Funeral Insurance: How To Find The Best Policy

The Ultimate Guide to Buying Funeral Insurance

If you are considering funeral insurance, then pat yourself on the back. You are thinking ahead — and beyond.

For most of us, retirement planning involves deciding how to make our money last until the end of our life. One crucial part of the plan that it is easy to overlook is figuring out how much money will be needed to cover the expenses required to wrap up our affairs after we’re gone. So if you are working on figuring that out, you are ahead of the game.

Whether or not to buy funeral insurance and which policy to buy is not a simple decision. That’s because, like most insurance, funeral insurance has a language of its own. To help, we’ve done some homework for you. We’re going to lead you through the process, step-by-step, and help you make the decision that’s right for you.

What is Funeral Insurance?

Simply stated, funeral insurance is a specialized life insurance policy designed to pay for your funeral, burial, and other “final expenses.” Funeral insurance is also called burial insurance, and final expense insurance.

While these policies are referred to by different names, there are actually 2 different types of policies for your funeral – Final Expense policies and Preneed policies. We’ll explain the differences between these policies.

We know it’s a little confusing, we’ll take it step-by-step and we’ll tell you everything you need to know about buying funeral insurance.

Are you an insurance agent? Check this out.

How To Buy Funeral Insurance

Step 1: Estimate Your Final Expenses

Your first step is to figure out how much you’ll need to cover your end-of-life expenses. Funeral costs are the first thing that comes to mind, and it’s often the highest single cost. But there are other “final expenses” to consider – remaining medical bills, legal costs, living expenses, and credit card bills, to name a few. Visit our Funeral Costs page for a complete explanation of these final expenses. This page also has two handy tools to help you determine how much your final expenses might be.

Step 2: Determine If You Will Leave Behind Enough Money to Cover Final Expenses

The critical question is: Will there be enough money in your estate to cover your final expenses? You may need the help of a financial advisor to figure this out. A secondary question is: Will your survivors have immediate access to the funds in your estate to pay your bills? If you cannot access your money due to probate, that could be a problem since funeral providers (and cemeteries) expect payment at the time of the funeral. There will likely be other bills that come due upon your death. Who is going to pay them if your money is not readily available? See our article on what to do after the funeral for helpful tips.

Step 3: Decide If You Need Funeral Insurance

If you do not expect to have available funds to cover your final expenses at the end of your life, then a funeral insurance policy might make sense for you. Even if you expect to leave behind enough money, you may not want your final expenses to deplete your estate. Having a funeral insurance policy is one way to ensure that your entire estate will be available to your family.

Step 4: Decide on the Type of Insurance You Want

There are many specialized policies available on the market today to help you cover your final expenses. Your two primary choices are preneed insurance and final expense insurance. By design, funeral policies pay only enough to cover final expenses. Consequently, they carry lower coverage and typically cap at $40,000 or $50,000. Regular life insurance is the tool intended to provide supplemental income to your survivors so they have higher coverages of $50,000 or more.

For most of us, the primary purpose of regular life insurance is to provide our survivors with financial security. If your family depends on your income, life insurance can partially replace the income lost due to your death. It can also provide an inheritance for your heirs, even if you do not have assets to leave them. Typically, you buy life insurance policies for more significant coverage amounts of $50,000 or more. Even if you have a regular life insurance policy, you might want funeral insurance as supplemental coverage so that your final expenses do not deplete your life insurance.

What is Preneed Insurance?

A Preneed insurance policy is typically tied to a prepaid funeral contract with a funeral home or a cremation service. The contract specifies the funeral services and products you are purchasing and the insurance policy pays the provider the contract amount when the services are provided upon your death. Preneed insurance can be purchased in a lump sum payment or in installments over 1, 3, 5, or 10 years. When a preneed policy is paid up, your insurance stays in force for your lifetime and the face amount of the policy grows over time. A key advantage of a preneed policy is that you may be able to get a price guarantee to lock in today’s prices.

If you have health issues you can get a guaranteed issue policy. Generally, the death benefit is reduced over the initial 2 to 3 years of a guaranteed issue policy. If you are in good health and can answer a few health questions you can qualify for an underwritten policy with full day one coverage, usually at better rates.

What is Final Expense Insurance?

Final expense policies are not tied to funeral contracts. Upon death, they pay out the policy amount which can be used to cover any funeral and final expenses. Final expense premiums are paid either monthly, quarterly or annually. Unlike preneed policies which can be paid up, final expense policies need to be paid continuously to remain in force. If you stop making payments, your policy will lapse. Like preneed insurance, there are guaranteed issue and underwritten versions. Final expense policies work best for people who are looking for affordable monthly payments.

Step 5: Request a Quote

Since the exact price of funeral insurance will depend on your unique situation, the only way to know what it will cost is to request a quote. Our Funeral Insurance Finder is a great way to get way to get a free, no obligation quote and receive various planning resources only available at Funeralwise.

Get a Free Quote

Step 6: Decide If You Can Afford The Coverage You Want

Are you a savvy consumer? Do you pride yourself on finding the best deal? If so, you might be in for a rude awakening when shopping for funeral insurance because you won’t find any “deals.” Insurance is a highly regulated product. Policies and rates must be filed state-by-state by the insurance companies and are not offered later at a discount. Rates will vary from policy-to-policy and also from state-to-state due to differing state regulations for funeral insurance. Always be wary if you see an offer for a great deal on funeral insurance. Be sure to read the fine print and research the company offering the policy. It doesn’t do much good to get a good deal if the policy or company issuing it isn’t there when you need it.

What If You Cannot Afford To Pay The Quoted Rates?

You have a couple of options if the monthly premium quoted is more than you can afford. One option is to rework your funeral plan to reduce the cost of the funeral. Since this will reduce the amount of insurance coverage you need, it will also reduce the premiums. See our Funeral Costs article for tips on managing your funeral cost.

Step 7: Choose a Funeral Insurance Provider

You can buy funeral insurance policies through insurance agents and funeral service providers and their agents. Independent agents represent various insurance companies, whereas exclusive or captive agents represent only one insurer. Many insurance companies also sell funeral insurance directly to consumers.

Funeralwise is a licensed independent insurance agency that offers high-quality funeral insurance policies through a network of independent agents. However, our primary mission is to provide free funeral information and planning resources. We believe this uniquely positions us to offer a sensible, planning-based way to shop for funeral insurance. Yet being prepared for end-of-life involves much more than purchasing an insurance policy. That’s where we offer added value. Our online planning tools, forms, guides, and forums provide unmatched support to guide you and your family along the way. You can get all of that and more if you qualify for our Wise Protection Plan a try.

Whether you buy through Funeralwise.com, from another agent, or directly from an insurance company, you should purchase a policy issued by a top-rated insurance company. A.M Best is a good source for determining the financial stability of insurance companies you may be considering. It is a highly regarded source for an independent opinion of a company’s ability to meet its financial obligations. Its top ratings are AAA (Exceptional), AA / AA+ / AA- (Superior) and A / A+ / A- (Excellent). A policy from an insurance company with any of these top ratings is your best choice. Do not accept anything below a BBB (Good) rating. See A.M. Best Ratings Guide for details.

Key Terminology for Buyers of Funeral Insurance

What is the difference between Simplified Issue and Guaranteed Issue Policies?

When you are looking for funeral insurance, your health has an impact on whether you qualify for a Simplified Issue or Guaranteed Issue policy. Knowing the difference is important because it affects how your benefits are paid out.

With a Simplified Issue policy, the insurance company evaluates or “underwrites” your health based on your answers to a series of questions regarding your medical history. A medical exam is generally not required. Since funeral insurance limits are lower than traditional insurance, the underwriting requirements usually are less rigorous. However, it is still possible for you to be declined based on health or lifestyle factors. Pre-existing conditions, smoking, or taking part in risky activities can cause the insurance company to deny your application.

Regardless of medical history, Guaranteed Issue policies accept almost everyone. You don’t even need to answer health questions to apply. So what’s the catch? There’s no catch. But there is more risk being assumed by the insurance company so that the cost may be higher than for other types of policies. A Guaranteed Issue policy will most likely have a modified benefit provision (more on this below). If you have concerns that your health may cause coverage to be declined, or do not want to share any health information, then you should look for a Guaranteed Issue policy.

What is the difference between Level Benefit vs. Modified Benefit/Graded Benefit Policies?

With a Level Benefit Policy, the full death benefit will be available beginning on the policy’s issue date, even if the death is due to natural causes or an accident. The approval of a Level Benefit Policy depends on the applicant’s answers to the medical questions.

With a Modified or Graded Benefit Policy, the full death benefit is not available until the policy has been in effect for some specified time. This period, known as the “Restriction Period,” is usually 24 or 36 months. Should you die before the Restriction Period is over, your beneficiaries will only receive a limited portion of the proceeds. This restriction typically applies only to death due to natural causes. In most cases, the full death benefit is paid for accidental death, even if the death occurs during the Restriction Period. There are various types of Modified Benefit Policies, so be sure to check the policy details. The policy may base the payout on a Graded Death Benefit or a Return of Premium provision, and there are definite differences between them.

For more information on Simplified Issue and Guaranteed Issue policies and Graded Death Benefit and Return of Premium provisions, see our article on Final Expense Insurance.

What is the difference between Whole Life and Term Life Insurance?

The distinction between Whole Life and Term Life is critical when it comes to funeral insurance. That’s because you want to be sure that your coverage is in effect at the time of your death. The best type of policy for funeral insurance is a Whole Life policy because a Whole Life policy can stay in force until the end of your life. Some Whole Life policies terminate at 100 years of age, but that’s good enough for most of us.

A Term Life policy will expire at a specified point in time. The period may be a span of 10, 15, or 20 years, or expire when you reach a certain age, such as 75 or 80 years old. A Term Life policy’s key advantage is that it will likely be less expensive than Whole Life since the insurance company has less risk.

Preneed policies from top carriers are whole life policies. There are many policies marketed as final expense insurance and they may or may not be whole life. Be sure to read the fine print when considering a final expense policy.

What Is Whole Life Insurance?

Whole life (also referred to as permanent life) is a life insurance policy that remains in force throughout the insured’s life. These policies accumulate a guaranteed “cash value” or cash reserve that builds up against the death benefit. Whole life policies typically include an investment component whereby interest is credited to the cash value account. In most cases premiums must be paid every year into the policy but some “limited pay” policies can be “paid up” after a certain number of years (such as 10 or 20 years) and some policies even provide for an single lump sum premium payment. Upon maturity of the whole life contract (usually at age 95 or 100), the cash value is equal to the death benefit. Upon the death of the insured, the beneficiary receives the death benefit. If a whole life policy is surrendered (i.e., cancelled) prior to maturity, the amount of cash that will be returned depends on how long the policy was in force – the longer the period, the more cash that will be returned. Also, prior to the death of the insured, the policy owner may choose to borrow the cash value and forfeit the death benefit.

What Is Term life insurance

Term (temporary) life insurance provides death benefit coverage for a specific period of time (typically 10 to 30 years). Generally premium payments remain fixed for a certain number of years and then begin escalating as the insured gets older. Unlike whole life insurance which guarantees eventual payment of the death benefit, term insurance only pays if the insured dies during the term of the contract. Premiums must be paid throughout the term or the policy will lapse and there is generally no cash surrender value. Term life insurance is less expensive than whole life insurance because its sole purpose is to provide financial security for a limited period of time and has no investment component.