Many people end up buying burial insurance when planning for their end-of-life expenses. This is because burial insurance policies are an efficient way of setting aside money that’s automatically granted to your loved ones after you pass away.
But, how much burial insurance do you really need? How can you make sure that you’re not over-or under-insuring yourself?
As it turns out, planning for your passing doesn’t just include your casket and burial plot. It involves details like your family’s transportation, funeral services, and whether you’ll be setting aside money for the family you leave behind. Forgetting to consider these factors can result in financially straining your family if your policy doesn’t have enough coverage to pay off everything you need.
But how exactly do you come up with a number to cover everything you need to pay for? Read on to find out!
Burial Insurance Explained
Burial insurance is a type of whole life insurance policy sometimes referred to as “last expense insurance” or “funeral insurance.” Insurers design these policies to cover relatively small, short-term costs associated with funeral expenses and other end-of-life financial matters. An insurance company may typically offer burial insurance to individuals between 50-80 years of age, but young adults may also buy them.
Regardless of the policyholder’s age, these life insurance policies all work the same: the policy’s beneficiaries will receive a predetermined sum as a death benefit upon the policyholder’s passing. Keeping the policy active and qualifying for a death benefit requires the policyholder or insured person to continually pay off their premiums every month.
Burial Insurance vs Other Life Insurance
Burial insurance differs from other life insurance policies because it was designed for the sole purpose of covering a person’s final costs. Unlike term life insurance, it doesn’t expire. It is also dissimilar to other types of whole life insurance because burial insurance will often cover significantly less than its more traditional counterpart.
The Pros And Cons Of Burial Insurance
Part of building a holistic understanding of burial insurance is developing an awareness of its advantages and disadvantages as a policy. Here are some of the most significant pros and cons of buying a burial plan that you should consider:
One of the most attractive advantages of getting burial insurance is that you can get immediate coverage when your policy is approved. As a result, your death is covered without a medical exam and a comprehensive interview regarding your family’s health history. However, some burial insurance types implement a waiting period before your beneficiaries can qualify for a death benefit.
Furthermore, a funeral insurance policy costs less than other life insurance types, which appeals to many folks who have a hard time-saving money. Funeral insurance also never expires, and the premiums and death benefits remain constant while the policy is active.
On the other hand, there are some disadvantages to buying burial insurance. For example, your policy’s premiums can become significantly more expensive the older you are on the date of application. Consequently, people living on a pension may find using burial insurance to cover their final expenses to be complicated and difficult to budget.
Furthermore, policyholders may not get any refunds on the premiums paid. This is important to consider because some individuals may end up paying more in premiums than they would have for just their final expenses. Finally, some burial insurance policies have a waiting period before they agree to pay a death benefit.
Burial Insurance Costs
You can expect the costs of your life insurance to be influenced by these two factors:
Age On The Date Of Application
Burial insurance costs will differ greatly if you apply for a burial insurance policy at 50 years of age versus 55 years of age. Insurers often already have pre-set prices per year of life. However, some companies may group people within a 5-year difference of each other. Do note that if the latter is true in your case, your final expense insurance is likely to cost more.
The next most significant factor influencing your life policy costs is your policy’s face value or the amount of coverage you want on your burial insurance. For example, if you’d like $1,000 worth of coverage, you will naturally be paying significantly less than someone who wants $10,000 worth of coverage.
Types Of Burial Insurance And What They Can Cover
There are many kinds of burial insurance available on the market. Many public policies are variations of the two main types: pre-need burial insurance and standard burial insurance. Read on to find out what these two policies offer and the kind of coverage they can give.
Pre-Need Burial Insurance
Pre-need burial insurance is another name for a prepaid funeral. While these policies can be bought from an insurance company, many versions of this funeral insurance are purchased directly from the funeral home you choose. Do note that if you decide to buy a policy from an insurance company, the death benefit goes straight to your funeral home instead of your chosen beneficiaries.
That being said, this type of life insurance only covers funeral expenses. This means that the money may not be spent on small loans, outstanding bills, and other potential final expenses. However, this limited coverage may also mean less spending in the long run.
Standard Burial Insurance
In terms of similarity with other life insurance types, standard burial insurance is closer to whole life insurance than term life insurance. This life plan guarantees the freedom to decide how a death benefit will be spent. This means that you can choose whether the money goes straight to the funeral home or a chosen beneficiary.
This flexibility means that its coverage is more comprehensive than the alternative. Money from this life insurance policy can be used to cover your final expense or to bolster your beneficiary’s funds. It can also be used to pay off outstanding bills and loans.
Why Getting The Right Amount Of Burial Insurance Is Important
It’s clear that the amount of coverage you want dramatically affects how much you end up spending. But what else makes getting the right amount of coverage necessary?
Understanding how your coverage and the premiums you pay are related is essential. During the application process, you decide on the amount of coverage you’d like from a life insurance policy. The number you settle on informs your monthly premiums, which you must continually pay for the rest of your life.
Falling into the trap of “better safe than sorry” is easy, but if you apply for too much coverage, your premiums skyrocket. This can be troublesome because it locks you into the agreement with a high rate for the rest of your life.
On the other hand, applying for too little coverage can result in financial complications for your family. For example, a smaller death benefit might mean that your family will have to dig into their savings to cover your funeral’s balance, which can be thousands of dollars at a time.
Therefore, finding the sweet spot between too little and too much is essential for your cost-savings and your family. But how do you get to that number? The next section will fill you in.
How To Determine The Amount Of Burial Insurance You Need
Compute Your Family’s Regular Expenses
The first thing we recommend doing when planning for your final expense insurance is figuring out exactly how much your household spends in a month. This number should include mortgage payments, utility bills, transportation costs, grocery budget, and other relevant expenses.
Suppose you’re buying a funeral insurance policy to replace your income on top of covering funeral costs. In that case, we recommend multiplying your household’s monthly fees by three to get a good number for coverage.
Research Average Funeral Costs In Your Area
The average cost of funeral services varies significantly with what you want and your location and state. We recommend taking the time to plan out your funeral before contacting funeral homes to get an estimate. This means you’ll want to ask yourself the following questions about your burial and your family’s needs:
Am I going to be embalmed?
Do I want to be cremated or buried?
What type of casket do I want?
Will I have a viewing? For how long?
What kind of headstone do I want?
Where will I have the funeral?
What kind of services will I need for transportation?
Will my family need any additional services from the funeral home?
How many death certificates do I need?
How much money will I be setting aside for other costs?
To give you a good idea of how much this might cost: according to the National Funeral Directors Association, you can expect to pay around $9,135 for a funeral with a viewing and burial.
Plan Out Your Funeral Costs And Final Expenses
Once you’ve received the estimate for your funeral and adjacent services, we recommend measuring how feasible your desired coverage for your insurance plan is. This means that you’ll have to take your income or savings into consideration when looking at your final expense cost. If you choose to set aside money to replace your lost income after you pass, you’ll have to consider your funeral costs plus three months’ worth of household expenses.
Consider Loans, Inflation, And Other Outstanding Costs
Mortgages, loans, and bills don’t go away after you pass away. If you or your family have outstanding loans that are likely to still be around after your passing, we suggest factoring this into your life insurance policy’s desired coverage. Furthermore, if your plan doesn’t lock in the rates given to you by your funeral home when you get your quote, we recommend adjusting your coverage expectation according to inflation.
Settle Legal Fees And Inheritance
Although unusual, some people may want to use their policy to cover their funeral costs and leave an inheritance for their loved ones. While this is more characteristic of a whole life policy, it is entirely possible to do with a burial plan. Do note that this will require increasing your desired coverage, which may significantly affect the cash value of premiums you have to pay monthly.
Alternatives To Burial Insurance
Burial insurance plans aren’t the only way to plan for your final expenses. Depending on your desired coverage, health, and age, there may be cheaper alternatives that make more sense for you. These alternatives can include more “traditional” insurance plans or savings accounts.
Term Life Insurance
A term life insurance policy is a type of life insurance designed to cover a policyholder for a set period. This can be over 10, 20, or 30 years, but renewal can be expensive. This is because premiums become more costly as you age. Insurance companies also require a medical exam before approval, resulting in higher premiums for potential policyholders in poor health.
Given this, many people purchase a term life policy because of its relatively low-cost compared to whole life policies. However, many policyholders work toward converting their plans to more permanent ones to cover their funeral-related costs due to their temporary nature.
Whole Life Insurance
A whole life policy is a type of life insurance that, like burial insurance, stays active as long as you continuously pay your premiums. Upon the policyholder’s death, their beneficiaries receive a more significant death benefit than they would have with a burial insurance policy. However, there are a few key differences between the two policies that you may want to consider.
Whole life policies, like most types of traditional insurance, require a medical exam. This means that people in poor health may not qualify or will be faced with large premiums. However, a whole life policy can cover more than burial insurance, which means that this is a viable way of securing more than funeral costs and other final expenditures.
On top of this, a whole life insurance policy can accumulate a cash value that you or your beneficiaries may withdraw from. Cash value is built up by paying more than your required premium amount, resulting in a type of savings component that appeals to many.
Putting money in a savings account is an excellent alternative to buying a burial policy, but there are some things you need to consider before going down this route. Individuals who decide to use savings accounts in place of a burial policy must also consider that their heirs or beneficiaries may have difficulty accessing their accounts.
To remedy this, we recommend making your beneficiary a legal co-owner of the account. However, unlike other instruments designed to pay out death benefits after you pass, savings accounts can be borrowed from while you’re still alive – making it less secure.
Frequently Asked Questions
Sometimes a general guide isn’t enough to shed light on the details of planning for your funeral and other end-of-life costs. Here are some quick answers to questions that you might be asking yourself:
Can Younger People Buy Burial Insurance?
In short: yes. While most insurance companies offer burial insurance to people above the age of 50, individuals in their 20s can buy policies that suit them. If you’re a young adult looking for a policy covering only your end-of-life costs, burial insurance can be a cost-efficient way to get that. With that said, burial insurance isn’t often recommended for people under the age of 50, and life insurance is almost universally considered a better alternative.
How Long Will My Burial Insurance Last?
Burial insurance policies are basically a type of whole life insurance. This means that you’ll get the permanent protection of whole life plans without the potential complications of going through a medical exam.
However, it’s important to note that coverage will be active only for as long as premiums are paid and kept up to date. Otherwise, your policy may become inactive. If a policy becomes inactive, the policyholder does not get refunds or payouts of any kind.
Can I Transfer My Burial Insurance If I Move?
Burial plans are usually locked in with individual funeral service providers. This means that if you end up moving out of your state or far away from your chosen funeral home, you may run into complications with your burial insurance plan.
However, some funeral homes have flexible policies that allow transfers from one state to another. This is especially likely if you chose a larger service provider with multiple locations that are compatible with your plan.
Can I Convert My Life Insurance Plan Into A Burial Policy?
Most insurance companies do not allow conversions from life insurance to burial insurance. Instead, we recommend contacting your insurer to see what changes you can make so your last wishes can be considered. If this course of action applies to you, be sure to inform your loved ones and all affected parties.
Figuring out how much coverage you need from your burial insurance policy can be confusing. When you factor in your funeral costs, whether you want your death benefit to pay out enough to replace your income, and other expenses related to your passing, it can become confusing and overwhelming.
However, with careful planning and consideration, it doesn’t have to be complicated. Contact us at Wesley Insurance, LLC to find out how we can help you find your coverage sweet spot!