Funeral Insurance: How to Find the Best Policy
When planning for the final years of our lives, we don’t usually like to think about burial arrangements.
Facing that anxiety now can save a lot of trouble for your loved ones when the time comes.
After you are gone, the last thing they need is an added financial burden to worry about.
The best way you can prepare is to ensure you have a financial safety net in place to cover the cost of your funeral arrangements and wrap up any outstanding obligations.
Purchasing a funeral insurance policy is one of the easiest ways to lend you and your family peace of mind in this regard.
What Is Funeral Insurance?
A funeral insurance policy is a lot like a life insurance policy. However, funeral insurance policies are specifically intended for the purpose of funding funeral arrangements.
In some cases, funeral insurance money can also be used to pay off the deceased’s outstanding financial obligations such as credit card debts, medical bills, or mortgage payments.
Funeral insurance is sometimes called burial insurance or final expense insurance. While there are multiple kinds of funeral insurance policies, these three terms in particular are broad and usually interchangeable.
In general, funeral insurance coverage is tailored to people between the ages of 50 and 85, but you do not have to be within this age range to purchase funeral insurance.
Many funeral insurance providers even allow small children to be insured.
What Is the Difference Between Funeral Insurance and Life Insurance?
Life insurance and funeral insurance are very similar. In fact, funeral insurance is actually a kind of simplified whole life insurance.
The main difference between a funeral insurance policy and a regular life insurance policy is the policies’ benefit size.
Burial insurance typically offers a much smaller payout upon the death of the insured person because it is designed to cover final expenses and nothing more.
A regular life insurance policy offers a larger amount because it is usually intended to offset the entire financial impact of the deceased’s passing, including lost income.
Some funeral insurance policies allow beneficiaries to use the money for expenses other than funeral arrangements, according to their discretion.
However, the amount paid out is still calculated in the same way. Coverage varies depending on the policy, but the average payout is around $10,000.
If this sounds like a lot, consider that the cost of the average funeral in the United States is also around $10,000—in several states, the average is even higher.
For some people, especially once they get older, the only reason for buying life insurance is to guarantee their funeral is paid for. In cases like these, funeral insurance is a good way to get a simplified policy that includes only what you need.
What Kinds of Funeral Insurance Are Available?
There are two main types of funeral insurance: standard burial insurance and pre-need funeral insurance.
These are both types of funeral insurance that are designed to help with final expenses, but there are a few important distinctions.
Standard burial insurance is usually sold by insurance providers as a kind of whole life insurance policy. After the death of the insured person.
The policy’s beneficiary will receive a predetermined payout that can be used to make any kind of final arrangements that are needed.
It is up to the beneficiary to choose whether to use the whole sum for funeral expenses or to allocate some of the money for settling other final expenses.
Some examples of expenses that standard funeral insurance would cover include:
- A burial plot and headstone
- A casket
- A funeral service
- Transportation of the deceased
- Other funeral expenses like flowers or an obituary
Opting for cremation instead of burial is one way to lower a funeral’s cost, but you are still likely to pay several thousand dollars or more.
Pre-Need Funeral Insurance
Pre-need funeral insurance works a bit differently. When you choose a pre-need policy, you pick a funeral service provider up front.
After the insured individual passes away, the policy’s payout is sent directly to the funeral home with which you have chosen to work.
This means that none of the money can be used for expenses other than the cost of the funeral.
The benefit of choosing a pre-need plan is that by doing so, you can lock in funeral service prices wherever they are at the time you purchase the policy.
This allows you to plan for the future while also taking advantage of current prices, which are likely to inflate over time.
This benefit is most significant when you are preparing well in advance and don’t anticipate collecting on your funeral insurance for many years.
How Much Does Funeral Insurance Cost?
There are a variety of factors that play a part in determining the cost of funeral insurance. Typically your sex, age, and the size of the policy you are seeking are the most important considerations.
Sometimes, your health can also affect how much you pay for funeral insurance.
You may be given the option to answer questions about your current medical condition as part of your application. If you are deemed to be in good health, you may be offered a policy with lower premiums.
Other policies require no medical assessment whatsoever and accept everyone, regardless of their current health. These are called guaranteed acceptance or guaranteed issue policies.
They guarantee coverage to those who cannot qualify for some types of life insurance due to health problems, but the premiums are often very high.
Just like life insurance premiums, funeral insurance premiums can be calculated according to a few different methods:
When you agree to a stepped premium, the amount you pay for your coverage is periodically recalculated, usually on an annual basis, to reflect your current risk level.
Typically, this results in your premium rising each year as you get older.
The advantage of a stepped premium is that you will start out paying less than you would for a level premium, but you should be aware that the cost will probably increase as time goes on.
Level premium funeral insurance guarantees that your premiums will not increase with your age—the amount you pay now will be the same amount you continue paying for the entire duration of the contract.
This usually means that a level premium plan will start out more expensive than a stepped premium plan.
However, the trade-off is that a level premium policy’s coverage will gradually increase over time, meaning that you will pay less for more coverage down the road.
In some cases, you can opt for a capped premium plan, which sets a specific limit on the length of time for which you must make premium payments.
After you reach the predetermined age or monetary threshold, your coverage will continue, but you will no longer have to pay premiums.
The benefit of this is that you can plan for your financial future more easily if you know ahead of time exactly how much you will pay in total for your funeral insurance.
However, you will also not have the option to invest more than the agreed-upon maximum amount, even if you want to.
How To Shop For Funeral Insurance
Once you’ve learned all you can about what funeral insurance is and how it works, you’re ready to begin thinking about what kind of policy is best for you, specifically.
The best funeral insurance policy depends entirely on you and your situation, so you should take the time to think about your needs carefully.
This will help you as you calculate your final expenses, decide on a policy, and choose a provider.
Determining Your Final Expenses
Before you make any decisions about your funeral insurance policy, you should assess your anticipated final expenses so you know how much coverage you will need.
Since we have no way of knowing exactly when or how we will pass, this number will have to be an estimate.
One of the key influences will almost certainly be the area in which you live since typical funeral costs vary from place to place.
In any case, you should make sure the policy you decide on provides enough coverage to handle the cost of your funeral.
Debts that may still need to be settled, and any support services your loved ones may need in order to see them through the process of making final arrangements.
Deciding on a Policy
Death benefit payouts are handled differently depending on the type of funeral insurance policy you choose. When deciding on a policy.
You should make sure you understand how each kind of benefit payout works so you can pick the one that makes the most sense for your situation.
A level benefit policy takes full effect immediately and pays out the same amount of money regardless of how long the policy has been in effect.
The beneficiary will receive the same amount of money whether the insured person passes away six months or sixty years after becoming insured.
To qualify for level benefits, you usually have to answer some basic health questions.
A graded benefit policy will pay out only part of the total benefit amount if the insured individual passes away within a few years of purchasing the policy.
For each year the policy is in place, the size of the payout increases.
After enough time has passed, usually no more than three or four years, the beneficiary will receive the full benefit amount upon the insured person’s death.
Guaranteed issue policies almost always use a graded benefit model to protect the provider since no health assessment is required to qualify for a guaranteed issue policy.
Choosing a Provider
Once you know how much coverage you need and what kind of policy you plan to apply for, the final step is to choose an insurance provider.
You can purchase funeral insurance through an insurance agent, directly from an insurance company, or sometimes from funeral service providers themselves.
Regardless of where you buy your insurance, it’s a good idea to consult with an expert who can supply guidance and help you weigh your options.
If you want to conduct some research of your own, you should look for providers who are highly rated and get multiple quotes before you make any final decisions.
Don’t Be Afraid to Plan Ahead
If you aren’t yet at the end of your life, you probably don’t want to think about buying funeral insurance—but preparing early can save you quite a bit of money in the long run.
If you wait until after you retire to start making financial preparations for your passing, you will be faced with much higher premiums.
Consider arranging peace of mind now, instead. The earlier you insure yourself or your loved one, the cheaper the rates that will be available to you.