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No one likes to think about what will happen after they die. As anyone who’s lost a loved one can attest, making final arrangements like the funeral and burial is often difficult while coping with grief. When the deceased don’t leave instructions regarding their wishes, those decisions are even more difficult, especially when there aren’t many financial resources to cover the costs.
Investing in a funeral insurance policy to cover your final expenses can help relieve the burden of covering your cremation or burial from your family. These policies are affordable and accessible and ensure your loved ones have less to worry about when you pass. You have a wide range of coverage options, and our guide will help you make sense of them and make the best choice for your needs.
Funeral insurance, also called burial insurance, final expense coverage, or end-of-life insurance, is a type of life insurance policy. However, unlike a traditional life insurance policy that pays a beneficiary who can decide how to use the money, a funeral coverage policy covers the costs of burial or cremation, a funeral or memorial service, and associated expenses. If there’s any money left over from the policy after paying those expenses, the beneficiary can apply it toward any other outstanding expenses, like legal or medical bills.
The government pays a $255 survivor’s benefit to the deceased’s beneficiary to help cover the funeral costs, but given that the typical funeral costs close to $10,000, that benefit is far from enough to pay for everything. Most final expense insurance policies are worth between $5,000 and $50,000, with an average of around $10,000. For most people, $10,000 will cover most or all of the costs of a burial or cremation, casket and urn, and funeral or memorial service.
Typically, only people between the ages of 45 and 80 can purchase final expense insurance, and the policy only covers death from natural causes. It’s possible to add riders for accidental death, an accelerated death benefit if you receive a terminal diagnosis, or coverage for children.
If you already have a life insurance policy, you might wonder whether you must also invest in a final expense policy.
Technically, life insurance can cover your final expenses; many people take out life insurance to ensure their family can pay for their funeral. However, there are a few potential pitfalls to this strategy.
First, if your family has to take money from the life insurance payout to cover your burial, that means less money available for ongoing expenses. This may be fine if you carry a larger life insurance policy and have substantial assets. However, if the value of your life insurance is lower, covering final expenses will diminish the available cash.
Second, if you carry a term life insurance policy (which is the most common type), there’s a chance the coverage could lapse before you die. Term life policies only pay out if you die while the policy is in effect, with most policies ranging from 10 to 25 years. Unless you have a separate funeral expense protection, your family will be on the hook for those costs.
Other reasons to invest in a funeral insurance policy include:
Funeral and memorial service insurance policies are not one-size-fits-all. You have various options and can customize your coverage to your needs.
Funeral homes typically offer pre-need insurance in conjunction with an insurance company. These policies allow you to pre-pay for your creation or burial at current prices. When you die, the insurance company pays the funeral home directly for its services.
A pre-need policy is ideal when you want to take care of all your final arrangements in advance so your family doesn’t need to worry about them. However, if the bill for your services is less than your policy, your loved ones don’t receive the difference. The policy only covers your burial or final arrangements with your selected provider.
A standard policy is a life insurance policy that pays your beneficiary when you die. They can use the money to pay for any costs associated with your arrangements, including:
With one of these policies, your loved ones can work with any provider. They also receive any leftover funds from the policy to cover your debts.
If you prefer to purchase a policy that doesn’t stipulate how your loved ones can use the money, you can choose a traditional life insurance policy. The cost of these policies and eligibility requirements vary, but they may be a better option if you want more flexibility and are relatively young and in good health.
As mentioned, a term life policy is only valid for a specified number of years. Since no one knows when they’ll die, a term life policy isn’t a sure thing when it comes to funeral expense protection. You can always purchase another term life policy later (likely at a much higher rate), but a dedicated funeral or cremation insurance policy provides more reliable coverage.
Universal whole life is a type of life insurance that fluctuates in value over time based on the prevailing interest rate. When interest rates are high, the policy value increases, but if they go down, you’ll have to pay higher premiums to secure the same amount of coverage. Universal life policies are whole life policies, meaning you have insurance until you die, but the uncertainty surrounding the final payout means they aren’t ideal for final expenses.
A guaranteed issue whole life insurance policy is a life insurance option that guarantees coverage until you die, whenever that may be, without any medical exams or other hoops to jump through. While these policies are often prohibitively expensive, a guaranteed issue policy may be the only viable option if you cannot purchase other coverage because of your age or health status.
When investing in an insurance policy for memorial service coverage, you can select from various payment options. Although you’ll likely pay a monthly premium as long as you have the policy, the amount depends on the option you select. The type of premium you choose can also affect the final death benefit.
Stepped premiums increase at each annual renewal depending on your age, sex, and death benefit amount.
Selecting a leveled premium means paying the same monthly amount while holding the policy. As long as you make the payments, your policy remains in effect.
If you have a capped premium, you’ll pay the monthly bill until you reach a specific age or monetary amount. Once you hit that cap, you won’t have to make any more payments, and the policy remains in effect until it expires.
A payout guarantee premium means your beneficiaries will receive the higher of either the original policy value or the premiums you pay.
When you purchase funeral insurance, how much to buy depends on your plans and what you want at the end of your life. You need to think about factors like:
Doing your homework and talking to service providers can give you a ballpark figure for your final expenses, which will help you select the right final expense insurance policy.
To add funeral insurance to your end-of-life and estate plans, use Insurdinary’s convenient online quoting system to find and compare policy options. When you’re ready to purchase or have additional questions, contact one of our experienced, licensed insurance agents to enroll and get more information.