Is Burial Insurance Worth It?

What is Burial Insurance?

Burial insurance is a whole life insurance policy that can help your loved ones fund your funeral and other end-of-life final costs. It typically comes with a small death benefit, often $5,000 to $10,000, and sometimes up to $50,000¹ depending on the insurance company.

The lump-sum benefit is often limited in comparison to other policies that offer larger coverage amounts. However, this insurance can be a good choice for someone with major health concerns.

Remember that burial life insurance is not prepaid funeral coverage. Your beneficiaries still need to file a claim to get the payout. Claims are often processed quickly, but speed depends on the insurer and the specific policy.

How Does It Work?

A burial life insurance works the same way as any other permanent life insurance policy. Coverage lasts for a lifetime as long as premiums are paid. Here’s how it works:

• You apply for burial insurance and agree on the insurer’s final quote. Depending on the insurer, you may also get the policy without a medical exam. 
• To keep the coverage active, you pay the monthly or annual premium.
• As long as premiums are paid, your policy remains active for your lifetime.
• When you pass away, your beneficiaries can claim the death benefit.

What Does It Typically Cover?

In general, beneficiaries can use the life insurance death benefit payouts based on their own financial needs, but burial insurance is often used to fund final life expenses like:

• Cost of funeral, burial, cremation, memorial programs, and funeral home charges.
• Medical bills during your last days, such as hospital charges, medications, or other pending healthcare charges not covered under health insurance.
• Small outstanding balances such as utility bills, credit cards, or other end-of-life expenses.
• Legal and administrative costs for death certificates, probate filing, and other estate matters.
• Travel costs for relatives and extended family to attend the funeral.
• Minor household expenses such as groceries and childcare.

Although these expenses can typically be covered with traditional life insurance policies, burial insurance can help pay practical expenses. However, if you die during the first two years of the policy, the contestability period clause may apply, meaning the insurer may review and verify the information more strictly before processing the payout.

Read: Life Insurance Waiting Period

Pros and Cons of Final Expense insurance

Before opting for burial insurance or final expense insurance, it’s good to know its pros and cons to understand if it’s worth it for your current situation. Here are some things you should know to make a smart choice.

Advantages of Final Expense Insurance

• Burial life insurance often comes with broader approvals compared to traditional policies with higher coverage amounts, even for people with health concerns. 
• Many insurers also allow no medical exam options, such as simplified life or guaranteed-issue options. 
• It offers continuous lifetime coverage as long as premiums are paid on time. 
• Typically, the premiums don't change over the policy’s term.

Drawbacks of Final Expense Insurance

• Premiums are usually higher per dollar of coverage compared to other policy types.
• The death benefit payout is often modest, which may not be sufficient to fund large costs.
• If you die within the first two years of policy issue, claims may take longer to process.
• Guaranteed issue plans usually include a two-year waiting period to process the full benefit.

Read: How do Life Insurance Policies Work

When Burial Insurance Makes Sense

Burial insurance can make sense for you when:

• You don't have a life insurance policy.
• You own a term life policy that is expiring soon. 
• You want to ensure funds are in place for your final expenses to help reduce costs for your family. 
• You don't have substantial savings.
• Your health makes it difficult to qualify for many life insurance policies, so you prefer a coverage that’s comparatively easier to get due to flexible underwriting.

Read: What is Life Insurance Trust?

When Burial Insurance Might Not Be Worth It

Burial insurance may not be a good choice for you if:

• You prefer savings over a recurring premium payment with guaranteed coverage.
• You have enough savings and surplus funds to leave to your loved ones.
• You have an existing life insurance policy.

Alternatives to Burial Insurance

Beyond burial insurance, you may opt for other coverage options like term and traditional whole life, or you may strategize savings plans for the future. Among these, the right option for you is one that aligns with your health, income, and family needs. But what matters is to choose an option that puts a limited burden on your loved ones. Here are a few options you may consider. 

Term Life Insurance

Term life insurance offers comparatively higher coverage than burial insurance at an affordable premium. It offers coverage for a set period of time, usually 10 to 30 years, at a fixed premium that stays the same throughout the term. If you pass away during the policy’s term, your beneficiaries can claim the death benefit and use it for any reason, including final expenses.

Whole Life Insurance

Whole life insurance comes with lifelong coverage. It typically offers a higher death benefit, but the costs of premiums are also high. It also includes a cash value component that grows over time. The focus is long-term coverage and stability, not investment performance. These are more suitable for legacy building or estate planning in comparison to other policy types.

Saving in a Dedicated Funeral Fund

Depending on your budget or income, you may also set up a separate savings account or trust to save for your final expenses. However, saving a substantial amount may need you to be consistent and sometimes for a long time. Plus, it might not be enough if you pass away unexpectedly.

Prepaid Funeral Plans

You may also opt for prepaid funeral plans that are offered by some funeral homes. These involve locking current funeral prices to avoid additional burden for your loved ones. However, they may make more sense if you don't have any relocation plans, as transferring funds to other locations might not be easy.