Funeral insurance—also called final expense insurance or burial insurance—covers the cost of your funeral and burial or cremation. These terms are just retailing expressions: All refer to a type of whole life insurance that provides a payout of $2,000 to $50,000 designed not to support your survivors but to spare them the burden of your post-death expenses, especially if your estate can’t cover the cost.
Unlike term life insurance, whole life insurance doesn’t expire, which means it will provide a guaranteed payout when you die as long as you’ve paid your premiums. And unlike larger whole life policies, funeral insurance does not require a medical exam or a review of your medical records to qualify; it only requires you to answer some health questions.
How Much Funeral Insurance Should You Buy?
The most recent published data provided by the National Funeral Directors Association, for the year 2014, state that the national median cost of a funeral was about $7,181. This cost includes the following services:
- non-declinable basic services fee ( a fee the federal government allows funeral directors to charge to cover their overhead expenses)
- removal or transfer of remains to funeral home
- other preparation of the body
- use of facilities/staff for viewing and funeral ceremony
- service vehicle
- basic memorial printed package
- metal casket
Adding a vault, which a cemetery usually requires, brings the cost to about $8,500. Cemetery costs, monument or marker costs, flowers and an obituary can add to that total. Adults who want a funeral with viewing and cremation instead of burial can expect to spend about $6,100. Cremation itself and a cremation urn only cost about $600; the funeral costs and a $1,000 cremation casket make up the bulk of that $6,000 total.
As far as how much burial insurance to buy, a safe estimate is in the $8,000 to $10,000 range, with the upper end being more appropriate for those who want a traditional burial, says Anthony Martin, a funeral insurance broker with Choice Mutual, an independent agency near Sacramento, Calif. For those who prefer cremation, $2,000 to $5,000 is plenty.
How Much Does It Cost?
When shopping for funeral insurance, it doesn’t necessarily make sense to go with the same companies you might be familiar with for other types of insurance. They may not offer the best price or the best underwriting for you. Martin says a company with great brand recognition that is often the cheapest option and that many people qualify for is Mutual of Omaha. His site provides a quote of $394 per year or $35 per month for a $10,000 final expense policy for a 65-year-old nonsmoking male in California.
Martin says consumers should keep in mind that no single insurer is the best option for everyone and that the policy that’s best for you probably won’t be the policy that’s best for someone else. “Evaluating multiple insurance companies will allow you to find which one(s) will view your health most favorably. Those are the companies that will likely offer you a better deal than the rest,” Martin says.
Does Everyone Need It?
Generally, no. Funeral insurance is a specialty product for people who don’t have another way to pay for their final expenses and whose families can’t afford to pay those expenses on their behalf. Beyond that, here are some additional things to consider in determining whether you need it.
Because this insurance will be an ongoing annual expense, you should make sure you have other areas of your finances in order first, such as enough life insurance and a cash reserve fund, says Megan Gorman, managing partner of Chequers Financial Management, a registered investment advisor in San Francisco. Gorman says consumers who already have enough life insurance to cover funeral costs don’t need a separate funeral insurance policy.
You may also want to skip funeral insurance if your estate will have enough money to cover your funeral and burial or cremation costs after paying everything else that will need to be paid for after you die. Anyone who inherits your home, for example, will need to keep paying the utility bills, mortgage, insurance and taxes until the home is sold. Probate fees to the court and a probate lawyer need to be paid if your assets will be distributed through a will. Debts such as private student loans, credit cards and medical bills may need to be repaid, depending on the state laws of the deceased. A final tax return will need to be prepared and any tax owed paid.
If you can cover your final expenses yourself, it’s more important to focus on prearranging the details, says Tony D’Amico, CFP®, CEO and senior wealth advisor of Fidato Wealth in Strongsville, Ohio. You may also want to skip burial insurance if you’re not likely to come out very far ahead after paying the premiums.
D’Amico says you’re often better off saving for final expenses rather than paying for a policy to cover them. “It’s important for a consumer to do the math before they buy,” D’Amico cautions. “If they ‘guesstimate’ their life expectancy and how much in premiums they forecast paying into the policy, they may find that they are not getting much leverage of their money for that insurance.”
In other words, you don’t want to pay $9,000 for $10,000 worth of insurance, especially when you could invest that $9,000 and grow it to $18,000 in 10 years by earning a 7 percent annual return. “That can be a much better way to leverage your money and prepare for those expenses,” D’Amico says.
He would not recommend these policies to anyone, he says, because you’re buying a dollar at a discount for the future delivery of that dollar while not getting a big enough discount on it. In other words, he thinks they do not pay a high enough death benefit relative to the premiums.
Getting the Best Deal
If you determine that funeral insurance does make sense for your situation, then to get the best deal Martin recommends applying for policies that have health questions, because they will always cost less than a policy without them, all else being equal. Also, these policies will provide coverage that protects you starting on day one. No-health-question policies will not pay out a death benefit if you die during the first two years after taking out the policy. They also cost more.
Insurance that doesn’t require medical underwriting costs more because it’s generally the highest-risk people who buy this type of policy. Insurers have to charge more because they’re much more likely to pay out than they are with the policies purchased by lower-risk people who can pass medical underwriting.
It’s not true that people with health issues won’t qualify for a policy, Martin says. “By a wide margin funeral insurance has the most relaxed underwriting in the world of life insurance. Insurance carriers know full well who will be buying these policies, and they know the types of health ailments they are afflicted with. For that reason they designed these plans to gladly accept a lot of very serious health conditions. Unless you have something very serious, like cancer currently, Alzheimer’s, a terminal illness or congestive heart failure, you will almost certainly qualify with some company.”
If you do have one of those very serious conditions, you’re not out of options: You can purchase a no-health-question policy and hope that you live for at least two years. If you die during that waiting period, they will only refund the premiums you’ve paid, plus interest. Insurers who sell guaranteed issue policies have this two-year waiting period so people won’t wait until they’re on their deathbeds to purchase insurance, which would put insurers out of business. Martin says insurers can’t take on seriously ill people because they would lose too much money.
You may have read on other websites that no-health-question funeral insurance policies could have a two-year waiting period. Martin says this fuzzy language is inaccurate: “The undeniable truth is that all no-health-question policies have a mandatory two-year waiting period. There is no insurance company on the planet that will issue a guaranteed-issue policy that pays any death benefit if death occurs during the first two years. The only exception to this rule is accidental death. Nearly every no-health-question funeral insurance policy will pay out the full death benefit if the insured dies in an accident, even if the death occurs during the first two years.”
The vast majority of funeral insurance policies sold in the United States do fully protect the insured starting on the first day of the policy, according to Martin.
Things to Look Out For
Now that you understand the two-year caveat and how it’s commonly misrepresented, what else do you need to be aware of if you’re considering a funeral policy? The good news is that funeral insurance policies are fairly easy to understand. “The premiums cannot increase, the coverage cannot decrease and the policy cannot expire due to age,” Martin says. Still, there are some things to be cautious about.
If you purchase funeral insurance, buy it from an insurer that is rated at least A (excellent) by A.M. Best. You can look up any insurance company’s financial-strength rating for free at the A.M. Best website. Financial strength ratings indicate the likelihood that the insurer will be able to pay your beneficiaries when the time comes. (In case you were wondering, Mutual of Omaha is rated A+.)
If you work with an insurance broker, Martin recommends choosing one who specializes in burial insurance as he does and who works with at least 15 insurance companies. “The more choices they have, the greater the chance they will find you a superior funeral insurance policy that can’t be beat,” he says.
Your beneficiaries can use the proceeds of your burial insurance policy however they want. Nothing requires them to spend the money on your final expenses. If you’re concerned about how your beneficiaries will use the proceeds, consider a prearranged and prepaid funeral and burial instead.
This arrangement is called “preneed” insurance, and it’s purchased directly from a funeral home. You select all the options you want, and the funeral home sells you a policy that covers those costs, Martin explains. The policy’s proceeds go directly to the funeral home when you die.
Before signing a contract for a preneed policy, read the National Funeral Directors Association’s Bill of Rights for Funeral Preplanning. Also, keep in mind that a preneed policy may not be a good idea if you are likely to move far from the funeral home before you die or if you think you might change your mind about the final arrangements you want. Furthermore, Gorman says that if you are over 65 you should insist on a family member being there as you decide whether to buy coverage to avoid being taken advantage of.
Even if you have health issues, you may qualify for a term or guaranteed universal life policy that may cost less for the amount of coverage it provides. It’s worth shopping around and exploring all your options. The caveat is that a term policy may expire before you die, and a term policy that lasts through old age will be pricey. However, by the time the term policy expires, you might be able to save enough on your own to cover your final expenses without needing a separate insurance policy for them. Guaranteed universal life can last until age 121 depending on the policy you purchase and can be less expensive than a comparable term policy.
You could also use a separate savings account to set aside money to cover your final expenses. Make the account beneficiary someone you trust to use the money for your final expenses. Adding a payable-on-death designation to the account will ensure that the money goes straight to your beneficiary; it will not get tied up in probate.
How to Shop
You can shop around for a policy on your own or work with an insurance broker who will shop on your behalf for the best policy. The broker’s services are free to you and paid for by the company from which you ultimately buy a policy. But how can you make sure a broker places you with the company that’s best for you and not the one that pays the most commission to the broker?
Martin says to look for good reviews online of the broker’s agency, ask to see prices from at least three to five of the companies the broker is representing, contact another broker to get comparable quotes (make sure to be completely transparent about your health issues to ensure accurate quotes) and check websites that offer instant quotes from multiple companies. Also, “They can and should ask the broker why they are recommending whichever company they are,” Martin says. “If the broker can’t quickly and articulately explain why they chose who they did, something is probably not right.”
Preplanning Is Best
Funeral insurance may be right for you if your estate, another life insurance policy or your relatives cannot cover your final expenses, especially if you want a funeral. Regardless of how you choose to pay for your final expenses, consider preplanning your final arrangements. You will gain peace of mind from knowing that things will be carried out the way you want them to be and spare your family from making difficult decisions during a time of grief.