Burial insurance is an increasingly popular choice, especially among the baby boomer generation. But is it right for you?
Burial insurance, also called final expense insurance, is a very specific type of life insurance which serves a very specific need. While not for everyone, it does serve its purpose to a large demographic, and access to coverage makes it even more attractive.
Understanding Burial Insurance Plans
Burial insurance is a lifelong insurance product which is made available to help individuals pay for basic final needs. Final expense insurance is a small whole life insurance policy which is used to pay for things such as burial plots, caskets, funerals and minimal medical bills left behind.
Because of the smaller sized death benefits, there is little room, if any, for much else.
Most carriers who offer burial insurance make it available to those aged 50 to 85. A few smaller companies will go even higher than age 85, and more insurers might increase their availability as each generation lives longer and longer. As needs change, so do products, but insurance companies adapt at a very slow rate.
Like traditional whole life insurance, burial insurance allows the insured or owner to pay one consistent premium for the life of the product. The death benefit will not go down, and the policy will not expire as long as the policy is kept current.
Some burial insurance plans even have a cash value component within the contract, which grows tax free and gives tax free access to the policy owner. Just understand all loans will affect the final payout.
Types of Burial Insurance
Before you purchase your policy, it’s crucial to know there are different types of plans under the burial insurance umbrella, and each one will operate differently down the line. Here are your choices:
Having a policy with a level benefit simply means you are entitled to a full death benefit payment from the day you’re approved. The contestability period still applies, as with most life insurance products, but otherwise you’ll receive 100% of the policy amount when it is paid.
If you end up with a graded death benefit plan, this means you will not be receiving full payment within the first few years of the contract. Instead, you might get one of two things:
- Return Of Premium + Interest
- Partial Payments
The return of premium plus interest option would look something like this:
Year 1: Return Of Premium + 10% Interest
Year 2: Return of Premium + 10% Interest
Year 3: Full Death Benefit
The partial payment plan would be similar, in that it is divided by year, but instead of your money back with a stated interest amount, you’ll receive a percentage of the actual death benefit. It might appear like this:
Year 1: 40% of Death Benefit
Year 2: 70% of Death Benefit
Year 3: Full Death Benefit
The determining factor in which you get is not the policy, but the company issuing the policy. Payout structures can vary even more widely, with partial payouts going through three years and no full death benefit until years four and beyond. The key takeaway here is leverage. Even though you aren’t getting a full death benefit, you’re still leveraging your premium dollars much better than if you were to just put the money in the bank.
Even though you aren’t getting a full death benefit, you’re still leveraging your premium dollars much better than if you were to just put the money in the bank.
Qualifying For Final Expense
The reason there is a difference between level and graded death benefits is because of how you qualify. There are different underwriting requirements for both types, and your health will determine what you’re eligible for.
If your health permits it, you can purchase a level death benefit with minor medical history hiccups.
It would take too long to go through all the different impairments which are or aren’t covered, so it’s best to talk to an agent to really get a good idea of what may be plausible. If you’ve not had major surgery, you health is well controlled with medications or minor treatment, and your height to weight ratio (also called BMI) is within reason, you may qualify.
If you have more serious concerns, you will need to apply for the graded death benefit option, also called guaranteed issue.
As the name implies, you are guaranteed coverage and will not be turned down. Furthermore, you are not required to complete a physical or any medical questions. As long as you can pay your premiums and the information on your application is correct, you will get covered.
While easy to get, it should be your last resort because the cost per thousand tends to be the highest of any policy type.
Choosing A Burial Insurance Policy
The best life insurance companies for burial insurance policies are the ones who provide exactly what you need. While price is a primary factor, remember that all burial policies are not built the same.
If you just want minimal coverage in place and you prefer a low premium, opting for a 3-year graded death benefit instead of a 2-year might save you a few extra bucks. If your health is bad, the latter option might be more fitting, just in case.
Adult children often find themselves as the purchaser and owner to these types of plans. This results from getting their parents affairs in order only to find there is no life insurance coverage in place.
If this is the case, just remember your parent will need to acknowledge and sign, either written or verbally to the insurance company, to satisfy policy requirements. In some instances, power of attorney could aid in the process, too.
We highly recommend discussing your options with an independent agent. They are the only ones who can really lay out all your options from several companies to be certain you’re getting the right policy. Burial insurance is permanent, so having a durable plan is crucial.