Burial Insurance: Final Expense Life Insurance Explained

The median cost of traditional funeral service in 2023 is $7,848. These costs include fees paid to the funeral home for the use of a hearse, transportation of family members to a church or cemetery, coordination of a memorial service and securing death certificates and other official documents.

According to the Federal Trade Commission, some funeral homes also charge cash advances, which are used to cover the cost of services and merchandise purchased on your behalf, such as flowers or obituary notices.

If you don't have enough cash on hand to pay for your final expenses, it makes sense to purchase burial insurance, a type of life insurance that provides a small death benefit to cover your burial costs.

What Is Burial Insurance?

Burial insurance is typically structured as a whole-life policy with a death benefit ranging from $5,000 to $25,000. These policies are often referred to as final expense life insurance.

Unlike term life insurance, a whole-life policy usually doesn't require a medical exam. As long as you can pay the monthly premium, you're guaranteed acceptance, which makes burial insurance a good option for seniors with chronic conditions who would be unlikely to qualify for affordable life insurance.

You may not even have to answer any health questions, making it possible to get coverage for your burial expenses for just a few dollars per week.

Purchasing a whole-life burial policy has several benefits:

• Your premium remains the same for as long as you have the policy.
• Some insurers will pay out benefits even if you live to be more than 100 years old.
• Whole-life policies accumulate cash value. The cash portion of your policy may be used to pay your premiums, saving you even more money.
• Most insurers give you the option of paying monthly or yearly.

Some insurers also offer burial insurance in the form of a term policy. Unlike whole-life policies, which are referred to as permanent life insurance due to the fact that they remain in effect for as long as you continue paying the premium, a term policy only covers you for a specific period of time.

For example, a 10-year term would cover you for 10 years. At the end of that 10-year period, the policy would expire. Because the policy ends within a specific time period, term insurance is usually cheaper than a whole-life policy.

Burial Insurance vs. Funeral Insurance

Although burial insurance and funeral insurance have similar names, they don't provide the same coverage.

Burial insurance is designed to cover your burial expenses after you pass away.

Funeral insurance covers the cost of funeral services and merchandise before you need them, which gives you the peace of mind of knowing that your loved ones won't have to pay these expenses on your behalf.

If you buy funeral insurance, you may be able to lock in your final expenses at current prices, ensuring you receive the greatest value for your money.

Disadvantages of Burial Insurance

Despite the many advantages of buying whole-life burial insurance, this insurance product does have some drawbacks. Life insurance companies typically limit the face value of the policy to as little as $5,000.

If you're in good health, you might be better off purchasing traditional life insurance with a much higher death benefit. Your family members would be able to use the proceeds from your life insurance policy to pay your final medical bills and pay other costs associated with managing your estate.

Some policies also have a waiting period, which means the insurance company won't pay out your death benefits within the first few months or even a year after you buy the policy. If you're in poor health, your insurance agent may recommend shopping for a policy with no waiting period to ensure you're covered no matter when your final expenses arise.

Another disadvantage of burial insurance is that your rate doesn't depend on your health status. You'll pay just as much for coverage as someone who smokes or has a serious chronic health condition.

Depending on how long the policy is in place, you may also pay out more in premiums than your insurance company will pay out for your burial. Be sure to discuss your medical and financial circumstances with a trusted adviser to determine which type of policy is right for you.