You receive a brochure in the mail which says something like, “Don’t hesitate. Set up your funeral costs now!” Or, you see an infomercial on late-night TV regarding final expense cost. You haven’t done anything, feel concerned, and make the phone call. Or, you apply!
You might be doing yourself a disservice and applying in haste. Yes, there are some burial insurance policies you should avoid. In this article, we discuss what burial insurance is and the 5 types of burial insurance not to buy.
What Is Burial Insurance?
Burial insurance is simply a whole life insurance policy designed to pay for your funeral, final expense, and burial costs. In our opinion, we feel that life insurance is the easiest and most efficient way to pay for your burial costs. Why? Here are some basic advantages:
(1) they usually pay out much quicker upon death compared to other types of life insurance policies
(2) unless you have significant health complications, coverage is day 1 (i.e., tax-free if you die the next day, your beneficiaries will have the money to pay for your funeral)
(3) the death benefit is income tax-free. Other ways of savings, such as an annuity or savings account, can be taxable to your heirs
(4) lets you stay in control. Pre-burial services through a funeral home could be disadvantageous in that the services apply only to the home and nowhere else. What if you decide to move? A life insurance policy allows you to have the money for “anywhere.” We really are not making that up
(5) they usually cover moderate to significant health conditions such as obesity, heart conditions, etc
(6) You don’t know when you are going to die. If you are saving through a traditional savings account or some other vehicle, you could die without your funeral costs adequately funded
If you don’t have money to pay for your funeral, what will your family do then? Life insurance uses leverage; that is, you pay a small premium for a greater death benefit. If you have day one coverage, your policy will pay a death benefit even if you had made one payment. However, be aware of an incontestability clause. This allows the carrier to hold the death benefit if it thinks there was some misinformation in the application. Let’s say you die six months later from cancer, but there was no mention of cancer in your application. It may want to perform a thorough investigation.
How Much Do Funerals Cost
As mentioned, burial insurance (sometimes called final expense insurance) usually is whole life insurance which offers a cash value. Death benefits range from $1,000 to $50,000 depending on the carrier, your age, and if you have significant health conditions.
Sounds good? How much do funerals cost? That is a great question. Peruse on the internet, and you will find varying ranges. According to the National Funeral Directors Association, the average funeral in the united states cost about $8,500. However, this amount excludes any cemetery costs. Add another $6,000 for cemetery costs, and the average funeral costs about $15,000. This amount excludes any incidentals such as a meal after the funeral.
Cremations generally cost much lower, in the $5,000 range.
Term Life Insurance
We believe term life insurance is the foundation of any financial plan. It provides the best combination of low cost and death benefit coverage. While many carriers are offering additional riders, such as critical illness coverage, term life insurance is still term life insurance. However, it should not be used as burial insurance. Why?
Two reasons: we don’t know when we will die, and it covers a temporary period, up to 30 years in some cases. If you die outside the term, you will have no money to pay for your funeral.
“Well, John, I can always reapply at the end of the term, right?” you ask. Sure you can, but who knows what your health will be like. If you do have a term life insurance policy, make sure it has a conversion option to whole life or some type of permanent insurance. And, make sure you exercise that option when you can. The sooner, the better. These conversion options usually come with no evidence of health insurability. You convert all or part of your term policy to permanent coverage. The younger you convert, the lower the cost. If you need help, we assist many clients with their term life policy conversions.
“Why whole life, then?” you ask. Good question. Whole life is designed to last your “whole life.” Since you don’t know when you are going to die, whole life is the most beneficial. It also has level premiums and a guaranteed death benefit.
Guaranteed Issued Whole Life
These policies will give you life insurance without any underwriting. You fill out an application, and voilà, you have life insurance. How does that sound?
Well, it sounds good. These are much more expensive and graded. They are expensive because people who have significant health conditions purchase these policies. The carriers know this and price the risk accordingly.
These policies can serve a purpose for those, say, who are in remission from cancer, but haven’t been cancer free per the terms of the carrier for a traditional policy.
These policies are also advantageous for people with down syndrome, Huntington’s Disease, AIDS/HIV, and more. These conditions are, unfortunately (and currently), uninsurable through traditional burial insurance underwriting.
However, in our experience, even those with significant health conditions, we can find a comparable policy at a lower cost.
Any Insurance That Comes In The Mail Or You See On TV
This brings us to where we started. You see the brochure in the mail or the advertisement on TV which tells you to “buy now!”. Or, the “buy insurance for only $1 down!” While these might sound good, the only policy that is right for you is the policy that fits your specific situation. NO JEOPARDY !!
How do you know if the brochure in the mail is the right policy for you? You don’t. You might be throwing your hard-earned money to a policy that can’t meet your needs. It’s like throwing your money away. More often than not, these tend to be 'Accidental' only plans disguised as life insurance. Or worse, from company who isn't that financially strong.
You don’t want to see that. If you work with us, we have the knowledge and expertise to select the right policy for your situation. We do everything on the phone. Don’t want to talk on the phone? Oh, you are tired of those hard-sell life insurance agents? We aren’t those. We can email or jointly fill out the application together. There are many ways to accomplish what you need without us being intrusive in your life.
We hope this article made you aware of the 5 types of burial insurance NOT to buy. There are so many to consider. What do you do next?
Contact us. Really. We can help and have the knowledge and expertise to match what you need for your specific situation. We offer free quotes & Contract with many A+ carriers that deal in Final Expense Insurance;
Mutual of Omaha
Colombia Finacial Group
And Many others...