Burial Insurance 101

When a loved one passes away unexpectedly, families are often thrown into turmoil. Not only are they dealing with the loss of someone they love, but the burden of paying for a funeral, cremation, and other burial expenses can also place extreme stress on a family’s finances. To help offset this, people can buy burial insurance or pre-need funeral insurance. Read on to see how these insurance products can work for you.

What is Burial Insurance?

Burial insurance, often referred to as funeral insurance, is often purchased when a person cannot obtain a life insurance policy to help cover funeral expenses. Under a burial insurance policy, the death benefit is paid out directly to the beneficiary, who can then use it to pay for expenses such as funeral costs and cremation.

How does Burial Insurance Work?

Burial insurance is typically written as a term life or a whole life policy. Premiums are paid in monthly and are determined by age, gender, and health. The average monthly premium for $10,000 of burial insurance can run $50 per month.

While some policies require a medical exam or health forms to be completed, others may not. Policies that do not require medical information are known as “guaranteed issue life insurance.” These types of plans automatically guarantee coverage, however they are typically subject to a 2-year waiting period. Essentially, if an insurance company does not have enough information to assess your health, they impose this waiting period. If the policy holder dies during the first 24 months, no death benefit is paid out. Rather, any premiums that were paid in are refunded, along with interest.

Who should buy a burial insurance policy?

Burial expenses can be expensive, especially for a family on a limited budget. If you already have life insurance coverage, most likely that will be enough for your beneficiary to cover these end-of-life expenses. The added cost of a burial insurance policy is typically not worth the money if you can find coverage elsewhere.

People who can’t get life insurance should consider a burial policy. Burial policies may be the only option for people who have serious health problems such as cancer, dementia, or terminal illness.

What is pre-need funeral insurance?

An option that is similar to burial insurance is known as pre-need funeral insurance. A pre-need funeral insurance plan covers funeral and other burial costs. With a pre-need policy, you deal with the funeral home directly. They determine what your needs are and price this out, which may allow the holder to save money by locking this in current rates. The difference between pre-need and burial insurance is that the death benefits are paid directly to the funeral home as the beneficiary.

Should I buy pre-need funeral insurance?

A pre-need funeral insurance plan takes care of both the costs and the funeral arrangements. It relieves much of the burden placed upon a family to plan and pay for a funeral.

Pre-need insurance does have a few drawbacks. There is a limitation period built into your policy. This means if you die before the end of the period, your benefit will be reduced. Any difference between the cost of the funeral expenses and the benefit will need to be paid for by the family. When compared with other life insurance products, pre-need insurance is usually more expensive.

These policies cannot be transferred and are typically not refundable. If you change your mind, you will lose whatever has been paid in. Finally, if the funeral home permanently closes, you may lose whatever you’ve paid.

Burial and funeral insurance policies are best for those who can’t get a life insurance policy, usually due to serious health issues. These policies will cost more than a term-life insurance plan, but if it’s your only option – it can be well worth the money.

For people who can get life insurance, a burial or pre-need funeral insurance policy is probably not necessary. Going with a term-life insurance plan, a family can get enough coverage to take care of funeral and burial expenses without the added cost of another insurance plan.