Burial insurance, also known as funeral insurance or final expense insurance is a special type of life insurance. It is designed specifically to cater for your end of life expenses. This is how it works, during your life you make certain payments to your insurance provider and on your death, the insurance company gives your beneficiaries the death benefit, a lump sum. Your beneficiaries can include friends, family members or loved ones. You can nominate as many beneficiaries as you want.
The beneficiaries use this death benefit to take care of your end of life expenses like funeral and burial costs, credit card bills, hospital bills, any debts you owe, etc. Once all these expenses are taken care of, the beneficiaries are free to use the remaining amount however they like.
When buying burial insurance, keep in mind that unlike other life insurance policies, it is not meant cover huge costs like purchasing a home, college tuitions or replacing income. It is only meant to cover end of life expenses.
There are three main components of a burial insurance policy.
The premium is the amount you pay for the final expense insurance. You can pay the provider weekly, monthly, quarterly, half yearly or yearly. The premium is the cost of your insurance policy and failure to pay it can lead to cancelation of the policy. Once paid, it serves as both the income and liability for the insurance company. What this means is that the company is now bound to pay the amount stated in the policy when a claim is made against that policy. Factors like age, health, risk posed, state and coverage determine the cost of premiums.
The death benefit is the amount your beneficiaries receive from your insurance provider on your death. There is no tax on the death benefit and it is usually paid as a lump sum. This amount depends on the coverage you opted for.
With some life insurance policies, you have the choice of where the premium goes. It may all go to the cost of coverage or to both the cost of coverage and cash value. This cash value accumulates, tax deferred, in a separate account within the policy. It can server as a savings account. You can even withdraw from it during your life. Some insurance providers have policies that do not allow withdrawal depending on its purpose.
Do I need burial insurance?
Death is mostly an unforeseen event. With the average funeral in America costing anywhere between $7,000 and $10,000, the mere thought of leaving your loved ones and family to deal with it alone is painful. The only way to arrange such a huge amount of money is either taking a loan or using up their savings.
So if you don’t want to put your family and loved ones through this stressful and painful experience, you should start thinking about burial insurance. It will put you at ease that you won’t have to leave your family alone in arranging the costs of burial and funeral. The death benefits from this policy is usually between $5,000 and $40,000, which is generally more than enough to take care of all your final expenses.
What is the difference between burial insurance, final expense insurance and funeral insurance?
This is a very commonly asked question and the answer is there is no difference. They are all different terms used for the same thing, like the words attorney and lawyer. If you are ever told otherwise by any insurance provider, agent, broker or website, run as far away as you can.
How do I apply for a burial insurance policy?
You have the option of buying an insurance policy directly from the insurance provider, online or through agents or brokers. You will have to fill out an application form after you decide which policy to purchase. This form asks for basic information about you. It may be one page, or 10 pages if it is very detailed. This depends on the policy you purchased.
You don’t necessarily have to be physically present at an office to fill it out. You can do so over a phone call or via email. The next step may involve a medical exam, not all insurance providers require this though. Once the insurance provider approves your application, you get coverage from the first day.
What is guaranteed life insurance?
Guaranteed life insurance is a type of life insurance. It offers instant acceptance without any medical questions or medical exam. Though it sounds great, it has certain conditions.
- Higher premiums. Since the insurance company is taking a huge risk insuring you, the cost per month will be higher.
- 24 month waiting period. What this means is that if you die during the first 24 months of the policy, your beneficiaries will only receive the premium and a little interest. The full death benefit is only paid if you die 2 years after the policy.
These conditions make guaranteed life insurance a last resort for many. It may be the right insurance for you if you have certain health conditions, or if there is no other company willing to insure you.
Can I qualify for a burial insurance policy?
You probably do. Funeral insurance doesn’t have that many requirements. If you are below the age of 85 you can easily find a policy. If you are above 85, you can still find a policy, but the options may be limited. Other factors that determine your qualification include:
The state you live in
There are some states that do not approve certain insurance policies, so they may not be available in your state.
Certain health conditions may not allow many insurance providers to insure you. You will still have the option of no health policies.
Is there anything I should look out for when buying funeral insurance?
Purchasing an insurance policy is a big investment. So you need to very careful about what you need. Here are some important things you need to keep in mind when buying insurance.
The premiums for burial insurance cost more with age. Most insurance companies have an age limit for new clients. It is also very likely that you develop a certain health condition that may result in more premiums or prevent you getting insured by any provider.
Don’t hide or lie about anything
Be honest when looking for a policy and when filling out application forms. Lying or hiding will only cause you problems. In the future if the provider finds out they may charge you more or cancel your policy all together.
Though most burial insurance companies do not require a medical exam. You may have to undergo one if you have health conditions like Alzheimer’s, dementia, AIDS or HIV, a terminal illness, an organ transplant or are wheel chair bound due to a disease. In other cases you may simply be required to fill out a health questionnaire.
As mentioned before, you have the option of making the premium payments yearly or more frequently. Though frequent payments sound budget friendly and easier, annual payments save you a lot of money in the long run. Many insurance providers charge more for frequent payments.
It is also advised that instead of making the payments manually, you set them up as automatic bank drafts or credit card charges. This will remove the risk of you forgetting to pay and risk losing the policy.
Do not forget to do your research! Research is important as it helps you understand how these policies work and shows you all the available options in the market. You can find plenty of material online and get help from insurance providers, agents and brokers as well. This will help you find the burial insurance policy that is right for you.
Should I buy from an insurance company or through agents or brokers?
Most insurance companies sell their policies directly to their customers but some sell them through agents and brokers. Insurance costs are regulated so policies will cost the same whether you buy from the company or otherwise. You may get a discount from somewhere, buy that’s not always the case.
If you buy from an insurance company keep the company’s rating and policy cost in mind.
With all the options out there go for a company with higher ratings. These ratings a measure of the company’s financial position and performance. A higher ratings means the company is stable. What that means for you is that when the claim is made against your policy, the company will very likely be able to pay the death benefit.
These ratings are given by companies like A.M. Best, Demotech Inc., Fitch Ratings, Standard & Poor’s and Weiss Ratings. The ratings can be found and compared online.
If you find multiple policies from different companies that are according to your needs and budget, go for the company that offers the cheapest premium.
Brokers or Agents
Insurance agents and brokers have similar jobs and duties. It is their duty to assist you in finding the right insurance policy for you. They are also supposed to explain everything about the policy, how it works and any discrepancies. In return for selling these policies, they receive a commission from the insurance providers. Despite the similarities, there are some differences.
Agents are representatives of many insurance companies. Agents can be captive or independent. Captive agents represent a single insurance company. On the other hand, independent agents represent multiple insurance companies. Agents are allowed to sell policies on behalf on the insurance company because they sign a contract that allows them to do so.
Brokers, on the other hand, operate on a client based business model. They represent many insurance companies. They do not sign any contract with insurance companies but are issued an insurance binder if someone buys a policy through them.
Finding the right insurance agent or broker can be a very long process. So when you find one who is trustworthy, stick to them. If you decide to buy through agents or brokers, keep in mind the following.
- Ask friends, family, colleagues, neighbors etc. for referrals.
- Do a background check on them. Make sure they have an active license and they are authorized to sell you the policy you want. You can find all this information online on your state’s insurance department website.
- Go for agents or brokers who have a lot of experience and been in business for some time.
- Ask them for tell you about all the policies they have from the different insurance companies they represent. The more options you have, the higher the chances of finding the right insurance policy.
- Avoid agents or brokers who start recommending policies without getting to know you first. Background questions are very important as they help the agent or broker get a better idea of what you need.
- Don’t let them pressurize you into buying a policy.
- Make sure your agent or broker can explain the complex terms and conditions and how the policy works in simple words.
- Understand how the agent or broker is paid. As you already know, they earn a commission for every policy they sell. Make sure they are not selling you an insurance plan only because they will receive a higher commission.
Avoid offers you get through mail or see on TV
Usually these offers are for guaranteed life insurance policies. They also cost more. In case you decide on buying them, do a bit of research so you know what you are getting into.
Insure the right amount
If you find an insurance policy and it offers a death benefit of say $35,000 and your calculations find that it will be enough to cover your end of life expenses, do not be tempted to buy more coverage. It will only cost you higher premiums.
When estimating your coverage amount, take into account the funeral and burial costs, any debts or loans or unpaid bills and inflation. You can also seek expert assistance.
You can buy as many policies as you like
Mostly such insurance policies offer a maximum death benefit of $50,000. If you want more, you can apply for multiple polices from different insurance providers. It is completely legal.
What makes funeral insurance unique?
One of the main features that makes burial insurance stand out from other life insurance policies is its lenient underwriting. What is underwriting? It is the process used by life insurance companies to price risk. They analyze the risk associated with potential clients. They then figure out how much coverage a potential client needs vs. the likelihood of them claiming that policy. Using the results from this process they set the price of your policy’s premiums.
Since funeral insurance policies are designed to absorb high amounts risks, no health exams or questionnaires are usually required.
Small face value options
The death benefit is also known as the face value. It is the amount the insurance provider pays your beneficiaries when you pass away. Final expense insurance gives you the option of as little as $1,000 worth of death benefit. This is a great feature as you only buy what you need.
Easy to get
You don’t have to physically go to an office to get the final expense insurance policy. You just have to fill out an application. This can be done online, or from the comfort of your home, over a phone call or via email.
The death benefit for final expense insurance can be claimed by your beneficiaries regardless of where you died on earth.
Guaranteed life insurance option
Funeral insurance offers a guaranteed life insurance option as well. Though it comes with a 24 month waiting period and higher premium costs, it may be the right insurance for you. It may that your age or health does not let any other life insurance company insure you. It does not require any health questions or medical exams.
Funeral insurance is a type of whole life insurance, this means your premium cost and death benefit stay constant and last forever.
As mentioned before, burial insurance offers a cash value component. Cash value serve as a savings account. Though you may never want to touch it, life is uncertain and having cash value can be of use if you ever face a financial crisis.
Funeral insurance approvals can range from 12 minutes to 3 business days. This time may vary depending on the insurance company.
Lots of final expense insurance companies to choose from
If you are worried that no insurance provider will insure you because of your age or health, you need not worry. There will very likely be many funeral insurance companies willing to insure you. The insurance business is growing rapidly and every day they come up with new ways to fill the gaps in the market and attract more customers.
What are the different options in burial insurance?
Final expense insurance offers three different types of policies, some insurance companies only have two. These policies have different premium costs and eligibility depends on health.
The three policies are as follows:
Level Benefit Plan
Also known as the preferred benefit plan by some providers, it requires you to say no to all the health questions from the insurance company. If you are approved, you get coverage from the first day. This plan offers the lowest premiums the insurance provider can offer.
Graded Benefit plan
Graded plans offer partial coverage during the first two years of the policy. What partial coverage means is that if you pass away during the first year of the policy, your beneficiaries receive only 30% of the death benefit. If you pass away during the second year, your beneficiaries receive 70% of the death benefit. They will only get the full death benefit, if you pass away two years after the policy. The exact percentages of the death benefit for the first and second year may vary depending on the insurance provider. But most life insurance companies offer between 25% and 40% during the first year and between 50% and 75% during the second year.
This is the highest risk plan an insurance provider can offer. You can qualify for it if you have certain medical conditions, like heart attack, cancer, etc. But is has the condition that if you pass away within the first two years of the policy, your beneficiaries only receive the premium payments and some interest. They receive the full death benefit if you pass away after 2 years of the policy. This condition makes many people consider this plan completely worthless.