You've seen the ads on TV: After the funeral of a neighbor or friend, two people are discussing how difficult things will be now for the surviving family because the cost of the deceased's funeral and burial was so high. The commercial ends with the actors vowing to buy burial insurance (often referred to as "final expense" insurance) to spare their family that kind of stress.
What exactly is burial insurance, and is it a worthwhile investment? Or is it an unnecessary expense that won't really make things any easier for your family after you're gone?
Many people confuse burial insurance with prepaid funeral policies, but they are, in fact, very different. Prepaid funeral policies are not insurance policies at all. They involve working with a funeral director to make and pay for your final arrangements in advance of your death. Doing this (and, of course, letting your loved ones know about it) can give you peace of mind that your funeral and burial arrangements will be as you wish, and that your family won't be burdened by the expense.
Burial insurance, on the other hand, is a type of whole-life (as opposed to term) insurance policy. Advertisements featuring this type of insurance typically boast that "no medical exam is required" and "all you need to do is answer a few simple questions" in order to qualify. These claims are appealing to older people or those in ill health, who justifiably reason that they would not qualify for an insurance policy that required a medical exam.
Burial policies generally have limited underwriting. As a result, premiums tend to be much higher than term life policies that have full underwriting—in some cases, ten to twenty times higher. Insurance companies know that the target market for burial policies tend to have health issues; if those people could qualify for a good term life policy, they probably would.
The cost of burial insurance tends to vary with the age and sex of the insured and often with whether they use tobacco products. The benefit amount tends to be smaller than for most life insurance policies, because it is intended primarily to pay for final expenses. As a result, the premiums are usually a manageable amount for most people. But that doesn't necessarily mean it's a wise use of your money. In fact, sellers of these policies tend to market them to people who are low-income and likely not to be very well educated.
If you're truly worried that your family will be burdened by your final expenses, there are ways to protect them without resorting to burial insurance, which most experts agree is a poor investment. If you believe your health is failing such that you will die within the next few years, burial insurance may seem worth it to you. But if you were to die within a year or two of purchasing the policy, the insurer may contest the claim. Imagine the stress this would cause for your survivors!
So, what can you do instead of purchasing burial insurance? One option is to work with a reputable insurer to see if you can qualify for a fully-underwritten term life insurance policy. If you do qualify, you may be able to purchase a $50,000 ten or twenty year term life policy for the same premium as $5,000 worth of burial insurance.
Another option is to work with a funeral home you trust to purchase a prepaid funeral plan. If you're not comfortable doing this, consider setting aside money on your own in an account that's earmarked for your final expenses.
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