A Step by Step Guide
When most people plan their finances, it involves figuring out how to make money last until they, well, die. But expenses live longer than we do – and the money that’s needed to wrap up affairs when we’re no longer here, is often overlooked.
In America, funeral insurance is like a life insurance policy designed to pay for your funeral, and other final expenses. It’s also known as burial insurance, final expense insurance, and pre-need insurance. While these policies are essentially the same thing, there are some differences that you’ll understand as we go along.
1. Estimate your final expenses
Apart from the cost of your funeral, you’ll also want to think about remaining medical bills, living expenses, legal costs, and more – especially if you don’t want to put a burden on your family later. To estimate whether you have enough money to cover these things, you should consult a funeral advisor. Keep in mind that your family may not have immediate access to the money you’ve left them. Funerals need to be paid for at the time of the funeral.
2. Decide what type of insurance you need.
There are many different policies marketed as funeral insurance, burial insurance, final expense insurance, and more. All these policies have two things in common:
- They’re usually capped at $25,000 to $50,000 (regular life insurance is usually $50,000 or more.)
- They will only cover your final expenses and can’t be used to supplement your family’s income after you’re gone.
There are two basic options when you apply for funeral insurance: Simplified Issue policies and Guaranteed Issue policies
- If you choose a Simplified Issue policy, your insurance company will evaluate your health based on your medical history. They aren’t as strict as life insurance providers, but it’s possible you might be declined on the basis of pre-existing conditions or risky habits.
- A Guaranteed Issue policy accepts pretty much everyone, but you’ll pay a higher premium. In addition, it will most likely to have a modified benefit provision. Which we’re getting to – right now.
Modified Benefit policies and Level Benefit policies
- A Modified Benefit policy does not make the full death benefit available until after a certain amount of time (the “Restriction Period”) has passed. This usually lasts between 24 to 36 months. If you die within that time, only part of the money will be released. This doesn’t (usually) apply if death is caused due to an accident.
- A Level Benefit policy makes the full benefit available whenever the policy is issued. Getting approval on this type of policy requires evaluation of your medical history.
Whole Life policies vs. Term Life policies
Keep in mind that the policies mentioned above could apply to both these policies.
- A Whole Life policy basically stays in force until the end of your life. (Some of them end when you turn 100, but let’s face it, most of us aren’t going to.) They’re more expensive than Term Life policies.
- A Term Life policy will expire after a specified period of time – 15 years, 20 years…or when you reach a certain age.
Your main goal is to make sure that your coverage will still be valid at the time of your death, which is why this is probably the most important decision you need to make.
Pre-Need insurance
This type of insurance is essentially a contract between you and a specific funeral provider. The main benefit is that, after deciding the arrangements, you are billed at today’s prices. However, there are risks involved (aren’t there always?). For example, will your funeral provider even be in business by the time you die?
While your family could use your life insurance to cover the funeral and burial costs, it will essentially deplete the finances they get from that insurance. So, it’s not always a good idea, especially if you’re the sole breadwinner in your family.
3. Request a quote after careful research
As you can see, there are many different policies. Some of them overlap. The exact price of your funeral insurance depends on your particular situation. There are many online tools that will provide you with free quotes for the coverage you’ve requested. (Be wary of “great offers”.)
4. Choose your provider
But only after thoroughly covering the three steps above. Do take the advice of a financial consultant. Insurance companies are better at writing fine print than most people are at reading it.