Do You Need Burial Insurance?

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For many people, their financial forethought ends with retirement planning. But if you want to avoid leaving your loved ones with a sizable funeral bill, it’s a good idea to also plan for end-of-life costs. One way to do that is through burial insurance.

Overall, burial (or funeral) insurance is exactly what it sounds like. But there are few facets of this type of policy that you should examine before deciding if it’s right for you.

What is burial insurance, and what does it cover?

As the name suggests, burial insurance is intended to cover the cost of your eventual burial. By purchasing a policy, you are providing your loved ones with the resources to carry out your wishes, so they aren’t burdened with debt and difficult decisions when you’re gone. The money can help pay for your final medical bills, funeral service, casket, hearse, headstone, cemetery plot or cremation, and other related costs.

The average cost of a funeral with viewing and burial in 2017 was $7,360, according to the National Funeral Directors Association, and that number is expected to keep pace with inflation. Burial insurance benefits range between $2,500 and $25,000 (with some going as high as $50,000), and your premiums can vary widely based on the company you choose, your age, sex, location, and the amount of benefit you select.

Contrary to common belief, your beneficiaries are not required to spend burial insurance payouts on your burial. Instead, they receive a lump sum to spend however they choose. They can also keep any money that’s left over after they’ve paid your final expenses.

Burial insurance vs. pre-need insurance

If you’re planning for your future funeral expenses, another term you may have heard is pre-need insurance. Like burial insurance, pre-need funeral insurance (also known as a pre-need plan) is intended to cover your final expenses. But with pre-need insurance, you generally purchase the policy through a funeral home. The funeral home prices out all the expenses ahead of time, and the policy covers those costs. The funeral home is the beneficiary of the policy and gets the money directly when you die. In some cases, you can lock in the costs—so if the price of a funeral goes up by the time you die, the funeral home will only charge what they would have at the time you bought the policy.

But there are disadvantages to pre-need insurance. A big one is lack of flexibility: You’re locked in to one funeral home, and most policies are nonrefundable and nontransferable, so you can’t change your mind. Unlike with burial insurance, the money can only go to funeral and burial expenses. Finally, pre-need policies can be pricey compared to other types of insurance.

Burial insurance vs. life insurance

Of course, burial insurance isn’t the only way to take care of these final expenses. Your loved ones can also pay for your burial with the benefit from a life insurance policy. There are some important differences between burial insurance and life insurance. For instance, life insurance:

  • can accrue cash value (if you have a whole life or universal policy), which means you can borrow against the policy during your lifetime. In contrast, you cannot dip into your burial insurance.
  • typically requires a physical exam during the underwriting process. Burial insurance does not typically include any physical exam.
  • can be purchased at any age. Many burial insurance policies, on the other hand, are available only to those ages 50 and older.
  • can have a much higher death benefit. While most burial insurance payouts are capped at anywhere from $10,000 to $50,000, life insurance policies typically have much larger death benefits.

Overall, burial insurance is much more like guaranteed life insurance, which also doesn’t require a physical, except that the payout for burial insurance is typically much lower than might be available through life insurance. 

Who needs burial insurance?

Despite the similarities to life insurance, there are several reasons you might want to invest in a burial policy instead or even in addition. If you are older or in poor health, you may be denied life insurance due to the physical. Burial insurance provides an alternative.

If you haven’t managed to sock away much in your savings account, a burial policy can provide the comfort of knowing the costs of your funeral will be taken care of.

Time constraints may also be an issue. If you need to purchase a policy quickly, burial insurance can be active within days while a life insurance may take months to purchase due to the requisite physical.

How to shop for a policy

Before you can purchase a policy, you should do a little math and figure out about how much you can expect your funeral and burial or cremation to cost. Then review at least three different companies’ policies. Be sure to investigate not only what the premium differences are, but the payouts as well.

Also, take the time to examine any restrictions. For example, many funeral homes require you to pay up front for services and goods. But only some burial policies can easily be signed over to the funeral home. Others require you to wait until you receive the check, deposit it, and then pay for the funeral from your own bank account.

Lastly, it’s important to read customer reviews for the insurer, and benefit from the expertise of those who have already walked in your shoes.

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