
- Some scandalous agents hide the truth about critical policy details: Every business has its fair share of bad apples, and insurance is no exception. There are a variety of final expense insurance scams that bad agents will employ to make money, so it’s important to protect yourself.
- Most options are only sold through agents: Most burial insurance companies do not sell their plans directly to consumers. Instead, they rely on licensed insurance agents to market their products. Generally, the only time you can purchase directly from a life insurance provider is via a guaranteed acceptance policy that includes a two-year waiting period. There are some anecdotal exceptions to that rule, of course. Globe Life and TruStage are two such examples. But by and large, most insurers mandate that you work with an agent which some consumers would rather avoid.
- Final expense insurance is life insurance: Burial insurance is life insurance (read: burial insurance vs. life insurance). If you already have a life insurance policy, you can rely on it to pay for burial costs. Some people think there is insurance to cover burials that isn’t life insurance. That simply is not true. A burial only happens when a life ends. That’s why an insurance policy to cover final expenses will always be life insurance coverage.
- Your premiums could one day exceed the death benefit: While uncommon, your total premiums could exceed the death benefit if you live a very long time. Generally, you’d have to live to be 90 years old or older for this to happen.
In short, a final expense life insurance policy is a small whole life insurance plan meant to pay for your funeral expenses.
Because its whole life, there are no price increases over time, and the policy cannot expire at any age.
Upon your passing, the insurance company will disburse the proceeds to the beneficiaries of your choice.
That gives them the money to cover your end-of-life expenses.
Policies vary greatly from company to company. Comparing multiple plans to ensure you find the right one to suit your needs is critical.
On average, a final expense policy costs $50-$100 per month for $10,000 in coverage. Keep in mind that your exact price will vary depending on age, health, gender, tobacco usage (if any), and how much coverage you choose.
Most final expense policies become available at age 50, but some providers offer them to young adults as low as 18. Ideally, buying coverage as soon as you know you want or need it is best. Waiting to purchase a policy will only make it harder to qualify for and cost more.
Burial insurance is a type of life insurance that only covers your life and nothing else. Your life will be insured for however much coverage you choose. The money that pays out when you die can be used for anything. The money does not have to be used only to cover funeral expenses.
Burial insurance covers all your funeral expenses, so those costs don’t burden your loved ones. Your loved ones can use the policy to pay for your funeral costs, medical bills, or financial debts.