Funeral Insurance: What Is It And Do You Need It?

When dealing with the loss of someone close to you, having to worry about the final expenses associated with a funeral service or burial can be overwhelming. And it’s probably fair to assume that most people would rather their loved ones not need to stress over final expenses after they pass on.

Thankfully, you can take steps before that day comes to alleviate some of the financial burden on the people who matter most to you. One such step is taking out a funeral insurance policy, which we’ll discuss in great detail next.

What Is Funeral Insurance?

Funeral insurance, also called burial insurance or final expense life insurance, helps cover the costs associated with a funeral and burial. It’s a whole life insurance policy that will last until you pass away, and its funds become available after you’re gone, so expiration dates aren’t a concern.

Final expense insurance is a type of life insurance policy – but the death benefit amount is typically much smaller than a standard life insurance policy provides. That’s because funeral insurance typically doesn’t require an underwriting process to evaluate your health at the time you take out the insurance policy.

But since the cost of a funeral is oftentimes thousands of dollars, funeral insurance may be worth considering – especially if you don’t have traditional life insurance, which may be used in part to cover funeral expenses. Easing the financial pressure on those you love, including your beneficiaries, during an already difficult time can provide valuable peace of mind.

Burial Insurance Vs. Life Insurance

These are the key differences between funeral insurance and life insurance coverage.

How Does Funeral Insurance Work?

Funeral insurance provides a financial payout to your designated beneficiaries when you pass away. After you take out a funeral insurance policy from an insurance company, you’ll pay regular monthly or annual premiums.

Some types of funeral insurance require a medical examination, while others are more accessible. This can be especially beneficial for older people with pre-existing health conditions.

Upon your death, your beneficiaries must file a claim with the insurance company. Funeral insurance policies often aim to provide a quick payout of the death benefit to beneficiaries, usually within a few days of the policyholder’s passing. This speedy disbursement can be crucial for covering immediate expenses.

What Does Funeral Insurance Cover?

Funeral expense insurance can cover an array of items, some directly related to final preparations, and some that are leftover debt or expenses from before the departed passed away.

Funeral, burial and cremation costs covered by funeral insurance include:

• Funeral services
• Casket or urn expenses
• Burial plot costs
• Cremation costs
• Embalming
• Transportation of the body
• Memorial or funeral program costs
• Headstone or grave marker expenses
• Obituary notices in print or digital media
• Flowers

Beneficiaries of a funeral insurance policy can also use the death benefit to cover their loved one’s outstanding debts, including:

• A mortgage
• Credit card debt
• Car loans
• Medical bills
• Legal fees

Advantages And Disadvantages Of Funeral Insurance

Before taking out a funeral insurance policy, it’s important to be aware of the associated upsides and downsides.

Types Of Burial Insurance

Various types of funeral or burial insurance policies are available, each with its own terminology and coverage options. Be sure to review the specifics of different policies with a trusted advisor before signing.

Traditional Funeral Insurance

This type of final expense policy provides coverage for funeral and burial expenses.

Traditional funeral insurance typically pays out a lump sum to the beneficiary or beneficiaries at the time of the insured person’s death.

Pre-Need Funeral Insurance

Unlike traditional burial insurance, pre-need insurance is a type of policy that’s often arranged directly with a funeral home where the funeral director may also be a licensed insurance agent.

The policy handles some funeral planning and covers specific funeral services and items that the policyholder has preselected. The funds often go directly to the funeral home upon the insured’s death and there will be no leftover money to put towards debts and other expenses.

Simplified Issue Funeral Insurance

Simplified issue policies likely won’t require a medical exam.

Instead, applicants must answer a set of health-related questions to determine eligibility.

Guaranteed Issue Funeral Insurance

What a guaranteed issue policy offers is encapsulated in its name: You can’t be denied coverage with a guaranteed issue policy, and you don’t have to provide any medical history.

This type of policy is designed to provide coverage to individuals who may have a hard time finding it elsewhere due to preexisting health issues. All applicants are typically accepted, but they may have a higher premium and a lower coverage amount than they would with another type of funeral insurance.

Another potential downside is the graded death benefit, which means your beneficiaries will only receive a partial payout if you die within the waiting period – typically 2 to 3 years after you’ve become a policyholder. However, in the event of an accidental death such as a car accident, your beneficiaries would receive a full payout beginning with the policy’s start date.

How Much Does Funeral Insurance Cost?

As with any insurance plan, funeral insurance costs vary based on the specific insurance premiums set by the insurance company you work with. Rates are also sometimes affected by a person’s age and gender.

Because burial insurance involves a lower payout than traditional life insurance, it’s often some of the most affordable insurance you can get. To find the best policy for your needs and budget, it’s a good idea to do some research. In most cases, that will require calling around and/or filling out online applications to get quotes and find the most affordable plan.

Does Life Insurance Cover Funeral Costs?

A life insurance company can offer you a traditional life insurance policy that provides funds for funeral costs and, in many cases, much more. Or, it’s possible that these funds won’t be used for funeral-related expenses but will serve other purposes entirely. How the money collected from a life insurance policy is allocated is at the sole discretion of the beneficiary.

The Bottom Line: Funeral Insurance Is An Investment In Your Future

When you remove some of the financial anxiety often associated with end-of-life expenses, the people who love you won’t have to sweat the funeral home bill but will be able to focus more on remembering the good times they shared with you.

Another way you can start preparing for your financial future is by downloading the Rocket Money℠ app to see what kind of funeral insurance premiums fit into your budget.