If you are considering funeral insurance then give yourself a pat on the back. You are thinking ahead … and beyond. For most of us, retirement planning involves figuring out how to make our money last until the end of our life. We don’t necessarily consider how much money will be needed to wrap up our affairs after we’re gone.
So you are ahead of the game, but whether or not to buy funeral insurance, and which policy to buy is not a simple decision. That’s because, like most insurance, funeral insurance has a language of its own. To help, we’ve done your homework for you. We’re going to lead you through the process, step-by-step, and help you make the decision that’s right for you.
What is Funeral Insurance?
Simply stated, funeral insurance is a life insurance policy designed to pay for your funeral, burial and other “final expenses.” Let’s start with basic terminology because it can be a little confusing. Funeral insurance is also commonly referred to as burial insurance, final expense insurance, and pre-need insurance. They are essentially the same thing but there are some differences and we’ll explain those to you. For simplicity, let’s just call it funeral insurance.
Here you’ll find everything you need to know about buying funeral insurance including:
- How to estimate how much you will need to cover your final expenses.
- How to decide if you actually need funeral insurance.
- How to determine the type of policy to purchase.
- How to figure out if you can afford the policy you want.
- Where to buy a funeral insurance policy.
- How to get started shopping for funeral insurance.
Are you an insurance agent? Check this out.
Here are the steps a wise shopper will follow when buying funeral insurance. Each step is explained in detail below.
- Estimate Your Final Expenses.
- Determine If You Will Leave Behind Enough Money.
- Decide If You Need Funeral Insurance.
- Decide on the Type of Insurance You Want.
- Get a Funeral Insurance Quote.
- Decide If You Can Afford The Coverage You Want.
- Choose a Funeral Insurance Provider.
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How To Buy Funeral Insurance
Step 1: Estimate Your Final Expenses
Your first step is to figure out how much you’ll need to cover your end-of-life expenses. The cost of your funeral is the first thing that comes to mind and it’s often the largest single cost. But there are other “final expenses” to consider – remaining medical bills, legal costs, living expenses, and credit card bills, to name a few. Visit our Funeral Costs page for a complete explanation of these final expenses. This page also has 2 handy tools that can help you determine how much your final expenses might be.
Step 2: Determine If You Will Leave Behind Enough Money to Cover Final Expenses
The key question is: Will there be enough money in your estate to cover your final expenses? You may need the help of a financial advisor to figure this out. A secondary question is: Will your survivors have immediate access to the funds in your estate to pay your bills? Your money could be tied up in probate and that could be a problem since funeral providers (and cemeteries) expect payment at the time of the funeral. It’s likely there will be other bills that come due upon your death. Who is going to pay them if your money is not readily available? See our article on what to do after the funeral for helpful tips.
Step 3: Decide If You Need Funeral Insurance
If you do not expect to have available funds at the end of your life to cover your final expenses then a funeral insurance policy might make sense for you. Even if you expect to leave behind enough money, you may not want your estate to be depleted by your final expenses. Having a funeral insurance policy is one way to ensure that your entire estate will be available to your family.
- Level premiums – that is, premiums don’t increase as you get older.
- Top rated insurance company – with an A.M. Best rating of A- (Excellent) or better.
- No medical exam – although you will have to answer health questions for an underwritten policy.
- Ideally a whole life policy – that accumulates cash values and can stay in force until the end of your life.
Step 4: Decide on the Type of Insurance You Want
There are many specialized policies available on the market today to help you cover your final expenses. They may be marketed as funeral insurance, burial insurance or final expense insurance. One feature these policies have in common is that the coverage is typically capped at $25,000 to $50,000, as compared to regular life insurance coverage of $50,000 or more. The lower coverage is because these policies are specifically designed to pay only enough to cover final expenses. They are not intended to provide supplemental income to your survivors like regular life insurance.
Here are the key questions about funeral insurance and what you need to know:
What is the difference between Simplified Issue and Guaranteed Issue Policies?
When applying for an insurance policy for final expenses you have two basic options: Simplified Issue or Guaranteed Issue policies. Knowing the difference is important, particularly if you have concerns about your medical history.
With a Simplified Issue policy, the insurance company evaluates or “underwrites,” your health based on your answers to a series of questions regarding your medical history. A medical exam is generally not required. Since funeral insurance limits are lower than traditional insurance, the underwriting requirements are generally less rigorous, but it is still possible for you to be declined based on health or lifestyle factors. Pre-existing conditions, smoking, or taking part in risky activities can all cause your application to be declined.
With Guaranteed Issue policies, almost everyone is accepted regardless of medical history. In fact, you don’t even need to answer health questions to apply. So what’s the catch? There’s no catch really. But there is more risk being assumed by the insurance company so the cost may be higher than for other types of policies. Also, a Guaranteed Issue policy will most likely have a modified benefit provision (more on this below). If you have concerns that your health may cause you to be denied for coverage, or just do not want to share any health information, then you should look for a Guaranteed Issue policy.
What is the difference between Level Benefit vs. Modified Benefit Policies
With a Level Benefit Policy the full death benefit will be available beginning on the issue date of the policy, regardless if the death is due to natural causes or an accident. The approval of a Level Benefit Policy will depend on the applicant’s answers to the medical questions.
With a Modified Benefit Policy the full death benefit will not be available until the policy has been in effect for some specified period of time. This is known as the “Restriction Period” and it is usually 24 or 36 months. Should you die before the Restriction Period is over, your beneficiaries will only receive a limited portion of the proceeds. This restriction typically applies only to a death due to natural causes. In most cases, the full death benefit is paid for accidental deaths, even those occurring in the Restriction Period. There are various types of Modified Benefit Policies so be sure to check the policy details. The payout may be based on a Graded Death Benefit or a Return of Premium provision and there are definite differences between them.
For more information on Simplified Issue and Guaranteed Issue policies as well as Graded Death Benefit and Return of Premium provisions see our article on Final Expense Insurance.
What is the difference between Whole Life and Term Life Insurance?
Perhaps the most fundamental decision you need to make when shopping for funeral insurance is to determine if a Whole Life policy is best for you or if you should turn to Term Life insurance. The various provisions we have discussed above could apply to both Whole Life and Term Life policies.
The key difference between these types of policies is that a Whole Life policy can stay in force until the end of your life. Some Whole Life policies terminate at 100 years of age but that’s good enough for most of us.
A Term Life policy will expire at a specified point in time. The time period may be a span of 10, 15, or 20 years, or expire when you reach a certain age, such as 75 or 80 years old.
The distinction between Whole Life and Term Life is particularly important when it comes to funeral insurance because you want to be sure that your coverage is in effect at the time of your death. The key advantage to a Term Life policy is that it will likely be less expensive than Whole Life since for the insurance company the risk is less.
A Whole Life policy, while it can be somewhat more expensive than Term Life, will ensure that you have coverage when you need it. (For more on Whole Life versus Term click here)
Wise Shopper Tip: When shopping for funeral insurance be sure to read the fine print. For example, it’s not always clear whether the advertised policy is whole life or term life. You don’t want to be fooled into thinking that you are getting a great deal on a whole life policy only to find out later that it is really a term policy.
What is Pre-Need Insurance?
Pre-Need Insurance is linked to a funeral goods and services contract with a specific funeral provider, such as a funeral home. The contract spells out all of your funeral arrangements in advance and you are billed at current prices. It may be possible to transfer the contract to another funeral provider if the need arises, but this is not always to case. There are risks to these kinds of policies so you need to be sure that you are contracting with a reputable provider that will still be in business when you need them. If you are ready to nail down your funeral arrangements and know which funeral provider you want, then pre-need insurance is an option to consider. The key advantage to a Pre-Need policy is the ability to lock in today’s prices for your funeral. (For more on Pre-Need Funeral Insurance click here)
Does Life Insurance Cover a Funeral?
For most of us the main purpose of life insurance is to provide financial security for our survivors. If your family depends on your income, life insurance can partially replace the income lost due to your death. It can also provide an inheritance for your heirs even if you do not have assets to leave them. Life insurance policies are generally purchased for larger coverage amounts than the $25,000 to $50,000 limits for funeral insurance. As we have discussed, unlike life insurance, the main purpose of funeral insurance is to cover only your funeral costs and final expenses. You might want both, as funeral insurance is often used as supplemental coverage so that your life insurance proceeds are not depleted by your final expenses.
Step 5: Request a Quote
Since the exact price of funeral insurance will depend on your unique situation, the only real way to know what it will cost is to request a quote. Our funeral insurance finder is a great way to start. You’ll get an instant quote for the coverage you request. It is absolutely free and you are under no obligation.
It may be possible to complete the entire shopping process online but we highly recommend that you talk with a final expense insurance advisor. You will get the best possible coverage at the lowest price if you are buying only what you absolutely need. The best way to do this is to talk with an advisor so that you can ask questions, get clarifications, and make sure that you understand exactly what you are buying.
Step 6: Decide If You Can Afford The Coverage You Want
Are you a savvy consumer? Do you pride yourself on finding the best deal? If so, you might be in for a rude awakening when shopping for funeral insurance because you won’t find any “deals.” Insurance is a highly regulated product. Policies and rates must be filed state-by-state by the insurance companies and are not offered later at a discount. Rates will vary from policy-to-policy and also from state-to-state due to differing state regulations for funeral insurance. Always be wary if you see an offer for a great deal on funeral insurance. Be sure to read the fine print and research the company offering the policy. It doesn’t do much good to get a good deal if the policy or company issuing it isn’t there when you need it.
What If I Cannot Afford To Pay The Quoted Rates?
You have a couple options if the monthly premium quoted is more than you can afford. One option is to rework your funeral plan to reduce the cost of the funeral. Since this will reduce the amount of insurance coverage you need, it will also reduce the premiums. See our Funeral Costs article for tips on managing your funeral cost.
Another option is to consider buying a Term Life policy instead of Whole Life. Term Life policies are less expensive than Whole Life. The risk is that your term policy could terminate before you die and you will be left without coverage. Term insurance may not a perfect solution but, under certain circumstances, it may be your best option.
Step 7: Choose a Funeral Insurance Provider
Funeral insurance policies can be purchased through insurance agents and through funeral service providers and their agents. Independent agents represent various insurance companies whereas exclusive or captive agents represent only one insurer. Funeral insurance may also be purchased directly from an insurance company.
Funeralwise.com is a licensed independent insurance agency. We offer a variety of funeral insurance policies through a network of independent agents. Since our primary mission is to provide a free funeral information and planning resource, we believe that we are uniquely positioned to provide a sensible, planning-based way to shop for funeral insurance. Yet being prepared for end-of-life involves much more than purchasing an insurance policy. That’s where we offer added value. Our online planning tools, forms, guides and forums provide unmatched support to guide you and your family along the way. Give our free Instant Quote a try.
Whether you buy through Funeralwise.com, or from another agent or directly from an insurance company, you should purchase a policy issued by a top rated insurance company. A.M Best is a good source for determining the financial stability of insurance companies you may be considering. It is a highly regarded source for an independent opinion of a company’s ability to meet its financial obligations. Its top ratings are AAA (Exceptional), AA / AA+ / AA- (Superior) and A / A+ / A- (Excellent). A policy from an insurance company with any of these top ratings is your best choice. Do not accept anything below a BBB (Good) rating. See A.M. Best Ratings Guide for details.
If you work in the insurance field and are interested in learning more about our network of final expense agents, visit Final Expense Insurance: How to be a Trusted Advisor.