Funeral Insurance: What It Is & Why You Need It

The loss of a loved one is a sad and emotional time. Not only do you have to handle the emotional issues that come from their passing, there are often practical matters to attend to as well. Planning memorial services and burials is never easy, but when cost becomes a factor, the process can even be more complex.

Few people realize that the cost of the average funeral is $10,000 or more. This includes everything from physical services, such as preparation of the body and the cost of the casket, to the services of the funeral home, burial, memorial service and more. Even cremation, by all accounts a more affordable option, costs several thousand dollars.

Understanding that the cost of a funeral and burial could create undue hardship for their loved ones, some people choose to prepare in advance and purchase a specific type of life insurance designed to cover those expenses. Funeral insurance, also known as burial insurance or final expense insurance, is a way to make the significant end-of-life costs more affordable and prevent families from incurring significant expenses for the funeral.

 
Funeral Insurance: The Basics
In the most basic terms, funeral insurance is life insurance. Unlike traditional life insurance policies, which are usually for large amounts and designed to replace the income that you provide to your family upon your death, a funeral or final expense policy is usually for less than $50,000 – the average is around – and specifically designated to cover your funeral or end-of-life expenses.

In most cases, the beneficiary of the policy is a family member, who can make a claim against the policy when you pass. While the policy is technically for the purpose of paying for your funeral, the beneficiary can actually do whatever he or she wants with the money. In addition, if the policy is for an amount greater than the cost of the funeral, the beneficiary gets to keep the difference.

Funeral insurance policies can be either term, meaning they are only in effect until a certain date, or whole life, meaning they cover you until you die. Policies of this type tend to be a simplified issue, which means that you’ll qualify even if you have significant health issues or other factors that could prevent you from getting traditional life coverage. Some companies even offer perks such as rebates on the premiums you pay after a certain amount of time, or will return all of the premiums you paid if you do not use the policy within the term.

Premiums on funeral policies tend to be rather low. In most cases, coverage is only a few dollars per week, depending on the value of the policy.

Funeral Insurance vs. Pre-Need Insurance
Burial insurance differs from pre-paying for your funeral, or buying a pre-need policy. Pre-paying for your funeral is just that: you pay for your arrangements in advance, often by making regular payments to the funeral provider that you’ve selected. You make all of the arrangements ahead of time at the current market rates, and when you do finally pass, everything is taken care of already. This type of arrangement protects against cost increases, and takes the burden of planning and payment off of your loved ones.

Pre-need insurance is generally sold by funeral home directors, and is similar to traditional burial insurance. Instead of your family being listed as the beneficiary of the policy, the funeral home will receive the payout from the insurance company. This is another way to guarantee that your wishes will be carried out, and your loved ones will not experience hardship.

No one likes to think about their eventual death, but it is one of the unavoidable facets of life. Taking time to think about your final arrangements and address the practical matters of cost ahead of time removes stress from your loved ones, though, and allows them to focus on remembering you and your life and managing the emotional aspects of your passing. Your insurance agent can discuss your options with you and help you compare options, and find the right policy that will give you peace of mind.

About the Author: David Nye is a licensed insurance agent focusing on the senior market. He has worked with hundreds of families and helped them plan for the future through insurance policies, such as those offered by Suncorp Life Insurance.