How Burial Insurance Policies Work
If you died tomorrow, could your loved ones manage the cost of your burial? It may seem like a morbid thought, but it’s all part of protecting your family. According to the National Funeral Directors Association, the average cost of a funeral was $7,360 in 2017, up from $7,181 in 2014. Funeral expense insurance, also known as burial insurance, can take care of those costs, but it’s often not necessary as long as you have life insurance.
How Does Burial Insurance Work?
Offered by a variety of insurers, a burial policy offers benefits up to a certain limit. When you die, your beneficiary can cash in the policy and use it as directed under the policy. Burial insurance is a type of life insurance, offered even as term or permanent insurance, but it’s often heavily marketed to seniors.
The temptation with any type of funeral insurance policy is that insurers make it so easy to set up. You can order it either online or by telephone, with no physical exam required. Since insurers target seniors, they realize they’re insuring a higher-risk group, which usually means premiums are higher. You’ll also likely be required to wait a set period of time before the policy kicks in and only be covered up to age 100.
Burial Policy Cost
Perhaps the biggest issue with a burial policy is that it can seem as though it’s offered at a much lower rate than life insurance. With life insurance, you’re paying for a much higher eventual payout, whereas with burial insurance, you’re likely only looking at thousands of dollars. The cost depends on your age, gender and answers to the health questions, but you’re likely looking at $15 to $80 per month, putting the average close to the $50 range.
Before you invest in a funeral insurance policy, it’s important to pay attention to the type you’re buying. If you purchase a single-premium policy, you’ll have immediate coverage, but you’ll pay an upfront lump sum for this luxury. Graded death benefit policies increase the coverage gradually as you pay premiums over the years. Lastly, a traditional whole life policy will have the same coverage from start to finish as long as you keep paying the premiums.
Prepaid Funeral Plan Versus Insurance
Things can get confusing when a funeral home offers burial insurance. In some states, funeral homes can sell burial insurance, but there’s no need to buy the policy from the funeral home. If the funeral home agrees, you can assign the payout to go directly there upon your death to save your loved ones the trouble, but it’s important to clear this with the funeral home first.
If a funeral home is offering insurance, make sure they’re not referring to a prepaid burial plan. This is completely different from a burial insurance policy. Prepaid burial plans allow you to plan out your entire funeral and pay in advance, but they can come at a cost. If you change your mind or the funeral home closes, you’ll need to make sure you can get a refund.
Life Insurance and Burial Costs
One reason insurers bombard seniors with funeral insurance policy marketing messages is that younger consumers can land a much higher-value life insurance policy for a lower cost. When you die, your survivors will be issued a lump sum for the amount of the policy, which they can then use in part to pay your final expenses. However, the payout may not happen in time to prepay for the funeral, especially considering funeral plans usually begin within a very short time after someone’s death.
Before you skip burial insurance, though, it’s important to take a look at your life insurance policy if you haven’t in a while. Make sure the beneficiaries are up-to-date and the policy is valid. If the policy has expired, you may need to start shopping around for new life insurance, but even if you’re older and high-risk, you should be able to get a smaller life insurance policy to cover the basics.
Funeral Insurance Scams
Although there are plenty of legitimate funeral insurance providers out there, you may also come across a scam or two along the way. The biggest danger comes with prepaid funeral plans, where someone convinces you to hand over a lump sum and then disappears with the money. This can be couched as funeral insurance, but it’s important to do careful research before signing up for any plan, and be especially skeptical if you’re asked to pay a large sum upfront.
A less harmful scam happens when you receive a final expense insurance mailer and respond with your contact information. The company receiving your reply mailer then sells that information to insurance agents, who begin reaching out to you with offers. The mailer misleads recipients into believing they’re signing up to possibly qualify for some free state-regulated program to take care of all their funeral expenses.
Getting Affairs in Order
As valuable as insurance covering funeral expenses can be to your family, it won’t help at all if your family doesn’t even know the policy exists. Your survivors will likely have a timeframe in which they need to file a claim for any life insurance policy you have. No insurer is going to proactively watch for death notices and track your family down to pay your benefits, which means they’ll have to try to track down your policies.
Whether you have general life insurance or a burial policy, it’s important to make sure your family knows where to find all the paperwork. As soon as possible, gather all of your paperwork and put it in one place for safekeeping, preferably in a fireproof safe. Make copies of everything and keep them with a loved one. Most importantly, let at least one other trusted family member or friend know where all of this documentation is.
One of the best ways to make sure everyone is taken care of is by drawing up a will. You don’t even have to pay an attorney for it, as long as it’s notarized. Name a power of attorney to manage everything and make sure that person has a copy of your will. Keep the will with your other important papers.
Filing a Claim
If you’re a survivor of someone who had insurance to cover final expenses, the first thing you’ll need to do is obtain a copy of the death certificate. The insurance company will want documented proof of the death. You’ll then need to track down the policy, if you haven’t already, and identify the insurer. If you can’t find the paperwork but you know the name of the insurer, you should be able to find that information online.
Once you’ve submitted the death certificate to the insurer with your claim, you should receive a settlement fairly quickly. However, you may be asked to choose how the payout is issued. Burial insurance will likely be paid in a lump sum since the total is lower. But a large life insurance policy may be offered as a lump sum, predetermined installments, guaranteed income for life or interest on the income with the principal going to your own survivor when you die.
Assignable Versus Nonassignable Insurance
Perhaps the biggest benefit of final expense insurance is that it’s designed for rapid turnaround. Sure, life insurance can pay the beneficiaries, who can then turn around and pay the funeral home, but that life insurance check doesn’t always come the next day. That’s where assignable life insurance comes in. With assignable insurance, a portion of the policy can be designated to go directly to a person or business.
A funeral home can use its own discretion in agreeing to accept an assignment in lieu of payment. If the funeral home agrees, the family will pass insurance information over, in which case the funeral home works with the insurance company to get a payout. To offset the risk, some funeral homes offer life insurance assignment funding, which is essentially a loan to the family to pay for the costs, with the understanding that the amount will be paid back through the insurance policy that has been assigned to it.
Finding Unclaimed Funeral Insurance
Unfortunately, there are times when a loved one may die without making death preparations clear to anyone. You may have no idea whether there’s an insurance policy to cover final expenses. You can look through the deceased’s bank account information to see if a payment to an insurance company was made, then contact the company to see if there’s a policy in place.
If you can’t find this information, the National Association of Insurance Commissioners offers a search portal to help you find a missing life insurance policy. The NAIC reaches out to insurers to determine if a policy exists. You may also be able to conduct a search through your state’s Department of Insurance website, as well as your state’s unclaimed property office.
Group Life Insurance Policies
Many employers now offer life insurance as part of employee benefits. Unfortunately, though, these benefits won’t follow you after you leave in many cases. If you were terminated or resigned from your employer, any employer-paid group policies you had won’t stay with you as you move on to your next position. If the life insurance policy was offered by your employer but not paid by the employer as part of your benefits, it may remain with you no matter what happens with your employment situation.
If you’re a survivor, though, the first place to check for a policy that might help offset the cost of final expenses is with the deceased’s most recent place of work. Even if your loved one left at some point before dying, the policy may have been ported to an individual plan, and this could be on record. A quick check may give you the information you need.
Preplanning Your Funeral
In addition to the money being in place, you can also make sure all of the details are taken care of well in advance of your passing. You can do this without paying in advance for it. If you work with a funeral home, they’ll likely offer to let you prepay, in which case you’ll lose that money if the funeral home goes out of business. However, you can get the necessary information from your funeral home of choice and write everything down for your family.
As with your other final arrangement planning, you should make sure your wishes are not only documented, but also accessible to your loved ones when you do pass. If you have a power of attorney, or a legal representative handled your will, include your funeral wishes with that paperwork. Your family will then have everything in one place. It’s important to not put your burial wishes in your actual will, since that document is often not opened and read until after the funeral has already taken place.
- State Farm: Final Expense Insurance — Financial Relief in a Time of Loss
- National Funeral Directors Association: Statistics
- Choice Mutual: This Is How Much Burial Insurance Costs | An Insider’s Guide To Policy Premiums
- Insurance.com: 3 Types of Insurance to Pay Funeral Cost
- Policygenius: Is Final Expense Insurance Worth It?
- Kiplinger: Should You Prepay Your Funeral?
- AIG Direct: Senior Life Insurance Policies at Every Stage
- Clark.com: Beware of Burial Insurance Offers
- Insurance Information Institute: 12 Steps for Locating a Lost Life Insurance Policy
- National Institute on Aging: Getting Your Affairs in Order
- Insurance Information Institute: How Do I File a Life Insurance Claim?
- Funeral Help: Demystifying Life Insurance Assignment Funding
- National Association of Insurance Commissioners: Life Insurance Policy Locator Service
- Policygenius: How to Find the Life Insurance Policy of a Deceased Person
- Protective: What Happens to My Life Insurance Policy If I Leave My Employer?
Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.