When it comes to purchasing a burial insurance plan, the reasons for obtaining coverage can be as varied as the individuals who are seeking it. Many may need the peace of mind in knowing that ongoing income will be there, and/or that large debt obligations will be paid off so that loved ones and survivors will not be left with large financial burdens.
In other cases, there could be the obligation of having to pay a hefty estate tax bill, and life insurance proceeds can be used to pay this debt rather than having to use one’s hard earned savings.
Yet, there is one need that most everyone will have upon their time of passing – and that is final expenses. These are the costs that are due to either the funeral home or other entity that takes care of one’s final arrangements. And, without some type of financial plan in place, the debt to this entity will typically fall to a spouse, children, or others who are close to us at that time.
The funds that are needed can come from various sources – but ideally, an individual will have life insurance coverage such as burial insurance in place so that his or her survivors can easily pay these expenses and move forward at an already difficult time in their lives.
What is Burial Insurance and Why Consider Purchasing This Type of Coverage
Burial insurance – also referred to as funeral insurance or final expense insurance – is a type of life insurance coverage that is purchased with the purpose of paying off one’s funeral and other related costs.
These expenses can be quite substantial today – in many areas of the country exceeding the $10,000 mark when factoring in an individual’s memorial service, along with their headstone, burial plot, flowers, transportation, and obituary announcement.
Unfortunately, many deceased’s loved ones do not have this type of money on hand for paying final expenses, so they will oftentimes be forced to either dip into their savings or retirement funds in order to do so, or – worse yet – they may have to put these expenses on credit in order to pay them off. This can put many survivors into a terrible financial position.
And, if the decedent were a retiree whose pension or other income stopped upon his or her passing, these additional bills could essentially put a surviving spouse into financial turmoil.
With that in mind, having a burial insurance policy in place can provide loved ones with the peace of mind in knowing that final expenses are already taken care of and that other assets and savings will not need to be touched.
In many ways, burial insurance works like other types of life insurance policies in that an individual pays a premium to the insurance company and then, upon the insured’s passing, the insurance carrier pays out a sum of money to the named beneficiary. There are, however, some differences when you compare burial insurance vs life insurance coverage.
First, burial, or final expense, insurance is typically purchased by those who are in the older age bracket. These purchasers will be between the ages of 50 and 80 – and in some cases, the applicant may even be older, depending on the insurance company that is offering the coverage.
Another difference between a burial insurance policy and a more traditional type of coverage is that the death benefits that are found on a final expense insurance policy are smaller – in most cases, they will range between $5,000 and $50,000.
This is because this coverage range is typically more than enough to pay for an individual’s final expenses – even if his or her survivors opt to include some additional debts such as uninsured final medical bills, and/or various other unpaid debts.
In addition, the underwriting for burial insurance will oftentimes not include the requirement for the applicant to undergo a medical exam. This means that the proposed insured will not have to meet with a paramedical professional and provide a blood and urine sample.
Because of this, an individual who has previously been rated for a high risk life insurance policy can typically qualify for this type of coverage – even if they have certain types of health conditions.
Often, burial insurance is considered to be permanent life insurance. This means that it will offer both a death benefit, as well as a cash value component. The cash that builds in the cash value portion of the policy is allowed to grow on a tax-deferred basis. Some of the top tiered life insurance companies that will offer term policies as final expense products.
This means that there is no tax due on the gain, or growth, of the funds unless or until the time that it is withdrawn. This tax-advantaged treatment can essentially allow the cash to grow and compound exponentially over time.
The policyholder of the burial insurance policy may either borrow or withdraw the cash for any reason that he or she chooses – including to pay off a debt, to supplement their retirement income sources, or even to take a nice vacation.
This cash is not required to be repaid. It is important that the policyholder is aware, however, that any amount of cash that is not repaid will be charged against the amount of the death benefit that is paid out to the beneficiary at the time of the insured’s death.
Because burial insurance is a permanent form of coverage, the death benefit coverage itself cannot be canceled by the insurance company – provided that the policyholder continues to make the premium payments. In addition, the amount of the premium will usually be guaranteed not to increase – even as the insured increases in age, and even if he or she contracts an adverse health condition.
How Benefits Are Paid Out on Funeral Insurance Policies
When shopping for burial insurance, it will be important to understand how the death benefit will be paid out on the policy upon the passing of the insured. This is because not all burial insurance policies will pay out in the same manner.
For example, in some cases, a policy may pay out on a graded benefit scale. This means that if the insured dies within the first two or three years of policy ownership, the policy’s beneficiary may only receive a certain percentage of the stated death benefit, as versus the entire amount.
In other cases, should the insured die within the first two or three years, the beneficiary may only receive back a refund of the paid in premiums (and possibly an amount of additional interest). Therefore, prior to moving forward with the policy purchase, it is essential to be sure that you know exactly how the policy’s death benefits will pay out.
In all cases, it is important to answer all of the questions on the application for coverage as completely and as truthfully as possible. This is because, if the insurer should discover that an application was completed incorrectly – or if information was omitted – then it could nullify the life insurance policy, even after it has been in force for a period of time.
Burial insurance policies – as with other types of life insurance coverage – will also have a contest period. This means that if the insured dies due to an ailment that he or she did not disclose on the application or maybe they did not list that they needed a smokers policy, then the insurer may not be required to pay out the death benefit to the beneficiary.
When you sign up for a no medical exam policy, being truthful is even more important because they will be that much more vigilant on paying out the death benefit.
When the life insurance death benefits are received by the beneficiary on a burial insurance policy, similar to other types of life insurance, the proceeds from these policies are allowed to be received free of income taxation to the recipient.
They are also not considered part of the estate so they do not have to go toward any debt or liabilities. So even a person with bad credit who has taken out loans can make sure final expenses are taken care of through a burial policy.
In some cases, the beneficiary of a burial insurance policy can even be the funeral home that will be handling a person’s arrangements. This way, the expenses can be paid out directly from the policy to the provider of the services.
Having this arrangement can also help to smooth out the process, as well as to avoid any delays. Then, should there be any funds left over from the burial insurance policy after all of the final expenses have been paid, a beneficiary can be named who will receive these funds.
It is important, however, not to get burial insurance confused with pre-need coverage, as these two products are not the same thing. While pre-need funeral coverage is also designed to set aside funds for a person’s funeral before the need arises, these funds will go directly to the funeral home and will typically pay for the services that are provided by the funeral home, as well as the products that are purchased from there.
Where Can Burial Insurance Plans Be Purchased
Today, there are a variety of places where burial insurance can be purchased. Under some state laws, a funeral home may be allowed to offer this type of insurance coverage. However, in most cases, it is sold via licensed life insurance entities such as agents and/or brokers.
While you can purchase a burial insurance policy via individual insurance carriers, this is oftentimes not the best route to go for obtaining the very best premium price.
Typically, prior to making your final policy decision, it is a good idea to compare more than one final expense policy from several insurance carriers. That way, you can get a good idea of the coverage that is offered, as well as the varying premium quotes – and from there, you can then make a determination as to which is the best situation for your specific needs.
When doing so, it is typically best to work with either a company or an agency that has access to more than just one final expense insurance carrier. That way, you can compare all of the information that you need in just one convenient place, without the need to go from one insurance company to another. This can save you a great deal of time and frustration throughout the application process.