Confusing to some, funeral insurance is often called by other names, such as burial insurance, final expense insurance, and pre-funded insurance. All terms refer to a type of whole life insurance that provides a death benefit ranging from $2,000 to $50,000 which is designed not to support your beneficiaries, but to relieve them of the financial burden of your final expenses. This policy is designed to provide coverage for the final arrangements of your body, whether it is by burial or cremation.Here we’ll answer the question; what is funeral insurance?
Funeral insurance doesn’t expire, which means it will provide guaranteed death benefits to your beneficiary, upon your death, as long as you are current on your premium payments. Additionally, funeral insurance only requires the answering of a few health-related questions and does not require a medical exam.
How Much Funeral Insurance Do I Need?
According to National Funeral Directors Association, in 2014, the average cost of a funeral was $7,181. This cost includes transfer to the funeral home, embalming, the casket, funeral services, transportation, and any other costs associated with your burial or cremation.
A safe estimated amount of funeral insurance to purchase is between $8,000 to $10,000, while those preferring cremation should purchase a policy providing at least $2,000 to $5,000 in coverage.
Who Needs Funeral Insurance?
Funeral insurance is a life insurance product for individuals who don’t have another life insurance policy and whose families can’t afford to fund final expenses on their behalf. If you are considering a funeral insurance policy, be sure you are able to cover this ongoing annual expense.
If you already possess enough life insurance to cover funeral expenses, then you will not need a separate funeral insurance policy. Additionally, if the amount recovered from your estate will provide for your funeral, burial, or cremation costs, you can skip funeral insurance.
It is wise to do your research and save for final expenses rather than purchasing a policy to cover them. For example, you don’t want to pay $9,000 for a $10,000 funeral insurance policy when you could invest that $9,000 to grow it to $18,000 in 10 years.
Funeral Insurance and Your Finances
For most consumers, the main goal of financial planning is to ensure that you’ll have the finances needed to get you through life, as well as achieve the lifestyle you desire. The cost of your funeral is the most significant final expense, but there are others such as out-of-pocket medical expenses, any unpaid credit card debt, attorney fees, and other final expenses that are left unpaid. It’s wise to consider all of these final expenses when shopping for funeral insurance.
Types of Funeral Insurance
Funeral insurance can either be a whole or term life insurance policy. Both policies require the consistent payment of premiums in order for them to remain in force. An important difference to keep in mind is that a term life insurance policy expires, whereas a whole life policy remains active for life, or at least until you reach 100 or 121 years old as indicated by some insurance companies. The drawback to a term life insurance policy is that it could possibly expire before you do.
Ideally, you will want a funeral insurance policy to be in force at the time of your death. This is the key benefit of whole life insurance policies. Additionally, a whole life policy builds cash value.
Applying for Funeral Insurance
There are two options for funeral insurance – medically underwritten or guaranteed issue. As the name suggests, guaranteed issue policies are approved despite your medical history. There are typically no health-related questions when applying. Unfortunately, there is normally an age limit of 80 or 85 years of age. These policies usually have a graded death benefit, which means that the full death benefit will not be available in the early years of the policy. This is a form of protection for the insurance company should you die within the first 2 or 3 years of the policy. Graded benefits and the waiting period varies by policy.
An underwritten policy is one in which the insurer evaluates your medical history as part of the application process. Approval is contingent on your answers to a series of health-related questions and it may or may not include a medical exam. Even though funeral insurance limits are lower than traditional life insurance and the underwriting is less rigorous, you can still be denied based on pre-existing conditions or a history of smoking.
Consider a guaranteed issue policy if you have any pre-existing conditions or if you do not want to answer any health-related questions.
Another funeral insurance option is pre-need funeral insurance. This policy covers the predetermined funeral expenses and is purchased specifically from the funeral home or funeral director. Insurance agents and funeral homes work together to sell pre-need policies, which can be purchased guaranteed or non-guaranteed. The guaranteed policy covers the cost of your funeral regardless of the rising cost of funerals.
Unfortunately, with a non-guaranteed policy, your family may have to pay out-of-pocket if funeral expenses rise by the time of your death and your policy is not enough coverage.
The price of your funeral insurance policy is determined by your age, health status, and the amount of coverage you desire. Typically, the rates for men are higher than women. For instance, a $5,000 guaranteed policy for a 65-year-old woman will cost approximately $30/month, but the same policy for a man could be $37/month. Depending on your medical history, an underwritten policy may be more affordable. These are just estimates to give you a clue to the costs. If you multiply these amounts by 2, you can estimate the cost per month for a $10,000 policy or you can multiply these amounts by 3 for a $15,000 policy, and so forth.
How to Shop for Funeral Insurance
You will want to estimate the final expenses that you anticipate and determine how much money you would like to leave behind. Do you really need funeral insurance? Research and decide the type of funeral insurance policy that will best suit your needs. Request a quote online or from your licensed insurance agent. Can you afford the coverage that you think is most suitable? Once you have conducted your research and spoken with an insurance agent, decide which funeral insurance provider is appropriate.