Types Of Burial Insurance: Get To Know Your Options
A lot of people don’t realize it, but it’s actually important to plan for your funeral in advance. Since the average costs of memorial services can reach up to thousands of dollars, it's essential to make sure that your end-of-life expenses are covered.
One way to ensure your final expenses will be fully paid is by getting a burial insurance policy. Also known as senior or final expense insurance, this is a form of whole life insurance policy that's specifically designed to pay for a funeral service, a burial plot, a casket, a headstone, or a cremation.
In this article, we'll talk about the types of funeral insurance. We'll also give you a few tips on how you can find the best coverage, depending on your needs.
What Are The Types Of Final Expenses Insurance?
Burial insurance plans typically fall under two categories: standard and preneed. While both of these help you pay for your end-of-life expenses, they differ slightly in how they pay out the death benefit.
Standard Burial Insurance
Standard burial insurance is a type of whole life policy that pays the death benefit at the time of your passing. The money will go directly to your beneficiaries, like your spouse or child.
The death benefit for burial insurance policies can reach about $5,000 to $25,000. In case there's some money left over, your beneficiary can choose to spend the money to pay for other final expenses, including medical bills and legal fees. It can also be used to pay for credit card bills, mortgage loans, and personal loans.
With that said, your beneficiaries get more freedom when it comes to how they'll spend the benefit. Once they're done paying for your burial and other end-of-life expenses, they can use the rest of the insured amount to make investments or to pay for their own expenses.
There are two types of standard burial insurance: simplifiedissue and guaranteedissue. We'll talk about the unique characteristics of each below.
Simplified Issue Insurance Policy
In order to qualify for this type of burial insurance policy, you'll need to answer a set of questions about your age, occupation, and medical history. Preexisting health conditions or bad habits like smoking can also affect the result of your application.
When filling out an application, be sure to disclose all the requested information. Insurance companies have the right to contest claims if they suspect signs of fraud.
Insurance carriers can also check reports from the Medical Information Bureau (MIB) when reviewing applications. Additionally, they can run prescription checks and conduct interviews.
One advantage is that the insured amount is usually higher compared to a guaranteed issue insurance policy. Premiums are usually more affordable, as well.
Guaranteed Issue Insurance Policy
To apply for a guaranteed issue (or guaranteed acceptance) life insurance policy, all you have to do is sign up. You won't need to undergo a medical exam or answer questions about your health. This is designed for those who have preexisting medical conditions that won't allow them to qualify for any other type of whole life insurance.
Preneed Funeral Insurance
A preneed funeral insurance plan is another type of final expense insurance. It can also be called prearrangement or prepaid funeral insurance.
Unlike standard burial insurance, the payout for a preneed plan goes directly to the funeral home rather than a family member. Funeral homes can be licensed to sell this type of insurance, even though other policies are usually only sold by insurance brokers or agents.
Pros And Cons of Preneed Funeral Plans
One advantage of getting a preneed funeral plan is that you can lock in prices at the funeral home at the time you bought insurance for final expenses. In effect, a preneed plan protects against inflation.
Another advantage of a preneed whole life policy is that you can make your own funeral arrangements. That lessens the pressure and work on your loved ones. You'll also be able to design the type of memorial service you want.
The third advantage of getting preneed funeral insurance is that it won't come with a restriction period, unlike standard burial insurance. So, as long as you've paid your dues, your funeral home will cover your final expenses.
Keep in mind that a preneed funeral insurance plan may not provide you with the same level of flexibility as standard insurance for burial services. If your family moves to a different state, for instance, your funeral home won't reimburse the payment you've made for the policy.
Typically, preneed funeral insurance plans can be refunded within a certain period, which varies depending on the state where you live. So, if you change your mind, you might still be able to get your money back.
Another thing to keep in mind about preneed funeral insurance is that the funeral home will not give your loved ones money in case there's something left over after your funeral. For example, if your preneed plan provides coverage of about $10,000, but your expenses only reached $8,000, your loved ones won't get the leftover amount.
Finally, when considering preneed insurance, make sure you're going with a highly reputable provider. You're unlikely to get your money back if the funeral provider closes shop.
Death Benefit Payout Limitations
It's important to distinguish how death benefits will be paid out since this will determine how much your beneficiary will receive money at the time of your death. Let's look at each type and compare each one.
In the case of a level benefit policy, your beneficiaries can receive the insured amount starting the issue date of the policy, regardless of the cause of death.
For this type of policy, beneficiaries won't receive the insured amount if the policyholder dies of natural causes within the first three years of signing up. This is known as the "restriction period." In case of accidental death during the restriction period, the policyholder may still qualify for the full death benefit.
Most burial insurance policies come with a modified benefit. Make sure to clear this up with your agent before you sign up for a burial insurance plan.
Graded Benefit Policy
Some companies offer burial insurance with a graded benefit. For this plan, you'll only get a percentage of the insured amount if death occurs within the first year of coverage. The percentage increases after the first year until you reach a point where your beneficiary can receive 100% of the insured amount.
Return Of Premium Policy
As its name suggests, a return of premium policy will only pay your beneficiaries an amount equal to the total premiums paid if death occurs by natural causes within the first couple of years. The insurance company will also pay your beneficiaries interest on the premiums. That means they will not receive the policy’s insured amount.
Burial Insurance vs Life Insurance
Burial insurance is a type of whole life insurance, but it differs from a traditional life insurance policy in a few ways.
The purpose of a whole or term life insurance plan is to provide financial security for a policyholder's heirs. It can replace lost income due to a policyholder's death or disability. Meanwhile, burial insurance is only used to cover final expenses.
Burial insurance is typically offered to people who are above 50 years old or those who would not qualify for a traditional whole life policy due to preexisting health conditions. Other people who might benefit from getting burial insurance are those who don't have savings that their family can use for funeral expenses.
The tradeoff is that a burial insurance policy provides a lower coverage compared to a traditional life insurance policy. Burial insurance policies cover about $5,000 to $25,000, while a life insurance policy can provide a death benefit of up to $1 million or more.
Most insurance companies provide whole life insurance policies with a burial insurance component. Others also provide term life insurance policies with coverage for final expenses, though this is not as common.
Note that some people who already have a traditional whole life policy also choose to buy final expense insurance. As long as you can pay the premiums, having multiple policies is fine.
Cost Of Burial Insurance
Premiums refer to the money you pay the insurance company in exchange for your coverage. These payments vary depending on the age, sex, and current health of the policyholder. Premiums also increase depending on how much money you want your beneficiaries to receive at the end of your life.
It's possible to get a burial insurance policy for less than $50 per month. It's typically more expensive than a traditional whole life or term life policy because it's designed for older or less healthy people.
Types Of Burial Insurance Premiums
Insurance companies usually provide you with several payment options for premiums. You can pick from the following.
If you can't pay a large amount of money upfront, you can benefit from getting stepped premiums. You'll pay a lower amount of money in the first few years, then pay more as you get older. With that said, your premiums are recalculated each year, depending on your sex, age, and size of coverage.
For leveled premiums, the amount of money you'll pay the insurance company will be consistent throughout your life. Even if you become sick or get older, you'll be paying them the same amount.
Compared to stepped or leveled premiums, capped premiums don't have to be paid for the rest of your life. Once you've paid a certain amount or reached a certain age, you can keep your coverage even if you've stopped paying your insurance company any money.
Payout Guarantee Premiums
For policies with guarantee premiums, you'll need to keep paying your insurance company as long as your policy is active. However, if you've had your policy for a long time, it's possible that your premiums will exceed the original insured amount.
When that happens, your beneficiary will be paid whichever amount is higher: the premiums you've paid or the coverage you were originally supposed to receive.
How To Choose The Best Burial Insurance Plan
Burial insurance plans vary in terms of the amount insured and the premiums you'll need to pay. When choosing a burial insurance plan, consider the following factors.
Estimate Your Final Expenses
Your burial insurance plan should give your beneficiaries enough money to pay for your end-of-life expenses. So, your first step will be to find an independent insurance agent who can coordinate with funeral homes and ensure that your insured amount is enough to cover your memorial service, casket, burial plot, and other costs.
According to the National Funeral Directors Association, median costs for a funeral can reach more than $9,000. Note that these costs are likely to increase due to inflation.
Request Multiple Quotes
Getting a final expense insurance policy is just like shopping for any other item. You can ask multiple agents about how much their plan costs then compare prices and levels of coverage.
Apply For Insurance Plans With Lower Premiums
If you're in relatively good health, see which types of policies you qualify for. That will help you get more coverage while paying less.
In the case of burial insurance, it's best to try and apply for a simplified issue policy first. If your application gets rejected, that's when you can consider guaranteed issue burial insurance.
Try To Get Discounts
Most insurance companies provide discounts to people who have healthy lifestyles. For instance, applicants who don't smoke or drink may get lower premiums.
Those who have a good driving record may also be entitled to certain discounts. Ask your insurance agents about your options when it comes to getting lower premiums.
Frequently Asked Questions On Burial Insurance
Burial insurance is useful in helping your loved ones pay for your final expenses. Here are some of the most frequently asked questions about this policy.
What Are The Benefits Of Getting Burial Insurance?
One of the main benefits of getting final expense insurance is that you don't need a medical exam in order to qualify for one. You also wouldn't have to answer too many questions about your health.
Another good reason to get a burial insurance policy is that it usually accumulates cash value. So, if you suddenly find yourself with little to no cash, you can take out a loan from your insurance plan.
Should I Get A Policy Larger Than My Funeral Expenses?
This largely depends on your estimated funeral costs and other outstanding dues. If you expect to have loans and credit card bills after your passing, it would be best to buy a policy that covers more than just the cost of your funeral.
Do I Need Burial Insurance If I’m Young?
Unless you have a severe health condition, getting burial insurance while you're young may not be in your best interest. That's because you'll usually qualify for life insurance with more extensive coverage and lower premiums.
Additionally, some companies may not allow you to get burial insurance if you're younger than 50 years old.
Can I Buy Burial Insurance For My Parents?
Yes, you can. You can also purchase a policy for a close family member, as long as you're their next of kin.
When Is The Best Time To Get Burial Insurance?
It's crucial for people to consider getting burial insurance once they reach the age of 50. The younger you are, the cheaper the rates are going to be.
Another reason to start early is that some companies only issue policies until the age of 85. So, if you're older, you might find it harder to find a carrier that will give you a policy.
Will My Burial Insurance Expire?
Burial insurance is a type of permanent life insurance, so it should remain active throughout your entire life. However, some funeral insurance companies only offer coverage of up to 100 years old. Be sure to ask about this when discussing your options.
Does The Death Benefit Have To Be Used For Funeral Expenses?
For standard burial insurance, a beneficiary may choose to use the death benefit in any way they wish. So, in case you leave enough money for your final expenses, they can spend the benefit for other things, like education or investments.
Is The Insured Amount Taxable?
The death benefit for a burial insurance plan is not taxable. However, any interest that your policy earned while it's active will be subject to federal and state taxes.
Getting a burial insurance plan helps ensure that your loved ones won't have to shoulder your end-of-life expenses. This will make the grieving process a lot more manageable since they will have fewer things to worry about.
For standard burial insurance, you can choose between a standard or guaranteed acceptance policy. The former provides better coverage and lower premiums but will require you to answer questions about your health and lifestyle. The latter can be issued to anyone, but it will come with lower coverage and higher premiums.
You can also go for a preneed funeral plan, which will be paid directly to the funeral provider. This allows you to pay for end-of-life expenses in advance.
If you have more questions about burial insurance, feel free to contact us at Wesley LLC. We have knowledgeable agents who can help you learn more about managing your end-of-life expenses.