You probably already take steps to ensure your family’s financial well-being, such as saving for retirement and maintaining a life insurance policy. But what about taking care of your loved ones after you’re gone? When they consider funeral planning, many people only think of setting up a will. But burial insurance (or one of its funeral insurance cousins, final expense or preneed insurance) is the only way to make sure your family will have the funds they need to cover your final expenses. While it’s never fun to talk about—or think about—one’s own mortality, it’s inevitable for all of us. Burial insurance will give your family one less hassle during an already trying time. Let’s take a look at burial insurance, how it differs from preneed or final expense insurance, and what it can do for you and your loved ones.
Who Knew Dying Was So Expensive?
The rising price of laying a loved one to rest can be a challenge for people worldwide. It’s not just families who are concerned about their ability to meet these obligations.
New Zealand Parks and Recreation manager Bill Steans explained to The Timaru Herald, the cost of a funeral is growing due to the increased prices of fuel, labor, machinery, and materials, “just like other things you buy.” These continually rising costs can present a problem when families need to pay for a loved one’s funeral service and burial. “Our big concern is affordability of plots,” chief executive of the Funeral Directors Association of New Zealand Katrina Shanks said, “and people being able to make the choice to be buried or cremated, as opposed to what they can afford.”
Average Funeral Costs
In 2015, the National Funeral Directors Association (NFDA) provided median costs for various funeral types. An average funeral with burial cost $7,181—including the vault many cemeteries require, this price escalates to $8,508. Fees such as those for flowers, an obituary, cash advance fees, or monument or marker costs aren’t figured into this calculation. (Cash advance fees come into play when your funeral provider pays a third-party vendor on your behalf and can include service fees.) If you use an online calculators when drawing up your budget, be aware that they may not include all your costs. Some online resources don’t account for a burial plot, or even common expenses like a casket or urn. The expense of a burial plot varies widely, so we haven’t included it in this breakdown. Don’t forget to take your preference into account when estimating your final expenses.
Funeral with Burial:
- Metal Casket: $2,395
- Basic Services Fee: $2,000
- Vault: $1,327
- Embalming: $695
- Facilities/Staff for Ceremony: $495
- Facilities/Staff for Viewing: $420
- Hearse: $318
- Removal or Transfer of Remains: $310
- Preparation: $250
- Printing for Memorial: $155
- Service Vehicle(s): $143
Funeral with Cremation:
The NFDA calculated that in 2015, cremations would become more popular than burials. Some families choose to have viewing and memorial services before cremation occurs. Others have cremation first and use the urn to symbolize their loved one during these services. The median cost for a funeral with cremation was $6,078 in 2014. However, the NFDA points out that this estimate does not include cash advance fees or cemetery monument or marker costs.
- Basic Services Fee: $2,000
- Cremation Casket: $1,000
- Embalming: $695
- Facilities/Staff for Ceremony: $495
- Facilities/Staff for Viewing: $420
- Third-Party Cremation Fee: $330
- Removal or Transfer of Remains: $310
- Urn: $280
- Preparation: $250
- Printing for Memorial: $155
- Service Vehicle(s): $143
It’s easy to see how these costs can stack up and leave loved ones in a lurch when it’s time to pay for final expenses. One life insurance company expects a funeral to cost an average of $18,276 by the year 2030. When families can’t afford a funeral service or burial, they may find themselves scrambling for options—taking out loans (and therefore taking on debt), checking into low-cost resources, or borrowing money from friends. What loved ones really need during this difficult time is the time and space for grieving.
The truth is, it’s unlikely anyone other than yourself will set aside the funds to cover your final expenses. In fact, CBS reported that more than half of American families don’t have the financial flexibility to cover just $500 of unplanned bills. And surprise expenses are simply a part of life. As Bankrate.com analyst Jill Cornfield told CBS, “If you’re a member of the human race—something that costs money is bound to go wrong.” Taking control of this expense now with a burial insurance, final expense insurance, or preneed insurance policy means your family simply places a call to the insurance company to access their benefit. Let’s break down the three plan types and how they differ.
Burial Insurance, Final Expense, Preneed—What’s the Difference?
If you’ve run a Google search for “funeral insurance,” it probably didn’t take long for bewilderment to set in. The terms “burial insurance,” “final expense insurance,” and “preneed insurance” are explained with overlapping, blurred definitions. And if you request a quote for one of these insurance types, you’re likely to get information on life insurance. Don’t worry—we’re here to break it down for you.
Burial Insurance, Preneed Insurance, and Prepaid Funerals
“Burial insurance” is a term that refers broadly to funeral insurance meant to cover burial expenses. It may also be called preneed insurance or a prepaid funeral plan. These plans only cover costs associated with burial and a funeral service. The beneficiary is usually the funeral home. However, some companies will use the term “burial insurance” when they’re really selling final expense insurance. This mix-up of definitions makes it easy to get confused when you’re researching funeral insurance.
Pros and Cons of Burial Insurance, Preneed Insurance, and Prepaid Funerals
- Your loved ones will know they’re giving you the funeral service you wanted.
- You can pay for these policies outright without using a payment plan.
- If you choose this type of insurance, you’ll want to carefully review the preneed contract—or enlist the help of a lawyer. Pay special attention to what goods and services associated with the funeral may not be covered. Here’s a list of provisions every preneed contract should include for your protection.
- Preneed policies or burial insurance may come along with taxes on income or interest due to any invested funds.
- Because these policies are a contract with a particular funeral home, you may be restricted to that company’s service area.
- The products and services you select when putting together a prepaid plan may not be available at the time of your death.
- Choose your provider carefully. There have been cases of funeral homes mishandling or mismanaging funds allocated to prepayment.
- The price of products and services you select is not always guaranteed. Check your preneed contract to find out whether your plan guarantees these costs or who will be responsible for paying the difference.
- Prepayment is less adaptable than final expense insurance. If your plans change or you move out of the company’s service area, you may no longer be covered.
- The Federal Trade Commission’s Funeral Rule requires funeral service providers to equip clients with an itemized list of expenses and entitles consumers to other disclosures. However, some features of prepaid contracts fall under the jurisdiction of the state where they’re sold, so this rule does not apply. Protections surrounding prepaid plans vary from state to state.
Questions to Ask if You Choose a Preneed Plan
What does the law require? Knowing what your state mandates by law and what is optional allows you to make the most informed choices when planning your funeral. For example, some states require embalming, while others leave it up to you. However, some funeral homes may require embalming for services with visitation or viewing. No states require caskets to be used in cremation.
Am I getting the best value? The FTC recommends shopping around and checking prices for many different vendors so you can compare costs.
Which goods or services can I buy separately? You aren’t locked in to purchasing everything you need from your preneed provider. You might get a better value selecting other vendors for embalming, a casket, or a memorial service. Caskets, for example, can be the most expensive item included in your funeral expenses.
Are you independent and locally owned? Appearances can be deceiving. The FTC explains that “many neighborhood funeral homes may appear to be locally owned when in fact they’re owned by a national corporation. If you intend to support local business, asking whether the provider is independent and locally owned is the only way to be sure.
What are my package options? On the other hand, some funeral providers might have package deals that provide greater value when you get all the services you’ll need in one place. Ask what’s available so you can consider these choices.
Which costs are estimates? Any of those fees your funeral provider pays for you to third party vendors—cash advance fees, in other words—may be estimates that are subject to change.
What are the restrictions and costs of the cemetery I’ve chosen? Some cemeteries may require measures that your state doesn’t, such as outer burial containers or perpetual care fees. These considerations can add hundreds of dollars to your final expenses. Be sure you know any restrictions or fees associated with a cemetery before purchasing a plot there. Using a mausoleum or columbarium is likely to have its own associated fees.
May I see the itemized prices for caskets and outer burial containers? While some funeral homes may list casket prices on their General Price List (GPL), you’re more likely to find this information in a separate document. Be sure to ask for it if you don’t see casket prices listed so you have a general idea of all your options.
Are there optional goods and services we haven’t accounted for? If your goal is to take stress off your family at the time of your death, you’ll want to be sure everything is handled ahead of time. Optional goods and services may include transportation of your body, fees associated with the graveside service, certain containers, interment, and more.
What if I want to cancel the contract, move, or my provider goes out of business?
Because your contract is with the funeral home and not an insurance company, policies (or the lack thereof) covering these items can vary among providers. Make sure to choose a policy that covers you in the event of these scenarios.
Final Expense Insurance
Final expense insurance covers the cost of services and burial like the other plans we’ve discussed, but it has a few benefits that differentiate it from burial insurance and preneed or prepaid funeral packages. Final expense will kick in to help cover outstanding debts, probate fees, and expenses other than your burial. Unlike with burial insurance and preneed plans, you’ll be able to choose your beneficiary. Final expense insurance is a type of life insurance. It may be either a term or a whole life policy, depending on whether you get coverage only during the term of your plan or until the policy ends when you’re 100.*
Pros and Cons of Final Expense Insurance
- Your policy value continues to increase with time. That means the longer you pay into the final expense policy, the higher your benefit will be.
- Older people may pay higher premiums than their younger counterparts. However, your premiums will not increase as you age.
- You get to select a beneficiary, who is legally authorized to spend the benefit as needed. Most people choose a partner or relative. You can leave instructions for the beneficiary as to how you’d like the funds distributed or to specify details of your funeral service.
- No medical exam is required, and your policy can’t be cancelled if your health changes. People in poor health won’t be declined but instead may be granted graded benefits, which offer only a portion of the policy for the first few years of coverage.**
- Extra benefits are available if you die as a result of an accident.
- You don’t need to pay for your entire policy at once. Premium payments can be set up monthly or yearly.
- Final expense insurance is adaptable enough to let your loved ones spend the benefit the way they see fit. This allows for coverage of common expenses such as medical bills, probate or legal fees, and other outstanding debts that aren’t covered by burial insurance or preneed policies.
- Final expense insurance allows you to allocate funds toward your burial, funeral arrangements, and other expenses without being tied to specific providers, geographic areas, or plans. Because of the amount of time that can pass between choosing and using a policy, final expense insurance makes sure your options stay open.
- Final expense policies can build a tax-deferred dividend value you can borrow against. In addition to protecting your family’s finances, you’re building an accessible line of credit in case of emergency.
- Because final expense insurance is so flexible, you can address your wishes without worrying about your plan being based on outdated prices or products. That means many of the questions you’d need to worry about or parts of a contract you’d have to carefully review with preneed or burial insurance just don’t apply. There are a few things you should be aware of when enrolling for final expense insurance, though.
Questions to Ask if You Choose a Final Expense Plan
Who will my beneficiary be?
Remember that while you can instruct your beneficiary on how you’d like funds allocated, the choice is ultimately up to them. In some ways, this freedom is a good thing because circumstances may change after you’ve made your wishes clear. But with great freedom comes great responsibility. You’ll want to choose someone you can trust to make the best decisions with the benefit you leave. For this reason, many people choose a partner or family member—specifically, someone with an insurable interest. That term simply means the beneficiary depends on the insured party’s income or faces some other loss in the case of the insured’s death.
What Is Meant by Cash Value?
When you own a life insurance policy with cash value, your premium payments get allocated 3 ways. A portion goes to the actual cost of the insurance. Another portion goes to the insurance company’s operating costs. And a third portion goes to the policy’s cash value. As you continue to pay your premiums, this cash value grows. This feature affords you the ability to take a partial loan against the policy.
The main advantage of borrowing against your policy is that you can usually do so with no credit check. There’s no application process like when you borrow from a bank or other institution. And these loans typically won’t show up on your credit report. You also aren’t obligated to pay them back on a specific timetable like you would if you used a credit card. Probably the biggest benefit is that often, these loans come with a lower interest rate than a financial institution charges.
Is There a Waiting Period?
Most final expense insurance policies with level benefits provide immediate full death benefits from the first day of coverage. Insurance is considered effective once the application is approved and the initial premium is paid. The policy effective date will be displayed on the paperwork. If the policy has a graded benefit, then partial benefits are available at time of issue, with full benefits available after the policy has been in force for a set period of time.*
How Do I Know How Much Coverage to Buy?
The best way to know how much final expense coverage you will need is to try and estimate your total final expenses. This can be done in 3 easy steps:
Step 1: Estimate Your Family Expenses
The simplest way to estimate family expenses is to take a typical month’s worth of expenses (include any house payments, utilities, car expenses, food and transportation costs, insurance fees, etc.) and multiply that total by 3. This will give your family 3 months’ worth of money to cover their expenses. So if your total monthly expenses are, say, $2,500, then your number for family expenses will be $7,500. ($2,500/month x 3 = $7,500.)
Step 2: Estimate Funeral Expenses
Funeral expenses will vary greatly depending on what type of services you choose. (Further below we include a review of common funeral-related expenses that will help you arrive at some estimates.) But for now, let’s take a common amount that people spend: $10,000.
Step 3: Family Expenses + Funeral Expenses = Total Final Expenses
Add your family expenses total ($7,500) to your funeral expenses total ($10,000) and you get your total final expenses. In this case, $17,500. ($7,500 + $10,000 = $17,500.) That means $17,500 is the amount of final expense coverage you will need to purchase in order for your family to have enough funds to satisfy both your outstanding debts and any funeral arrangements.
Step 4: Total Final Expenses x Inflation = Projected Adjusted Amount
Multiply the amount you came up with in Step 3 with the figure next to your age and gender to arrive at the total estimated cost.
|Age||Multiplier for Men||Multiplier for Women|
Beyond Financial Benefits
|Benefit||Burial/Preneed/Prepaid Insurance||Final Expense Insurance|
|Expenses Covered:||Burial/funeral costs only||A variety of final expenses|
|Beneficiary:||Funeral home||Your choice|
|Specific Arrangements:||Locked in at the time you choose||Remain flexible, although you give instructions|
|Cost:||Varies by provider and selection—solely covers funeral costs||A $10,000 policy costs about $2 per day.|
|Benefit Amount:||Once the plan is paid for, the benefit amount remains the same.||Tax-free savings are built up over time up to $35,000.|
|Balance May Be Borrowed Against:||No||Yes|
Personalize how you’ll be remembered. When you use funeral insurance to manage your final expenses, you’ll have the opportunity to tell your loved ones about the kind of service you want. With final expense insurance, you’ll leave instructions for the named beneficiary. Burial insurance and preneed or prepaid funeral plans will let you set these details with the funeral home. Leaving clear direction on your wishes keeps your family from wondering whether they’ve made the decisions you would have wanted.
Protect your family during a vulnerable time. Emotions can run high when people are grieving. Sometimes people spend more than they comfortably can on a funeral service because they want to memorialize their loved one properly. With a funeral insurance plan, you’ll have made these decisions ahead of time, freeing your family from the guilt and heartache that can be associated with putting a dollar amount on the service they’ll give you.
Make these decisions without the stress of a time crunch. When you decide to manage your final expenses on your own, you’re making sure these choices are made thoughtfully, with enough time to consider all your options. If family members are left to make these decisions after your passing, they’re likely to be dealing with other pressures on their time and attention—not to mention the time it takes to grieve the loss of a loved one.
Don’t make your family wait for reimbursement of final expenses. Funeral insurance plans make cash available quickly so your family can manage your final expenses. Other options for handling these costs may include waiting for reimbursement or probate delays.
How Does Burial Insurance Work?
What if I already have a life insurance policy?
Some people purchase burial insurance in addition to an existing life insurance policy. This is simply because they want to dedicate funds to specific needs. They do not want their beneficiaries to dip into monies from a life insurance policy to cover a costly funeral. Given that someone’s death can result in a number of unforeseen expenses, such as medical bills, attorney’s fees, and even taxes, it may be a good idea to have a different set of funds set up to handle each set of responsibilities.
Talking with Family about Funeral Insurance
Whether you’re ready to discuss your own wishes and preparations with your children or it’s time to broach the subject with an aging parent, talking about final expenses can feel awkward. Despite these anxieties, it’s important your family is informed of your plans financially and otherwise. Here are 5 things to think about when starting the conversation.
- Plan the discussion. Choose a location where everyone will feel comfortable and you’ll be free from interruptions. Pitch a few different options for time and date to accommodate everyone’s schedule. Keep the attendees limited to those who should have input in the decision—distant relatives or small children should not be invited. However, it may be appropriate to invite a third party to mediate and encourage respectful conversation, such as a trusted friend, counselor, or clergy member.
- Set the purpose. Be clear with yourself and others about what you hope the meeting will accomplish, and have reasonable expectations. Think about the topics you’d like to cover, jot them down, and bring your notes along. Also bring any relevant information you found in your research, and ask others to do the same.
- Manage the emotions. While it’s expected people may become emotional, it’s important to guide the discussion away from any tension and toward the facts. You may want to elect a leader to help do this. If you are hosting the discussion that could be you, or perhaps there is someone else attending who has a great track record for mediation. Being mindful of others’ dignity and respect, even if you totally disagree with them, is a good way to keep conflict to a minimum.
- Set a time limit, and abide by it. You may not be able to resolve all of the issues in the first conversation. Rather, think of this meeting as a building block in an ongoing dialogue that you hope to keep going. Be mindful of everyone’s time, and pay attention to those who may be drifting off. If the discussion is about an aging parent or other relative in the room, you may want to check in with them periodically. Are they understanding what’s being discussed, and are they still comfortable with the process? Have they become agitated? Do they need to take a break? Constraining the meeting to an hour or two will help keep everyone engaged.
- Highlight solutions. It’s important to do a thorough recap of the conversation. What resolutions did you come to? What common points did you all agree on? What still needs to be decided? Do any unanswered questions remain? What are the next steps the group should take in order to move the action plan forward? You may need to assign tasks to certain individuals in order to be sure the goals of the conversation get carried out.
Why wouldn’t I just use savings?
Relying on savings can be a poor overall strategy. Unfortunately, all it takes is one serious illness to wipe out a lifetime of savings. Did you know the number one cause for bankruptcies in the U.S. is medical debt? Many people underestimate how a serious illness or disease can hurt their financial standing.
Can I use final expense insurance if I already have a plan from my funeral home?
Many people choose to contact a final expense life insurance company despite having some type of prepaid funeral arrangements through their funeral home. The reasons are the same as for those who choose to purchase final expense coverage in addition to a life insurance policy. They often want additional or dedicated coverage for certain expenses. Remember, prepaid funeral plans bought from a funeral home will generally only cover the cost of your funeral. They do not typically include any funds to cover additional costs.
If you have not yet purchased funeral insurance and are contemplating which to choose, a prepaid funeral plan or a final expense insurance policy, go with the final expense plan. Burial insurance should always be purchased through a licensed insurance agent. Plans bought through funeral homes are often brokered through a funeral service director. There have been instances where policies were misrepresented or changed after the signer passed on. They will sometimes not be honored if the funeral home has switched owners.
Don’t I get free burial as a veteran?
While it’s true that military veterans have automatic burial benefits, the allowance is capped at $2,000 for service-related death and $300 otherwise. These benefits are also reimbursement-based, which means families need access to funding to pay the initial bill before they can be reimbursed. Veterans also qualify for free burial and some associated services in National Cemeteries. These benefits will certainly help ease the burden of burial costs, but final expense insurance is more flexible and can be applied to several different types of debts. You may contact the U.S. Department of Veterans Affairs for more information on this and other VA benefits. Beware of “veterans’ specials” that may offer discounts on some services while hiking up the cost of others.
Won’t Medicaid or Social Security cover these expenses?
While specific amounts vary by state, U.S. News reported that Medicaid allows up to $1,500 to be applied toward a funeral instead of counted as assets. Social Security provides $255 to a surviving spouse or child to help with funeral expenses. As you can see from the figures we provided on median funeral costs, this amount is a drop in the bucket. In fact, the two benefits combined don’t even cover a third of the median cost of a funeral with cremation.
I’ve made provisions for final expenses in my will. Isn’t that enough?
A will may not be read before your funeral. The safest way to be sure your family knows your wishes—and doesn’t have to come up with funding for them—is with burial insurance.