Is Burial Insurance Worth It? How To Make An Intelligent Choice
Many people eventually have to face the task of planning for their passing. Some may put money away in savings accounts, while others might buy a burial plan to secure their end-of-life expenses. But with so many options available, is burial insurance worth it?
In this guide, we go over the basics of burial insurance and when buying it is a worthy investment. Read on to find out if burial insurance will be worthwhile for you or the people you love!
Burial Insurance Explained
Burial insurance is a type of life insurance that is also known as final expense insurance or funeral insurance. On average, a funeral can cost between $7,000 to $12,000. That’s why many people buy burial insurance: to cover their funeral-related expenses ahead of time and relieve the financial burden on their families after they pass away.
Final expense insurance can be bought from an insurance company or straight from a funeral home, depending on the type of burial insurance. Either way, this insurance for final expenses will either pay out a death benefit to your chosen loved ones or act as a pre-payment for your burial and funeral costs.
Types Of Burial Insurance
There are a few variations of burial insurance that fit most situations. Here are some of the most commonly bought insurance policies:
Standard Burial Insurance
A standard burial insurance plan is the most basic form of burial insurance without all the extra components. It guarantees a death benefit without a waiting period and shares many features with whole life plans. Some families may use the payout from standard burial insurance to cover the deceased’s outstanding bills and fees, although it’s at the beneficiary’s discretion.
Pre-Need Burial Insurance
Pre-need burial insurance is synonymous with a prepaid funeral plan. These plans can be bought directly from a funeral home of your choice or an insurance company. However, a pre-need burial insurance plan is different from a standard burial insurance plan because the money you pay goes directly to your funeral home.
This is an attractive feature for many people since it takes away the strain of planning during an already stressful time.
Guaranteed Acceptance Burial Insurance
A guaranteed acceptance burial insurance plan is a popular option for many people because of its nature: everybody gets approved. Because of this, people that may experience some difficulty with getting approved for a regular life insurance plan often flock to the idea of guaranteed acceptance burial insurance. This includes people who smoke, folks with severe health issues, or older individuals.
However, there are a few things to consider when you apply for this type of burial insurance. Namely:
If the insured passes away before the waiting period is over, their heirs may receive a partial refund.
Burial Insurance vs Other Life Insurance Policies
A question that often comes up during burial plan shopping is, “how does this differ from other life insurance?” To some, there may not be any immediately apparent differences, but this couldn’t be further from the truth.
Funeral policies cover one-time or short-term expenses, unlike whole life or term life. Other life insurance policies can hold values that amount to millions of dollars, while funeral insurance usually has a much smaller cash value. This means that funeral insurance won’t replace lost income or cover large expenses like loans or college tuition. Additionally, it won’t function as an investment or an alternative to a retirement plan.
Life plans may also have strict requirements and arduous application processes that involve medical exams and questions about your family’s history of health and diseases. Burial insurance is the opposite because hardly any questions are asked, and there are no medical exams involved. Lastly, many life insurance types do not accumulate cash value over time, while funeral policies do.
When Is Burial Insurance Worth It?
Now that you have a working idea of what burial insurance is, you might be wondering if buying a policy is worth it. Here are some reasonably common scenarios that make purchasing a burial insurance policy a great choice for you.
You Have A Severe Illness Or Medical Condition
If you or your family member has been in bad health, life insurance companies tend to hike up premium costs. With time and proper treatment, some people can fully recover and re-qualify for better rates. But what happens if someone is diagnosed with a potentially life-threatening disease?
Generally speaking, many companies don’t make a habit out of selling life insurance to people diagnosed with fatal illnesses. This is especially true when the person looking to buy insurance is diagnosed with Alzheimer’s, coronary heart failure, or other conditions unlikely to improve over time.
However, people in these circumstances will find purchasing a burial insurance policy, especially guaranteed approval insurance, is a viable option. This is due in part to the lax application process associated with final expense insurance.
You Receive Disability Benefits
While receiving disability benefits doesn’t directly affect the chances of approval for a life insurance policy approval, it does mean a few things. Firstly, suppose a person qualifies for government support due to their disability. In that case, it follows that the severity of their condition makes full-time employment difficult and comes with the risk of future medical complications.
Because life insurance policies are calculated based on a person’s capability for payment alongside their health, folks with disabilities often do not get approved. However, buying insurance for burial or funeral purposes is completely workable for people that would like to prepare for the future.
Many final expenses insurance policies are designed specifically to assist individuals with health conditions that may be considered “risky” by regular life insurance standards.
You Don’t Need Full Coverage
Sometimes all a person wants is a final expense insurance policy that covers just enough to put their loved ones’ minds at ease. If you don’t need the full coverage of term life insurance or whole life insurance, then a policy to cover your funeral expenses is the perfect fit for you.
There’s no need to subject yourself to life insurance's rigorous application process when you could just answer a few questions and get the coverage you need.
You Want A Policy That Doesn’t Expire
Unlike term life insurance, a burial insurance policy doesn’t expire as long as you pay the premiums. However, depending on your purchase's timing, you may end up paying more on your burial insurance than you would have on funeral expenses in total.
You Want To Pay For Your Funeral Yourself
Many folks buy funeral insurance so they don’t burden their families upon their death. Older applicants may want to be prepared when the time comes, so the loved ones they leave behind don’t have to try to scrounge up thousands of dollars at a moment’s notice.
Applying for a funeral insurance policy might even sometimes help you lock in substantial discounts with your chosen funeral home while still paying out a death benefit.
You Don’t Want To Answer Any Medical Questions
Not everyone has the patience to undergo extensive medical exams and answer hundreds of questions about their families, their history of illnesses, and existing conditions. No matter your reason for not wanting to divulge more than you need to, there’s a burial insurance policy out there that suits your specifications.
You Can’t Seem To Get Another Life Insurance Policy
Qualifying for a term life policy or a whole life policy can be daunting, especially if you’re sick, in your golden years, or are just deemed too risky for an insurance company. Despite this, if you still want to make sure your family receives a death benefit, then burial insurance is your best bet and completely worth it.
Getting A Traditional Life Insurance Policy Is Too Expensive
There is an infinite combination of factors that might make someone an unlikely candidate for an insurance plan. The typical considerations that might drive up your premiums are age, general physical health, and whether you are a current or former smoker.
If this sounds like you, you may want to consider getting burial insurance instead of holding out for a more “traditional” policy. Whether you decide to buy a policy with your funeral home or with an external insurer to keep your final expense in check, you’ll know that your money is in good hands.
“Accidental Death Insurance” Isn’t Enough
A little known fact about many insurance policies is that they only pay out a death benefit if the insured person passes away in an accident. In this case, accidents include being struck by lightning, being caught in an earthquake, or other similarly extraordinary circumstances.
This isn’t ideal for many people. That’s why we recommend buying a burial insurance policy to account for your final expense. Whether your final arrangements include cremation or a ceremony at your funeral home of choice, the peace of mind you get is priceless.
When Is Burial Insurance Not Worth It?
While burial insurance does seem to be a great choice in several situations, this isn’t always the case. Some people are better off buying traditional insurance policies or even holding out on investing in insurance for a while. Here are a few examples of when buying burial insurance might not be worth it:
Your Life Insurance Policy Has The Coverage You Want
If you have a pre-existing life insurance policy with all the bells and whistles you want for yourself, then buying another plan to supplement it might be redundant. Insurance can become expensive over time, and spending more than you need to is unwise. If your existing plan has provisions for your final expenses plus a health death benefit for your family, we recommend holding off on a burial plan.
You’re Short On Cash
One of the most important things when purchasing something or making any investment is whether it’s financially feasible for you to do so. Insurance plans can get quite expensive, and burial insurance, in particular, may end up costing more than just the price of your funeral.
This can be explained by how burial plans work, which is similar to whole life insurance plans. If you take a burial plan, you keep your coverage for as long as you pay premiums. But what happens if you live for thirty more years than you initially expected? You may find that your money would have been better off in another kind of policy.
You Want Lots Of Coverage
If you’re looking for a policy covering upwards of $20,000, then burial insurance may not be the best choice for you. By nature, this plan covers just the right amount necessary for funerals and similar services. So if you want an instrument that covers your expenses while still providing a healthy payout for your surviving family, we recommend looking at other options.
Alternatives To Funeral Policies
Planning for your final expenses is not a one-size-fits-all situation. If you’re curious about what other financial plans may be suitable for your needs, there are many options that you may want to consider. Whether it's more traditional life insurance or a simple savings account, there is a suitable alternative for you.
Payable On Death (POD) Accounts
A payable on death account holds onto the money you set aside to cover funeral expenses until a designated beneficiary accesses the funds. Unlike life policies, these accounts are only as big as you want them to be since you can withdraw and deposit as much money as you’d like during your lifetime. Note that your chosen beneficiary may not access this account before your passing.
Funeral trusts are an agreement that a person enters into with their funeral service provider. These trusts are often managed by funeral homes and allow you to lock in lower burial service rates for a future date. Funeral trusts can be revocable or irrevocable, which refers to whether the terms of the trust can be changed or revoked altogether.
A trust is a legal document that dictates how you want your money and estate to be handled by a third party. This agreement may act as a set of guidelines for your beneficiaries when the time comes to access the estate you’ve left behind. When you pass away, the third party mediates this process and allows your beneficiaries to make their claims.
Some people may opt to put their money away in a regular savings account, but this can also become quite complicated. Unlike payable on death accounts that are explicitly designed to be accessible after your passing, your chosen beneficiary may have difficulty accessing the funds you put aside. The reason behind this is that many financial institutions may require probate, which refers to a legal process that establishes a claim to be valid and authentic.
Because of this, we recommend adding your beneficiary to the savings account as a joint owner to circumvent possible complications. However, it’s essential to consider that they will have access to the account while you’re still alive.
Term Life Insurance
Term life can be a sensible alternative to burial policies, but its expiry date means that it may not always provide the desired amount of coverage. This lack of security can be particularly problematic to some people who want to ensure their beneficiaries receive a death benefit. However, some term life policies may have features that people may find more attractive, such as lower fees and more easily accessible services.
Whole Life Insurance
Whole life policies have guaranteed coverage for as long as you pay the premiums. However, this may be cost-prohibitive as many plans’ expenses scale with time. Nevertheless, this is still a great way to distribute assets and money to your beneficiaries if cash isn’t an issue.
Many people planning for their end-of-life expenses consider buying burial insurance, but is it worth it? The answer is both yes and no.
For folks that have severe illnesses or other conditions and attributes that make traditional health insurance too expensive to stomach, it’s worth it. On the other hand, if you can get a life insurance policy with everything you need, you’re better off with a full-coverage policy that will cost you less in the long run.
Navigating your circumstances isn’t as easy as picking a scenario off a list. Contact us at Wesley LLC to find out how we can help you find the plan that works for you!