What is funeral Insurance?
Funeral insurance or burial insurance or final expense insurance is a special type of life insurance. It is designed to cover final expenses like the cost of funeral services, burials, unpaid bills, loans, etc. You make payments to your insurance provider throughout your life, when you die, your beneficiaries receive the death benefit, a lump sum from them. There is no limit to the number of beneficiaries. Once all your expenses have been covered, the money left can be used by the beneficiaries as they may like.
You need to remember that unlike other life insurance policies, the purpose of funeral insurance is not to replace income, or cover expenses like buying a house or paying college fees, but to take care of burial and funeral costs.
Funeral insurance policies have three main components.
Premium is the amount you pay your insurance company throughout your life for your final expense insurance policy. You can pay this amount monthly, every 3 months, 6 months or yearly. If you delay the payment, or forget to pay completely, your insurance policy may be cancelled. Premiums serve as an income and a liability, the insurance provider has to give the coverage mentioned in the insurance policy when your beneficiaries make a claim against it. There are numerous factors that can influence the cost of premiums, some include:
- State where you live
- Risk you pose
The death benefit is the amount of money the insurance company pays your beneficiary on your death. Your insurance policy decides the amount of death benefit. It is not subject to any tax and is mostly paid as a lump sum.
Depending on the type of insurance you opted for, the premium amount may go to either only cost of coverage or both the cost of coverage and cash value. Cash value accumulates in a separate account, tax deferred. The cash value can serve as a savings account and you can even withdraw from it during your life. Some insurance providers may limit or not allow withdrawal depending on what the money is used for.
Why should I buy burial insurance?
Death is often an unforeseen event. On average funeral costs range between $7,000 and $10,000, the mere thought of leaving your loved ones to bear with this alone is painful and frightening. The only way to manage such a huge amount in a short period of time is a loan or using up their savings, none of which is a good idea.
With a burial insurance policy, you can rest in peace knowing you don’t have to put your family through the burden and stress of arranging a funeral and the amount to cover for it in a short time. Burial insurance policies often a have a death benefit between $5,000 and $40,000, which is mostly more than enough to cover your final expenses.
How is final expense insurance unique?
Small Face value
The death benefit, also known as the face value is the money the insurance provider pays your beneficiaries when you pass away. Funeral insurance gives you the option of going for face values as low as $1,000. This a great feature as you spend based on your needs.
Burial insurance policies have a cash value component that serves as a savings account. In ideal cases you may never want to touch it, but since you never know with life, having cash value can be of use when you are in a financial crisis.
Underwriting is the process through which insurance providers price risk. They evaluate how much coverage a potential client needs vs. the likelihood of them claiming the policy. Based on this risk evaluation, they decide the price of premiums. One of the best features of burial insurance is the lenient underwriting. Since these policies are designed to absorb high risks, there are usually no health questions or medical exams required.
Regardless of where you die, funeral insurance policies ensure that your beneficiaries receive the death benefit.
You don’t need to go to an insurance provider, agent or broker in person to apply for burial insurance. You can easily do so from the comfort of your home through an email or over a phone call.
Premiums don’t change
Since funeral insurance is a type of whole life insurance, therefore the cost of premiums stay the same and the policy lasts forever.
The length of funeral insurance policy approvals ranges from 12 minutes to 3 business days. But it can vary depending on your insurance provider.
Lots of options for insurance companies
With the insurance business growing, there are tons of companies to choose from and insurance providers are always coming up with new ways to fill any gaps in the market and attract more customers. So if you are worried that your health or age may be a problem, you don’t have to. There will most definitely be a company willing to insure you.
Guaranteed life insurance option
Though there are many companies willing to take all sorts of clients, there are certain health conditions that bar companies from accepting you. That is where guaranteed life insurance comes in. You don’t need to take any medical exams or fill out health questionnaires and are guaranteed acceptance. It may sound great but it comes with a 24 month waiting period. What this means is that if you pass away during the first 2 years of the policy, your beneficiaries will only receive the premiums and a bit of interest. Since the insurance provider is taking a greater risk, the premiums cost more.
What do I look out for when buying burial insurance?
Buy it now!
Final expense insurance premiums cost more with time. There are also chances that you may develop a certain health condition that will prevent insurance companies from insuring you. Many burial insurance companies also have an age limit for new clients. So it’s better that you buy it right away, when you are younger and in better health.
Do not lie or misinterpret information
When you fill out your insurance application be transparent. Hiding, lying or misinterpreting facts will only cause you trouble down the road. It may result in higher premiums or your policy being cancelled all together.
While most burial insurance companies do not require a medical exam, some may require you to fill a health questionnaire. Certain health conditions like Alzheimer’s, Dementia, AIDS or HIV, terminal illness, organ transplant, being wheel chair bound due to a disease or illness, may require you to undergo a medical exam.
Paying for your premiums
Premium payments can be made weekly, monthly, every 3 months, 6 months, or annually, as mentioned before. Though it may not sound very budget friendly, annual payments are better. They save you lots of money in the long run. Many insurance providers charge more for frequent premium payment.
When making payments it is suggested that you set the payment up as a credit card charge or an automatic bank draft. With manual payments you risk not paying on time or even forgetting. This may put you at the risk on your policy being cancelled.
It is very important that you do your research before deciding on a policy. There is plenty of information online and insurance agents and brokers can help you as well. This will ensure a higher chance of finding the right insurance policy for you. But do keep on mind that insurance costs are regulated. So if you find the perfect policy, don’t waste time looking elsewhere for cheaper rates. It will cost the same regardless of if you buy it from the insurance company, insurance agents or brokers.
With so many insurance companies out there it can be very hard to decide which one to go for. When choosing a company keep two things in mind, the company’s rating and the insurance policy cost.
Insurance company ratings can be easily found and compared online. The ratings give you an idea of the company’s financial performance and standing throughout the years. There are different companies like Fitch Ratings, A.M. Best, Weiss Ratings, Standard & Poor’s and Demotech, Inc., that give these ratings. A company that is reliable and has a stable financial record will more likely pay the death benefit when the claim is made.
If the different policies that you narrow down are similar, go for the insurance provider that offers the cheapest premium.
Agents or brokers?
Though there are companies that sell insurance policies to customers directly, there are some that sell theirs through agents or brokers. Both agents and brokers have similar jobs, they help you find the best policy based on your needs and budget. They are supposed to explain everything about that policy to you, even the discrepancies. Both earn a commission from the insurance company for every policy they sell. But there are some differences.
Agents represent insurance companies. They sign a contract with the insurance companies that allows them to sell certain policies. Insurance agents are of two types.
Captive: they represent only one insurance company
Independent: They represent more than one insurance company.
Brokers, on the other hand have a client based model. They represent multiple insurance companies. Brokers do not sign any contract with insurance companies, instead they are issued an insurance binder every time a client decides to buy a policy through them.
Now that you have idea of what agents and brokers do and how they operate, here are a number of tips to keep in mind when deciding on which one to go for.
- Ask people you know, friends, family, colleagues, neighbors, etc., for referrals.
- Do a background check on any agent or broker you choose to work with. Ensure they have an active license and are authorized to sell you the policy they are selling. You can check the status of their license and other information on your state’s department of insurance website.
- Look for experienced agents or brokers.
- Go for insurance agents or brokers that represent many insurance companies. Having more options will mean more chances of finding the right insurance policy.
- Make sure the agents or broker asks your lots of background questions, on your health, dependents, financial background, etc., before they recommend a policy. Avoid those that start recommending without getting to know your situation.
- Avoid agents or brokers who pressurize you and don’t give you any space to make your own decision.
- Go for agents or broker who can explain how the insurance policy works and the terms and conditions in simple words.
- Understand how your agent or broker is paid, so you know if they are selling you a policy only because it will earn them a higher commission.
Despite knowing all this, it can still be very hard to find the right agent or broker. So if you a find one who is cooperative and friendly, stick to them.
Avoid offers seen on TV or received through mail
Most of these advertisements are for guaranteed life insurance. So if you want to go for one of these, be sure to do some research and get some expert opinion.
Insure the right amount
When deciding how much amount you should insure, keep in mind burial and funeral costs and take into account inflation. After you calculations, suppose a death benefit of $20,000 is enough, don’t go for a higher amount, it will only cost you higher premiums.
Buying multiple polices
Usually final expense insurance companies offer a maximum face value of around $50,000. If you think this won’t be enough for you, you can buy multiple insurance policies from different providers. It is legal.
Is there any difference between burial, final expense and funeral insurance?
A very common question, the answer is no. They are different terms meaning the same thing, like lawyer and attorney. If any website, insurance agent or broker claims otherwise, run as far away as you can.
Do I qualify for a funeral insurance policy?
If you are between the ages of 0 and 85, you can easily qualify for a burial insurance policy. If you are above 85, it isn’t that hard either, though there may be fewer options. Others factors that determine your eligibility for a final expense insurance policy include your health and the state you live in.
Though there are some insurance companies that won’t insure you if you have certain health conditions, there are companies that have no health questions at all.
There may be some insurance policies that are not approved in your state so you can’t buy them.
What is guaranteed life insurance?
Guaranteed life insurance is a type of life insurance that requires no health questions or medical exams and offers instant acceptance. It may sound very great, but it isn’t. Here is something you need to know about it.
- It has higher premiums. Since the insurance provider is taking a greater risk in insuring you, they will charge more.
- There is a two year waiting period. All guaranteed life insurance policies have this requirement. If you die during the first 24 months of the policy, your beneficiaries only receive the premiums and a little interest.
Be sure to check with as many insurance companies as you can, if you have a health condition that forces you to go for guaranteed life insurance. This should be your last resort.
Are there any options in burial insurance policies?
Final expense insurance offers you three different types of insurance policies. Some companies may only have two types. The eligibility for each policy is dependent on health. The cost of premium for each policy is different. The three policies are:
Level Benefit Plan
Some companies also call it Preferred Benefit Plan. This plan often has the lowest premiums for any burial insurance plans by the company. You say no to all the health questions asked by the provider. If they approve you, you get protection from day one.
Graded Benefit Plan
These plans offer you partial coverage during the first two years. Partial coverage means your beneficiaries receive some of the death benefit. This is how it works. If you pass away during the first 12 months of the policy, your beneficiaries receive 30% of the total death benefit. If you pass away between the first 12 and 24 months of the policy, they receive 70% of the total death benefit. They can only receive the full amount of the death benefit if you pass away after 2 years of the policy. The exact percentages for the first 2 years of the policy vary company to company. Most companies offer 25% to 40% of it during the first year and between 50% and 75% during the second year.
These are the highest risk plans an insurance provider can offer. If you have health conditions like strokes, heart problems, cancer, etc., they may be perfect for you. But they have the condition that if you pass away during the first two years, your beneficiaries will only receive the premium payments and some interest.
How do I apply for a burial insurance policy?
You can buy an insurance policy directly from the insurance provider, or from an insurance agent or broker. Once you decide the policy you want, you will have to fill out an application. This application can be found online and is also available with insurance provider, agents and brokers. If you don’t want to go all the way to an office, you can fill it online or over the phone. The length of the application can vary between one page to 10 pages depending on the company and policy. Once you are done with the application, you might be required to fill out a health questionnaire or take a medical exam. Once the insurance provider approves you application, you are covered.