Do You Need Burial Insurance?

The high cost of funerals can put a financial strain on families, so some people turn to burial insurance to cover the cost. But is buying burial insurance the best way to go? Like many aspects of funeral planning, it depends on your situation and your goals.

What is Burial Insurance and How Does It Work?

Burial insurance is really a small life insurance policy, explains the financial website NerdWallet. The policies usually pay out from between $1,000 and $25,000 to be used for funerals and other end-of-life expenses. Though the money is planned for funeral expenses, beneficiaries can use the money however they want, NerdWallet explains.

The policies are also known as final expense policies and open to people 50 and older. Most don’t require a medical exam.

Understanding Different Types of Burial Insurance Plans 

With a "simplified issue policy,” you won’t need a medical exam but you will have to answer health questions. Some questions might disqualify you, for example, if you have a serious health condition like diabetes, cancer, or heart disease.

Guaranteed Issue Life Insurance offers even less of a medical review – no questionnaire, no exam. While convenient, the downside according to Forbes is that it offers only small benefit amounts and graded death benefits. Graded death benefits mean that the insurer will only pay your beneficiary what you paid in so far and a little interest if you die within the first couple of years of getting the policy.

Pre-need burial insurance is another option in which the money goes straight to the funeral home where you’ve made your prepaid funeral arrangements where the funeral director is also a licensed insurance agent. 

Forbes says that if you need flexibility, you are better off with burial insurance.

How Much Burial Insurance Coverage Should You Have? 

Funeral arrangements can vary greatly depending on whether you plan a gathering and traditional burial or a simple, direct cremation and scattering with immediate family only. You can estimate your expenses with this calculator from New York Life or other similar ones. The Federal Trade Commission (FTC) also has a helpful funeral pricing checklist.

The Pros and Cons of Buying Burial Insurance

According to Forbes, burial insurance could be a good choice if you want: 

• Guaranteed coverage
• To help loved ones with final expenses
• To avoid a medical exam

On the other hand, if you are in good health, there are other types of insurance that have higher death benefits that can help with larger expenses like paying the mortgage. 

According to Yahoo! Finance, alternatives to buying burial insurance include: 

• Setting up a Payable Upon Death (POD) account 
• Working with an attorney to set up a trust to set aside funds for a funeral 
• Establishing a joint savings account (but be aware, it could get tied up in probate) 

Deciding how to pay for your final expenses while you still can is a great gift to your family. Talk to your insurance agent and research options online to see if you are a good candidate for burial insurance or if another type of insurance or bank account is a better fit. If you are under 50 and in good health, you may be better served by a traditional life insurance policy. But burial insurance can bring peace of mind to older people with health conditions who want to save their family from financial worries when it is time to pay for their final goodbye.

If you're interested in learning about cremation insurance as well, take a look at our article: What Are the Pros and Cons of Choosing Cremation Insurance?