Is Burial Insurance Worth It?
Key Takeaways
- Burial insurance, or final expense insurance, provides a modest payout to cover funeral costs, medical bills, and outstanding debts.
- It is easier to qualify for than other life insurance types, often requiring no medical exam, making it a good option for older adults or those with pre-existing conditions.
- While it accrues some cash value, it is not a strong investment tool or a replacement for income-based life insurance.
- Younger consumers or those seeking higher payouts may find better value in term, whole, or guaranteed issue life insurance.
Burial insurance can be a worthwhile investment, but it’s not the right choice for everyone. This type of life insurance allows you to leave a modest amount of money to your loved ones. Your beneficiaries can use the funds for funeral or burial costs, medical bills, and other end-of-life expenses. But burial insurance is just one component of end-of-life planning, and other options may suit your needs better.
This article will help you determine if burial insurance is worth it for you.
Why Get Life Insurance?
Life insurance exists helps beneficiaries navigate the complicated, expensive, and emotional tasks that follow your passing. It’s natural to want to ease the financial burden for your loved ones, but you might feel overwhelmed by your options or pressured to make the right choice. There are many types of life insurance policies for different budgets and preferences.
The most significant distinction is term vs. permanent life insurance. Term policies last for a set period of time. If you outlive your term, no death benefit is issued.
Permanent life insurance, including burial insurance, lasts until you die, as long as you pay your premiums. Upon your passing, your beneficiaries receive a payout called a “death benefit.” These policies also build cash value, which you can access at any time.
Burial insurance, also known as funeral insurance or final expense insurance, includes a smaller payout and modest cash value. The payout is often enough to cover end-of-life expenses but not much more. Beneficiaries can use the money however they see fit.
How Burial Insurance Can Help
Burial insurance provides financial relief to your beneficiaries. With the death benefit, they can:
- Settle outstanding debts: Burial insurance can cover medical bills, hospice costs, or other debts.
- Cover burial and funeral costs: Funeral expenses add up quickly. In 2023, the the median cost of a funeral with casket and burial was $8,300.
- Yield modest cash value growth over your lifetime: In permanent life insurance policies, part of your premium goes toward a cash account that accrues value. You can withdraw or borrow against this money during your lifetime, depending on your policy’s terms and conditions.
- Leave some money behind for beneficiaries: The insurance company pays out the full death benefit, even if your end-of-life expenses are lower. Your beneficiaries may have money remaining after paying off debts and covering funeral costs.
What Burial Insurance Can’t Do
Despite its benefits, burial insurance isn’t worth it for everyone. Keep in mind that this type of policy cannot:
- Replace your income for financial dependents: Most burial insurance plans offer $5,000 to $20,000 payouts. This provides some financial relief, but not enough to replace your income long term. Other life insurance plans offer higher payouts.
- Act as part of your overall retirement fund: You won’t be able to access most of the money during your lifetime, so this policy isn’t suitable for retirement savings.
- Yield aggressive cash value growth over your lifetime: Burial insurance policies accrue modest cash value, but they won’t grow as quickly as other investment options.
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Is Final Expense Insurance Worth It For You?
Burial insurance may be more affordable and easier to purchase than other types of life insurance. It’s especially helpful for people with pre-existing conditions who don’t qualify for other types of life insurance. Unlike other policies, burial insurance doesn’t require a medical exam. Some policies use a less invasive health questionnaire instead. Those who don’t want to answer any health-related questions may seek guaranteed issue burial insurance policies instead.
Burial insurance may be more accessible for older adults, too. As you age, it becomes more expensive to purchase life insurance. Buying a generous policy in your later years may not be financially feasible, making final expense insurance a solid option. These policies usually cost less, providing some relief to your beneficiaries without burdensome premiums.
However, final expense insurance isn’t always the best choice. Younger consumers may be able to purchase more extensive policies at a better price. Or they may only want life insurance for a certain number of years, such as while their children are financially dependent. They also have time to build up other investments to support their retirement or dependents.
Funeral homes also sell pre-need insurance plans, allowing consumers to choose their preferences, lock in rates for certain services, and pay over time. These plans only pay for funeral expenses, though, and won’t provide any extra money.
Other Life Insurance Options to Consider
- Term life insurance: These policies last for a predetermined period of time, typically between 10 and 35 years. This commonly serves as income replacement for people with dependents or debts like a mortgage. However, if the policyholder outlives the term, they won’t receive anything.
- Whole life insurance: Burial insurance is one form of permanent life insurance. Non-burial whole life policies include higher payouts and other cash value options, like choosing your own investment options for more aggressive growth.
- Guaranteed issue life insurance: Most types of life insurance require you to pass a medical exam. Guaranteed-issue policies suit people who cannot meet that minimum health standard. However, they typically come with a waiting period before taking full effect. Some final expense life insurance policies are guaranteed issue.
Putting It All Together
Burial insurance, or final expense insurance, may be worth it for older adults, people with pre-existing conditions, or consumers with lower budgets. It provides a modest death benefit to help pay for funeral expenses, medical bills, and other debts. It also accrues cash value. However, some consumers may find better value with another policy. If you need help finding the right fit, consider working with a licensed insurance agent or broker.
Sources
2023 NFDA General Price List Study Shows Inflation Increasing Faster than the Cost of a Funeral. National Funeral Directors Association.