Have you considered finding a burial insurance policy? This article will help you understand what a burial policy entails and how to find an affordable policy.
Out of US adults who have a life insurance policy surveyed by LIMRA in 2018, the majority admitted to not having enough burial coverage.
These same people are probably thinking of getting an additional policy to boost their benefit. But which one should they get?
Today we’ll take a look at a life insurance policy that’s made specifically for burial expenses.
What is Burial Insurance and How Does it Work?
Burial insurance, also known as Final Expense insurance, is insurance that pays out anywhere between $5,000-$15,000. This goes to the policyholder’s beneficiaries when they pass away. It’s meant to be used to pay off final expenses. That way the person’s loved ones won’t have to shoulder the costs for the burial and funeral (and other end-of-life expenses).
In the US, the average funeral cost is between $7,000 to $9,000. Most people tend to underestimate the actual figures. That’s why it’s crucial to equip them with the information we are disclosing here.
Key benefits of having Burial Insurance
- Easy to understand. You pay a certain amount monthly so that your beneficiaries can receive a death benefit payout when you pass away. This can be used for funeral expenses (or others).
- Cheaper premiums compared to full term or whole life insurance policies. Since coverage is significantly smaller than that of traditional life insurance, it means you’ll also pay less. It gets more expensive, however, as you grow older.
- Medical exam is not required. Final expense insurance will not require you to take a medical examination.
- Payouts are typically released faster versus more expensive policies (term and whole).
Can’t I just use some funds from my existing term or whole life policy?
In most cases, the answer is yes—-as long as the death benefit is sufficient for your needs. If you think that your regular life insurance policy can pretty much cover all of your final expenses, then you may skip getting burial insurance.
As mentioned earlier, burial insurance is appealing to existing traditional policyholders who feel that their death benefit is not enough. And with costs of final expenses projected to go up within the next few decades, they might see it as a good way of boosting their end of life benefits.
Burial Insurance Versus Pre-need Funeral Insurance
There are actually two types of insurance when it comes to burial and final expenses. Knowing what each of them is for and how they work is essential. This way you can plan ahead and make a sound decision.
Traditional Burial Insurance
This type of insurance guarantees a death benefit anywhere from $5,000 to $25,000 (average range) to the recipients of the policy. While it’s meant for covering burial and funeral-related expenses, in reality, the beneficiaries can spend the money whichever way they want. This gives this type of final expense insurance an advantage when it comes to flexibility.
When the policyholder passes away, the insurance company will send the lump sum death benefit to the beneficiaries. It’s up to them how they would like to utilize it. Any excess, for example, can go to unpaid medical bills or legal expenses. Or perhaps for payment to any outstanding debt.
Pre-need Funeral Insurance
Pre-need funeral insurance works exactly the same way. The policyholder pays a premium for a death benefit meant specifically for paying funeral and burial expenses. However, instead of the money going to the beneficiaries, it will go directly to the chosen funeral home service.
One advantage it has over the regular type of final expense insurance is that it allows the policyholder to lock-in a certain burial policy. This typically includes funeral services, merchandise, and church services at today’s prices (which protects it against inflation). However, when it comes to flexibility, it loses to the regular type of final expense. This is because of the freedom on how the money will be spent and changing locations won’t be an issue.
Types of Burial Insurance Premiums
There are several options for paying the premiums on a burial insurance policy. Take a look at each one to help you decide which one suits your needs best.
- Level Premiums – Your rating will be determined according to your age, sex, and amount of the benefit. The insurer will lock in the rate that you qualified for and this won’t change even as you age. Or when your health declines as long as your paying for the premiums.
- Stepped Premiums – Every year, the insurance company will determine how much you’ll pay based on your age, sex, and benefit size. This type of premium payment arrangement appears cheap at the beginning. But expect to pay more as you age and experience a decline in health.
- Capped Premiums – This type of arrangement sets an age or monetary limit that determines how long you’ll pay the premiums. Upon hitting that limit, you will no longer be required to pay premiums. But, your policy will remain in force permanently.
- Payout Guarantee Premiums – The company will issue a benefit to your beneficiary depending on whichever is higher: the original amount insured or the total amount of premiums paid.
Things to Consider Before Buying Burial Insurance
Now that you know the two types of burial insurance, it would be a good idea to learn about some of the things that any potential policyholder should first consider before purchasing one.
Estimate if your overall premium payments will be more than the benefit
Perhaps the biggest factor to consider when thinking of purchasing this type of insurance is Longevity Risk. We don’t really know how long we’ll live. Which means if you signed up for burial insurance at age 60 and kept it in force for more than 10 years, it may end up costing you much more versus just saving or investing the money yourself.
Deciding when to purchase a burial policy can be tricky and thus require that you carefully assess your options first.
Look out for stepped-up policies
A lot of funeral homes nowadays feature stepped-up pricing for their policies. The older you get, the more expensive your payments will be. Most people beyond 65 years old have to pay for medical costs and other related expenses (nursing aide, nursing homes, etc.,). This likely eats up most of their retirement funds.
Your burial insurance premiums rising during this time is problematic. But, it could also lead to the cancellation of the policy and you might end up getting nothing.
Most funeral insurance policies have a 1-year accident-only period that only pay a death benefit unless the cause of death is an accident
This rule also usually applies when you’re switching from one policy to another.
The timing of payout can also be an issue
Most insurers promise a quick payout as soon as they get notified. There’s still a chance that processing the claim can take more than a couple of days to complete. It can be problematic especially to those who need the death benefit ASAP to pay for funeral expenses.
Tips for Finding Affordable Burial Insurance Policy
Getting burial insurance is no different from finding a good term or whole life insurance coverage. It requires a bit of preparation and research on your end to sniff out the best deals. Here are a couple of tips to help you score affordable burial insurance.
Determine How Much Burial Insurance You’ll Need
The estimated $7,000 to $9,000 average burial expense in the US should be a good place to start. Do note, however, that rates may vary between states so make sure to check the average price on your location. A policy with a benefit of $10,000 to $15,000 should provide policyholders with a decent buffer for covering any other final expenses that may arise in most cases.
Decide Between Burial or Cremation
In general, burial/funerals are more expensive compared to cremation since you’ll have to pay for the headstone, casket, and the services for the grave. An NBC news report a few years back estimated that cremation services typically only require a third of what you’ll spend on funerals. In the last few years, the cremation rate in the US has been steadily rising.
Starting with a mere 3.56% in 1960, it’s up to 48.6% in 2015 and is projected to hit as much as 54.3% in 2020. That’s more than half of the population preferring to get cremated.
There are several factors causing this rise (religion, decreasing popularity of family burial plots because members live far away from each other, among others) in the number of cremations, but practicality and cost is perhaps the biggest one that caused people to prefer cremations.
Choose a type of Memorial Service
There are 5 types of memorial services that people hold to honor the dead. The main reason why you need to decide which type you want is that it will help you estimate the final overall expenses.
Here’s a quick look at the different types of memorial services
This type of service happens within a few days of the person’s date and is held at the church, funeral home, or the home of the deceased. The body is present and not cremated on this type of service.
Considered more informal compared to a funeral service as the main purpose is to celebrate the life of the deceased loved one. Can be held any time after death (weeks, days, months) and the body of the deceased does not need to be present during the service.
Committal or Graveside Service
A committal service is a brief ritual that takes place at the graveside right after the funeral (or cremation chapel). Loved ones place flowers on the casket before it gets lowered into the grave and covered with soil. Some funeral services include this already on their offering. However, some people opt to only do the committal service.
Viewings and visitations
A type of funeral event wherein people close to the deceased along with family and relatives can express sympathy to the family of the deceased while at the same time giving one last chance to see them and bid goodbyes. It’s considered to be a more intimate and personal setting since it’s outside of a formal ceremony and allows the visitors to share their grief with the family.
Typically held after the main service. It’s similar to viewing or visitation in terms of interaction. These are usually held at the deceased’s home with food and drinks served.
Talk with your loved ones regarding your final wishes
It’s never easy to discuss death and all related stuff like funeral and burial wishes. But letting them know what you want actually helps in making sure that they’ll be honoring you exactly how you’d like to be remembered.
Check your options online
You should start by checking out your local options mainly for convenience. Compare rates and coverages, take a look at the type of payment schedule they use, and ask for a free quote. Consider your needs first, then try looking for a provider who can match your desired rates and preferences.
Speak with an insurance agent
Having an insurance agent on your side can help you determine if you need burial insurance and choose the right type of provider. They can also discuss other options aside from burial insurance. They will also explain everything you need to know about life insurance and related needs in general.
Finding an affordable burial insurance policy is not difficult, as long as you make yourself aware of the ins and outs of this type of insurance. Make sure to weigh the pros and cons and consider your lifestyle when you’re older.
This may be a sensitive topic for you and your loved ones. But it shows that you care for them and don’t want to bother them with financial problems in the future.
If you want to know more about burial insurance and other types of policies please contact us today.