Burial and Funeral Insurance: Do You Need It?
According to the National Funeral Directors Association, the national median price of a funeral with viewing and burial was $7,640 in 2019.
For a funeral with viewing and cremation, the median cost was $6,645 with a cremation casket and urn.
It's important to note that these are median prices.
That means:
Half of funerals cost less while half cost more.
For people looking for a very specific type of funeral service, the price could be much higher at certain funeral homes.
The last thing you want your family members to worry about is how they’re going to pay for your final expenses when you die. There will be enough stress dealing with your passing without trying to figure out how to pay for it.
Some financial products can help cover these expenses. They offer peace of mind but they aren’t free.
Unfortunately, they may not always be the smartest way to spend your money.
These policies can be beneficial in many instances. The key is understanding these products, such as burial and funeral insurance, as well as pre-need plans.
Once you understand how they work, you can figure out if they’re the best solution to cover your final costs.
What Is Burial or Funeral Insurance? Are They Different?
One of the more confusing aspects of final expenses insurance is the many names it goes by.
It is commonly referred to as burial insurance, funeral insurance, final expense life insurance and many other names.
In reality:
It’s a life insurance policy.
Technically, you can buy many types of life insurance policies. This makes funeral insurance even more confusing.
Most commonly, funeral insurance will end up being a permanent life insurance product. It may even offer guaranteed acceptance with no medical exam.
That said:
You usually have to answer health questions to get an accurate quote. If you don’t have to answer health questions, you may be paying a higher price for your insurance product.
Waiting period
Additionally, guaranteed acceptance insurance may have a waiting period of a few years before it will pay out.
Life insurance companies do this to prevent people from purchasing insurance when they know they’re about to die.
If they didn’t, insurance companies would go broke or rates would be insanely high.
Permanent life insurance
Permanent life insurance is an excellent fit for funeral expenses because it pays out upon your death no matter when that is.
The key is:
The policy still has to be active.
If it requires paying monthly premiums, you may have to pay those premiums until you die.
Make sure you carefully consider the type of insurance you end up choosing.
Term life insurance
Certain versions, such as term life insurance, don’t make much sense to cover your final costs unless you have other savings.
Term life insurance only lasts for a specified number of years, called the term. If you don’t die during the term, you won’t get a benefit. That’s a good thing because you’ve lived longer.
The fact that the insurance won’t pay out upon your death if the term expires can also be bad. If you’re relying on this to cover your final expenses, a term life insurance policy isn’t a good fit for you.
How Much Coverage Can You Get?
The amount of burial and funeral insurance you can get depends on your situation, the provider you choose and how much you’re willing to pay.
Some companies offer up to $50,000 or more of funeral insurance. Policies often start as small as $5,000, though.
The key is selecting enough insurance to cover the price of your future funeral.
The truth may be:
Depending on how old you are, getting a small policy may not cover your funeral expenses when you die.
If you die decades from now, inflation could significantly increase the cost of your funeral.
In these cases, you’ll either have to buy more coverage in the future, save up the difference or have your family pay the remaining expenses.
If you want more insurance than burial insurance plans offer, you could buy a traditional life insurance policy.
Since funeral insurance is a marketing term and not an actual type of life insurance, this isn’t difficult compared to purchasing burial insurance.
How Much Does Burial or Funeral Insurance Cost?
Different life insurance companies likely offer different insurance premiums for burial or funeral insurance.
A handful of factors will usually help determine your premiums.
These include:
- Gender
- Age
- Tobacco use
- Medical history (if applicable)
- Medical exam results (if applicable)
- If the policy is guaranteed acceptance
- Type of insurance policy
- Waiting period length
According to Choice Mutual, a 50-year-old could get $5,000 of insurance from $13.94 per month to $20.05 per month. $20,000 of coverage would cost $46.14 per month to $75.90 per month.
As you get older, prices increase. A 65-year-old would have to pay $22.11 to $41.10 per month for $5,000 in coverage. The payment would be $78.82 per month to $154.77 per month for a $20,000 policy.
What Is a Pre-Need Plan?
A pre-need plan is a common term used to describe prepaying a specific funeral home for your final expenses.
The advantage:
You may lock in rates today to prevent paying more in the future.
In some cases, these pre-need plans will be insurance policies. This may not always be the case, though.
Pre-need plan vs. funeral insurance
One difference between a pre-need plan and funeral insurance is there isn’t a full death benefit that is paid out to beneficiaries.
Instead, this simply covers your expenses up to what the agreement says to the funeral home.
There won’t be any extra funds that would be paid out to your beneficiaries.
You’ll want to read the terms of pre-need plans closely and ask a lot of questions. With a life insurance policy, you can use any funeral home that accepts money.
With a pre-need plan, you may be locked in to a specific provider.
- What happens if that provider goes out of business?
- What happens if you move and die hundreds of miles away from the provider?
Each pre-need plan may have different answers to these questions.
In some cases, pre-need plans are actually another name for a burial life insurance policy.
Make sure to read the fine print to know exactly what you’re getting.
Tips to Save on Costs of a Burial and Funeral
Funerals can be expensive.
Two easy ways to lower the costs are to (if your loved one is open to these ideas):
- skip a viewing
- opt for cremation rather than a traditional burial
To help lower the costs further, it helps to know what the person would want.
Discuss funeral expectations well in advance so you know your loved ones’ final wishes.
In many cases, they may not want much done at all, saving you a ton of money.
If you’re able to have a funeral anywhere, you could save money by shopping around at multiple funeral homes.
However, doing this at the time of passing would add unnecessary stress.
Shop around ahead of time
Instead, try to shop around before your loved ones pass away. This may not be possible when the death is unexpected. Even so, it could save you thousands.
You should also ask about all charges that are suggested. Ask for an itemized list.
Question each expense to see if it is optional or if there is a cheaper option available.
If an item is optional and isn’t important to you or your loved ones, consider cutting it or choosing a cheaper alternative.
Save or Pay for a Burial and Funeral Yourself Without Insurance
It’s important to realize that funeral and burial insurance isn’t always necessary.
In fact:
You might be much better off saving or investing to cover your future funeral expenses.
If you’re relatively young, setting aside a small amount of money each month and investing for the long term could easily end up with having more cash at your death than paying for an insurance policy.
For instance, a 50-year-old that invests $20 per month for 35 years at an 8% annual return would have $45,877 when they turn 85. Even if you don’t get any return at all, you’d end up with $8,400 at age 85.
For a 30-year-old, the numbers are drastically different. Setting aside $20 per month for 55 years at an 8% annual return results in $237,810 at age 85. The contributions alone add up to $13,200.
Other Ways to Pay for a Funeral
In some cases, you may qualify for other benefits to help you pay for a funeral.
Social Security
Social Security might offer a small $255 benefit to a surviving spouse if they lived with you at the time of death.
This obviously won’t cover the entire cost.
VA, FEMA, or other agency coverage
As a military veteran, you may be entitled to a free burial in a national cemetery. Other costs will still exist that you need to cover, though. The VA may cover certain expenses in specific situations.
If a loved one died as a part of a declared natural disaster, FEMA may be able to help cover some of the bills.
Additionally, your state or other federal agencies may offer programs to help pay for funeral costs depending on your loved one’s history and financial position.
Look for programs related to your area and your loved one’s background to find additional assistance.
Crowdfunding
You may also want to start a crowdfunding campaign to help cover the expenses.
A loved one’s friends and other family members may be willing to chip in to cover some or all of the bills.
Financial loans
If you can’t find enough assistance to cover your expenses, you may resort to paying with a credit card or take out a personal loan.
Try to keep the costs to a minimum to avoid massive interest charges.
You Decide
You have to decide what’s best for you and your family.
If you’re a disciplined saver or investor, saving or investing the money yourself may be the best option.
Those who know they won’t actually save or invest the money may be better off buying a burial insurance policy.
Life insurance agents normally get commissions when they sell you policies.
For this reason, asking a life insurance agent what the best choice is will almost always end in a recommendation for purchasing insurance and a commission for the agent.
If you’re not sure which is the best option for you, talk to a fee-only or fiduciary financial planner. This may cost you an upfront fee but could save you from purchasing unnecessary insurance.
