Burial insurance is a type of life insurance used to pay for funeral services and merchandise costs after a death. The policy can be bought online or by telephone without waiting for an insurance-company doctor exam. In fact, burial insurance does not require a medical exam at all. Applicants are asked about age, smoking history and whether they have serious conditions. For some policies, acceptance is guaranteed. Others require a two-year premium-paying period before collection is possible and only provide coverage to 100 years of age.
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BREAKING DOWN ‘Burial Insurance’
Burial insurance is a cash policy, which means it builds a cash value over time. Burial insurance can be purchased for small amounts, such as $5,000 and $10,000, while other term or whole life insurance may require substantially larger minimum coverage. The premiums for burial insurance may therefore seem more affordable than bigger benefits policies. Premiums for this type of insurance do not change, and this policy provides permanent coverage. Some of the costs covered by this insurance include funeral service, cemetery plot and headstone, casket, funeral procession and other miscellaneous costs.
Life Insurance: Similar Cost, More Benefits
Consumer advocates have raised red flags about burial insurance. Some consider it a predatory type of insurance targeted to people who tend to be less educated, minority and low-income. That a medical exam is not required and acceptance is guaranteed means the pool of insured people is high risk. In order for the insurer to make a profit, the premiums have to be high relative to the benefit. Yet most people, even with severe health issues, qualify for policies many times better than burial insurance. If the pressing issue is to make sure there are sufficient funds available to survivors to pay for a funeral and settle bills, a term or permanent life insurance policy can be purchased. If the main concern is to ensure that the individual’s wishes for burial, cremation or memorial service will be funded and followed, and the demise is expected in the next few years, it may also pay to make pre-paid pre-need arrangements with a funeral provider.
Another strategy for making sure survivors have money to pay for final costs is to contribute regularly to a savings account for that purpose, set up either as a trust or simply as a joint account with a designated survivor. This money could be withdrawn immediately if needed after you die; survivors won’t have to wait for the insurance check or probate.
Is Burial Insurance Different from Preneed Funeral Insurance?
Two common types of funeral expense life insurance policies are burial insurance and preneed funeral insurance.* Having either one of these types of funeral expense life insurance policies can allow you to plan ahead for the costs associated with your funeral/final expenses. However, there are key differences between the two. Before deciding on one or the other, here are the basics of how each one works.
Burial insurance is a type of funeral expense life insurance policy designed to cover the cost of your funeral or cremation expenses when you die. Because many people don’t realize that funerals can cost upwards of several thousand dollars, they don’t often think about planning ahead. This type of situation can sometimes lead to a financial hardship on families or loved ones who must cover the costs.
Burial insurance policies can vary between life insurance companies, so you may find it offered in the form of a term policy or whole life policy. Generally speaking, the death benefits for burial insurance are low, ranging anywhere between $5,000 up to $25,000 (although some insurers may offer higher limits).
After you die, burial life insurance pays the death benefit of your policy directly to your beneficiary who can use the money in any manner. For example, if you have a $15,000 burial insurance policy and funeral expenses came in at $10,000, your beneficiary might choose to use the additional funds to pay for other final expenses such as outstanding medical bills, legal costs, or any other outstanding debts you may owe.
Preneed funeral insurance
Not unlike burial insurance, preneed funeral insurance is designed to set aside funds for your funeral, before the need arises. It is another type of insurance policy that aims to protect your loved ones from shouldering the financial burden after you die. It covers the costs of predetermined expenses such as standard funeral home services, funeral merchandise, church and burial services. In some instances, this type of policy can protect against inflation and the rising cost of funeral expenses by locking into today’s prices for services and merchandise.
It, too, can be offered as either a term life policy or type of permanent policy. However, instead of paying the benefits of your policy to your beneficiary when you die, the money goes directly to the funeral service provider of your choosing. At the time of your death, preneed life insurance proceeds are often made payable immediately to an assignee (typically the funeral home) to cover costs with little (if any) delay. Once your policy is paid in full, it remains in effect for your entire life.