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If you don’t have the funds to help your family pay for funeral, medical or other expenses after your death, funeral insurance can be a way to ensure your loved ones can afford those expenses.
What is funeral insurance?
Funeral insurance, also known as “funeral insurance” or “final expense insurance”, is a type of life insurance intended to cover final expenses and funeral expenses. This is a whole life insurance policy taken out in small amounts, usually between $5,000 and $25,000.
Because funeral insurance is designed for a specific purpose, it is not intended to serve as life insurance for families with significant financial obligations such as a mortgage or college tuition. It is often marketed to budget-conscious seniors who otherwise would not have the savings to cover burial costs when they die.
How does funeral insurance work?
When you purchase funeral insurance, you select the amount of coverage you want and designate a beneficiary. When you die, the beneficiary can apply to receive the death benefit and use these funds to cover funeral expenses. These can include funeral and viewing, cremation, medical expenses, legal fees and more.
Funeral insurance often has a graduated death benefit, which means your beneficiaries won’t receive the full death benefit if you die in the early years of the policy. Instead, they’ll get a refund of the premiums you paid and interest.
Funeral insurance is usually a simplified issue or guaranteed issue life insurance policy.
- Simplified issue life insurance: There is no medical exam for simplified issue life insurance, but if you answer “yes” to a question about your health, you could be disqualified. For example, simplified grant applications often ask if you live in a nursing home or have HIV.
- Guaranteed issue life insurance: You cannot be refused for a guaranteed issue life insurance policy. There is no medical examination and no health related questions. These conveniences make it a very expensive way to purchase life insurance.
How to get the best funeral insurance
When it comes to finding the best funeral insurance, you need to consider your estimated final expenses, budget, and any specific policy needs, then choose a reputable insurer who can meet those needs.
Here are some considerations when shopping for funeral insurance.
- Does the insurer provide the coverage you need?
- Does the premium fit your budget or do you need to adjust your coverage?
- Is a medical examination compulsory?
- Does the insurance company have favorable customer reviews?
- Does the insurance company have high industry ratings, such as AM Best?
Many major insurers will allow you to get a funeral insurance quote online. It’s a good idea to compare life insurance quotes from several insurance companies before making a decision.
How much does funeral insurance cost?
A $10,000 funeral insurance policy costs an average of $47 per month for a healthy 50-year-old man, according to a Forbes Advisor analysis.
Factors that contribute to the cost of funeral insurance include:
- Coverage amount
- Tobacco consumption
- Overall health
Funeral insurance tends to be a more expensive option than other forms of life insurance when you compare the death benefit to the premium cost. This is mainly because funeral insurance claims generally do not require a medical examination or detailed medical information, which increases the risk of the insurance company.
How much does a funeral cost?
The national median cost of a funeral with visitation and burial was approximately $7,848 in 2021, an increase of 6.6% from the previous five years, according to the National Funeral Directors Association. The median cost of a funeral with cremation was approximately $6,971, an increase of 11.3% over the previous five years.
Keep in mind that your own funeral costs could be much higher or lower, depending on the services you choose and where you live.
Is funeral insurance worth it?
Funeral insurance is worth it if you need a small policy just to cover final expenses.
A funeral insurance policy is convenient because it usually does not require a medical examination or a lengthy application. Premiums are also cheaper than more comprehensive permanent life insurance and coverage is guaranteed.
On the other hand, since funeral insurance does not pay a large death benefit, your family may have to pay additional expenses after your death. Also, since there is often no medical examination, you will not benefit from a reduced rate to be healthy either.
Depending on your situation, funeral insurance may not be as beneficial as other types of life insurance.
Alternatives to funeral insurance
Funeral insurance isn’t your only option for covering final expenses. Before committing to a policy, consider these alternatives first.
Pre-need funeral insurance
It basically works like a payment plan for burial costs that you set up in advance. You choose the specific funeral home, as well as your preferred final arrangements. It then estimates your final expenses, which you can pay all at once or in installments over time.
Permanent life insurance
This type of insurance covers you for your whole life (as long as the premiums are paid). It’s a bit more expensive than term life insurance, but there are a variety of permanent life insurance options, like whole life, universal life, and variable life, that have different costs and benefits. Permanent life insurance also has a cash value that increases over time, which you can withdraw or borrow.
Account payable on death (POD)
While you can certainly put money aside in a traditional savings account to pay for funeral expenses, the money could be tied up in probate after you die. A POD account, on the other hand, allows you to set aside money for a funeral without risking it being probated. You appoint a person authorized to access the money when you die. They are not allowed to make withdrawals before this date, but you can add or withdraw money from the account at any time.
You can create a trust to own your existing life insurance policy. When you die, the trustee makes a claim and the funds are distributed according to your instructions. There are also specific funeral trusts, which allow you to set aside money for a funeral and appoint a trustee. The trustee will use these funds to pay your funeral expenses after your death.
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