Last updated: November 25th, 2022
Reviewed by
Rebecca Thrift
Licensed Insurance Agent
Table of Contents
However, it can be complicated to rely on life insurance for funeral expenses. In some cases, life insurance may not pay a death claim for several weeks or even months — and the funeral home will want to be paid for its services more quickly.
To deal with these delays, some life insurance policies include what’s known as burial insurance. This addition to a life insurance policy ensures that funds will be released to pay funeral expenses. If you use burial insurance in conjunction with preplanned funeral arrangements, you may be able to lock in funeral rates. Burial insurance can also be
Burial insurance is a type of whole life insurance focused on providing resources to pay for the insured person’s funeral costs. Also known as funeral insurance or final expense insurance, it typically offers a far smaller benefit than standard life insurance. Burial insurance doesn’t require a medical exam, making it accessible to most people at a moderate price.
Burial insurance is designed to cover funeral costs, including the costs associated with a casket, burial plot, headstone, flowers, death notices, and grave vault, as well as any funeral home services, including transportation and the opening and closing of the grave. Burial insurance also pays for cremation costs, including the cost of an urn.
However, the uses of burial insurance proceeds aren’t restricted to funeral costs. The beneficiaries of a burial insurance policy may use the proceeds to pay the deceased’s medical bills and other debts, including credit card bills, car loans, mortgages, or any other outstanding loans or legal costs.
Burial insurance comes in two forms: standard burial insurance and preneed burial insurance. With both types, the insured person chooses their beneficiary and amount of coverage, paying for the coverage. Once the insured dies, the beneficiary contacts the insurer to begin the claim. The insurance company is likely to ask for a certified death certificate to open the claim. Burial insurance is typically processed quickly so funeral costs can be covered.
Standard burial insurance is sold as a type of whole life insurance policy. Its benefits are paid directly to the beneficiary.
Preneed funeral insurance works slightly differently. The benefits from preneed funeral insurance are paid directly to a funeral home to cover final expenses. That funeral home agrees to provide services for the amount of the insurance benefits. In essence, this type of insurance policy allows people to pre-pay for their own funerals. Life insurance companies sell preneed funeral insurance, and some funeral homes also sell it.
A death benefit is a financial payout to a beneficiary from a life insurance policy when the policyholder dies. Typically, death benefits are tax-free, though the benefits paid on burial insurance may be taxed in some states.
Death benefits may work slightly differently depending on whether the insured has a whole life or term life insurance policy. If a term life insurance policy expires before the death of the insured, no death benefit is due. If the insured has a whole life insurance policy, they may borrow against the cash value of the policy. In this case, any amount still owed at the time of the insured’s death will be deducted from the final death benefit.
While many insurance policies pay out death benefits as a lump sum, a policyholder can sometimes arrange for other payment structures. Some insurers allow policyholders to arrange for death benefits to be paid in installments or to be placed into retirement accounts.
Typically, funeral insurance is offered to people between 50 and 85 who don’t already have life insurance. Because funeral insurance doesn’t generally require a medical exam, people with preexisting health conditions can usually purchase a policy.
The first step to choosing the right funeral insurance policy is determining whether you need funeral insurance. If you anticipate having the resources to cover funeral expenses, you may not need this type of policy.
If, however, you might not leave funds for final expenses or you want to make sure your entire estate goes to your beneficiaries, a funeral insurance policy may be a good idea. You will have to choose between standard funeral insurance and a preneed policy. A standard funeral insurance policy is likely to offer limited benefits, typically capping at about $40,000. This type of policy is a good choice if you don’t want your heirs to worry about paying for your funeral, as it offers guaranteed coverage. It’s also a good choice if you want to avoid a medical exam to qualify for insurance.
A preneed policy is a good choice for people who want to lock in the costs of their funeral expenses. This policy will stay in effect for your entire life. However, often the policy makes it difficult to make changes if you or your heirs want to choose different funeral arrangements, and you may not be able to transfer arrangements to another state. If you’re concerned about flexibility, standard funeral insurance may be the better choice.
Brian is the founder and CEO of Insurist and carries Life, Health, and Property & Casualty licenses in all 50 U.S. states. Since 2013, Brian has been a member of Million Dollar Round Table, a designation for the top 1% of financial advisors worldwide. Brian has been featured in Yahoo! Finance, Money.com, Entrepreneur.com, Life Happens, Forbes, MSN, and Good Financial Cents. Brian’s goal is to show customers the best products, the quickest answers to their questions, and provide expert advice.
I've worked for Safeco and Liberty Mutual as a sales agent and claims adjuster for the last five years. My claims experience is primarily auto insurance, but I am licensed to sell auto and property insurance (homeowners, condo, renters, long-term renter, etc) currently.
