Recently I talked about what death would mean to your family if you passed away unexpectedly. If you allow yourself to “go there” for just a minute, you will quickly realize that your death would put your family into a tough spot. Setting aside the emotional blow (which will understandably be huge), there is also the financial ramifications. Today, we will look into another step in preparing for the inevitable – funeral or burial insurance.
What is Funeral Insurance?
Funeral insurance, also known as final expense or burial insurance, is meant to cover your expenses if you die. These policies aren’t usually as a large as a real life insurance policy as they are meant to cover the essentials:
- Cremation or embalming
- Casket, urn, or coffin
- The service (might include a funeral home, flowers, a car, etc.)
- A plot or columbarium
Unlike life insurance which is sold to cover living expenses or replace your income for a number of years, final expense insurance policies will likely be in the $5,000 to $20,000 range. You definitely don’t want to think that one of these policies will payout in the same fashion as a regular life policy.
How Much Does a Funeral, Burial or Cremation Cost?
Unfortunately, the average cost of a full funeral is between $2,000 and $10,000 but can vary greatly. Also, inflation is a major factor and the cost of getting buried has increased every year for at least 50 years. According to the National Funeral Directors Association (NFDA) the average cost for a funeral in 2012 was $7,045. Unfortunately, there is a long list of costs associated with dying and being put to rest:
The Detailed Costs Of A Funeral Based on 2012 Numbers
| Service | Average Cost |
|---|---|
| Basic "Service Fee" charged by funeral homes | $1975.00 |
| Removal and transfer of the body to the funeral home | $285.00 |
| Embalming | $695.00 |
| "Other" preparation of the body | $295.00 |
| Use of facility for viewing | $400.00 |
| Use of facilities for actual service | $495.00 |
| Use of hearse | $295.00 |
| Service car | $130.00 |
| Printed materials for service (register book, service cards, etc.) | $150.00 |
| Metal casket or coffin | $2395.00 |
| Median cost of a funeral with casket | $7045.00 |
As you can see and to put it bluntly, the funeral home is going to nickel and dime you for a variety of different services. That is why the cost of a funeral is likely going to be more than you would think….and, it is only getting worse with time. Here is the average cost of a funeral over time, again according to the NFDA:
The Rising Cost Of Dying
| Year Of Burial Service | Average Cost Of Service | Percentage Increase on A Year Over Year Basis |
|---|---|---|
| 1960 | $711.00 | |
| 1965 | $793.00 | 12% |
| 1971 | $987.00 | 24% |
| 1975 | $1,288.00 | 31% |
| 1980 | $1,813.00 | 41% |
| 1985 | $2,741.00 | 51% |
| 1991 | $3,747.00 | 37% |
| 1995 | $4,631.00 | 24% |
| 2000 | $5,184.00 | 12% |
| 2006 | $6,201.00 | 20% |
| 2009 | $6,567.00 | 6% |
| 2012 | $7,045.00 | 8% |
Now, at least we aren’t living in the 1980’s when that burial cost inflation was running above 40%, however, you can still see that the average cost of a service is steadily increasing over time. For that reason, getting proper final expense insurance is a great hedge against that inflationary pressure.
Where To Buy Final Expense Insurance
There are a few options when it comes to purchasing coverage. Of course there is the direct route by buying a policy straight form an insurance company. Or, you can always buy your policy through an insurance broker as well. There are several reputable companies who sell these types of policies and here is a list to get you started:
| Company | Phone Number | Website |
|---|---|---|
| State Farm Insurance | 1-800-782-8332 | State Farm |
| Lincoln Heritage Insurance | 1-800-438-7180 | Lincoln Heritage |
| Foresters Insurance | 1-800-828-1540 | Foresters Insurance |
| American Memorial Insurance | 1-800-533-2220 | American Memorial |
| AARP (Don't specifically offer funeral insurance but they do offer a $15,000 guaranteed acceptance policy so it can be used the same way) | 1-800-865-7927 | AARP Insurance |
Keep in mind, there are many companies that offer insurance policies that you can use for your final expenses. The above list is only a starting point. The goal here would be two-fold:
- Shop around, shop around, and then shop around. Call as many companies as you can to compare policies, benefits, and eligibility requirements, and then
- Call as many insurance brokers as you can. Again, you will want to pick their brains on cost, benefits, etc.
Your goal is to find the best policy for your situation, at the cheapest and most affordable price.
Options For Burial Insurance Payouts
When you purchase funeral insurance, you will likely have two payment options: graded and immediate. The difference between these two payout options and meaningful and you will want to make the right choice based on your situation. The differences are:
Immediate Payout –
Exactly like it sounds, the funeral insurance pays out completely when the policy holder dies. So, if you held a $10,000 burial insurance policy then when you passed away, that $10,000 is payable in one lump sum to whoever you designate as your beneficiary
Graded Payout –
If your policy has a graded payout, then the beneficiary is payed only a percentage of the full policy based on when it was purchased, and when the policy holder dies. For example, the policy might be written to payout 20% of full value if the insured dies within the first year, 50% if they die within the 2nd year, 75% if they die in the 3rd year, and full policy value paid out if they die after the 4th year. So, a $10,000 policy would only pay $2,000 if you die within a year of the policy getting issued, and so on.
Why is this significant? Well, you would need to closely look at your physical health to determine whether a graded payout is a better option than an immediate payout. The benefit to a graded policy is that it is cheaper to purchase, but you had better believe you are going to outlive the graded policy period. If your health is questionable, or you are a senior citizen, an immediate payout policy might be in your best interest.
Two Different Policy Coverage Options
Did you know there are really two different kinds of burial or funeral insurance? Generally speaking, there are insurance policies you receive from an insurance company (traditional final expense insurance), and, there is “pre-need” insurance.
Pre-need insurance typically involves a policy from a specific funeral home or mortuary. This might be a good option for you if you know exactly where you want to be buried. For instance, if you want to have your final resting place in the town you currently live in, visit your local mortician or funeral home and see about a pre-need arrangement. They might offer a fixed price for a funeral at some point in the future (when you die). They might also be able to sell you an insurance policy to guarantee that cost and arrangement. The only downside to preneed funeral insurance is that it can be more expensive than a traditional burial insurance policy.
How Your Age Effects The Premium Cost
As with all insurance products age does effect the price you are going to pay for coverage. The older you are, the more you are going to pay for final expense insurance. I don’t need to remind you that insurance companies are for-profit entities and there goal is simple: charge you more premium then they expect to pay out on the coverage.
So, if you are 60 years old, you are going to pay more for the same coverage than a 20 year old. Why? Morbid I know, but your chances of dying at 60 are statistically greater than when you are 20.
Burial insurance becomes a very different beast for individuals over the age of 65. The average life expectancy of the American senior citizen is between 76 and 84, depending on the source. Naturally, if you are a senior citizen seeking to buy a funeral insurance policy for the first time, it is going to be very expensive, and it will only get more expensive as you age.
Medical Exam or No-Medical Exam?
Getting burial insurance isn’t always an easy process. It isn’t a simple matter of getting quotes and signing up. To get the lowest premium costs with the best and most affordable policy, you will have to get a medical exam. No medical exam options are available but they are more expensive.
Just like other types of life insurance, if you have underlying medical conditions or morbidity factors you are going to pay more. These might include:
- Being overweight or obese
- Currently being a smoker or were a smoker in the last 5 years
- Being a diabetic (in this scenario look into a policy specific to your situation)
- Have high blood pressure
- Take prescription medications
- Family history of cancer, heart disease, etc.
Obviously, the better your overall health profile, the lower price you will pay for premiums. Of course, if you have savings, other insurance, or are independently wealthy, you might not need funeral insurance in the first place. Before deciding whether or not you need final expense coverage, take a look at your overall financial picture. You might find that you have adequate coverage or resources.
Important Considerations Regarding Beneficiaries
It should go without saying but I’ll say it anyway: Be sure to designate a beneficiary for your policy. Choose carefully. A logical choice would be to designate the person that is going to handle your final arrangements. That way, they can make payment for the final service themselves. Your other option is to designate the funeral home that you will be using but in my opinion this is a risky proposition and I wouldn’t recommend it. Designate someone you know and trust that can use the money for what it was intended – your final expenses.
Final Thoughts
Thinking about dying isn’t something we like to do. Let’s face it, it isn’t exactly a fun thought. However, planning for the inevitable is something that we all should do. We know we are going to die, so, why not plan to make it as easy as possible on those around us. Getting funeral, burial or final expense insurance ensures that our families won’t be scrambling to pay for our death out of pocket. That day will be difficult enough already without worrying about the financials that surround death. If you have adequate resources already that this doesn’t need to be a consideration for you. However, if money is tight, and the resources aren’t there, then this type of insurance can go a long way in buying you and your family piece of mind.
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