Are you concerned about covering your funeral and burial costs? You may have heard about burial insurance, a specialized type of life insurance designed to handle those expenses, but you're not quite sure how it works. If that sounds like you, you've come to the right place! In this article, we’ll delve into what burial insurance covers, different types of burial insurance, and the pros and cons of each to help you make an informed decision.

What Is Burial Life Insurance?

Simply put, burial insurance is life insurance. Whether it's referred to as final expense life insurance or guaranteed acceptance life insurance, it's essentially the same thing. The main purpose of burial insurance is to pay a lump sum cash benefit to your beneficiary upon your passing, which they can then use to carry out your funeral wishes. Not all life insurance is the same, however. There are three primary types of life insurance that can act as burial insurance: Whole Life, Term Life, and Universal Life.

Whole Life Insurance

Whole life insurance is designed to last your entire life. This type of insurance is popular among seniors looking for burial coverage because:

• Rates Never Increase: The premiums remain the same throughout the policyholder's life.

• Coverage Never Cancels: As long as premiums are paid, the policy remains in force.

• First-Day Full Coverage: Many whole life policies offer immediate coverage from the first day.

The major downside of whole life insurance is its higher premiums compared to term and universal life insurance. The premium guarantees and lifetime coverage come at a cost. Despite this, whole life insurance is often preferred for burial coverage due to its stability and peace of mind. Most whole life insurance policies designed for burial expenses are simplified issue, meaning no medical exam is required—just a phone interview with the insurance company.

Term Life Insurance

Term life insurance, or "terminating coverage," provides substantial coverage at a lower price than whole life insurance. However, if you live past the term, the coverage ends. Many companies offer term life insurance to seniors for final expenses, such as AARP, Trustage, and Globe Life.

• Lower Premiums: Term life insurance generally costs less than whole life insurance.

• Coverage Expiry: Term life insurance coverage ends after a set period, often 10, 20, or 30 years, or at a specific age, like 80.

While term insurance offers lower premiums, it does come with the risk of outliving your coverage, meaning no benefits are paid out if you live past the policy's term. Additionally, premiums can increase periodically, which can be challenging for seniors on a fixed income.

Universal Life Insurance

Universal life insurance can be a good option for burial expenses if properly designed. No-lapse universal life insurance is the only type I recommend for seniors, as it guarantees the premium remains the same throughout the policy.

• Premium Guarantee: As long as the same premium is paid from the start, the policy remains active.

• Higher Coverage: Universal life insurance typically offers more coverage per dollar of premium compared to whole life insurance.

However, universal life insurance is harder to qualify for and usually requires more extensive underwriting. It is also typically available for larger coverage amounts only, starting at $25,000.

What Is A Pre-Need Funeral Policy?

Pre-need funeral policies are different from burial insurance. Sold through funeral homes, these policies allow for pre-planning and price locks on funeral services, with payment plans available up to 10 years. Like all life insurance, if you die before completing the payments, the insurance covers the remaining balance.

Pros of Pre-Need Insurance

• Fixed Premiums: Premiums do not increase over time.

• Simplified Underwriting: No medical exams are required.

• Price Lock: Funeral service items are locked at current prices, protecting against inflation.

• Flexible Payment Plans: Options to pay off the policy immediately or over several years.

The biggest advantage of pre-need plans is the price-lock feature, which protects against escalating funeral costs. Additionally, pre-need plans offer simplified underwriting, making them accessible to most people.

Cons of Pre-Need Insurance

• High Premiums: Price locks often come at a significant cost.

• Strict Underwriting: Health issues may result in waiting periods before full coverage kicks in.

• No Beneficiary Control: The funeral home is the beneficiary, so funds are directly used for funeral expenses, leaving nothing for other needs.

Average Cost of Burial and Cremation

According to the National Funeral Directors Association, the median cost of a burial in 2017 was $8,755, while the median cost of cremation was $6,260. These costs have been steadily increasing over the years. Cremations can be less expensive, especially with direct cremation options, which can be as low as $4,000 in larger cities.

Comparing Costs: Burial Insurance vs. Pre-Need Insurance

When deciding between burial insurance and pre-need insurance, consider the cost differences. Pre-need insurance often has higher premiums, especially for long-term payment plans. For example, a 10-year pre-need plan with a $150 monthly premium for a $10,000 funeral could cost $18,000 over the term, nearly double the funeral's value.

In contrast, burial insurance typically offers lower premiums. For instance, a $10,000 burial insurance plan might have a $50 monthly premium, costing $18,000 over 30 years if the policyholder lives to 90. While this can also result in paying more than the benefit amount, burial insurance offers flexibility as the beneficiary can use the payout for other expenses.

My Thoughts on Selecting the Right Plan for You

Choosing between burial insurance and pre-need insurance depends on your financial situation and insurance goals. If you are price-conscious and have a fixed income, burial insurance might be the better option due to its lower premiums and flexibility. On the other hand, if you have the means and prefer pre-planning, a pre-need policy with a shorter payment term might be more appealing.

Consider your personal goals and whether you need life insurance coverage beyond burial expenses. For example, a burial insurance plan can provide additional funds for a spouse or family members, which a pre-need plan cannot.

5 Beneficial Reasons to Get Burial Insurance

1. Stable Rates: Whole life burial insurance guarantees that your premiums will never increase.

2. Peace of Mind: Knowing your funeral expenses are covered provides significant peace of mind.

3. Cash Value: Some burial insurance policies accumulate cash value over time, offering financial flexibility.

4. Fair Rates: Working with a broker can help you find the best policy for your budget.

5. No Medical Exams: Burial insurance typically does not require medical exams, simplifying the application process.

Final Thoughts

Choosing the right burial insurance plan involves understanding your options and considering your personal needs. If you prefer pre-need insurance, contact a trusted funeral home to discuss your options. If burial insurance seems like a better fit, I can help you find the right plan, regardless of where you live in the U.S. Making an informed decision now can provide peace of mind for you and your loved ones in the future.