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What is burial insurance? Everything you need to know

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You don’t want to think about it, but planning for your end of life isn’t just about you and your final wishes. It’s also a way to help your friends and family find closure — leaving them with as little burden as possible after your passing. Burial insurance is one way to do this. 

The right burial insurance policy can help pay for much of the cost of your burial or memorial service and lessen the financial burden on your loved ones. Below we’ll discuss what burial insurance is and if it’s worth it.

What is burial or funeral insurance?

Burial insurance, also known as funeral insurance, is a type of life insurance policy intended to cover the cost of your funeral or memorial service once you pass away. Most policies become effective when you pass. The benefits are then paid out directly to your beneficiaries, who can use the money to pay for your cremation, memorial service, or any outstanding medical bills.

Various insurance companies offer burial insurance, and they differ in their eligibility requirements and coverage amounts. In some cases, a person can become eligible when they’re 15 days old. In other cases, a policy is only available to people who are at least 50 years old. Many burial insurance policies can be bought over the telephone or online without needing a medical exam. Some policies have a guaranteed acceptance, while others may require at least a two-year premium paying period before your beneficiaries receive any benefits. The benefits can vary as well. Some are capped out at $10,000, while others can go as high as $50,000.

Does burial insurance have cash value?

Burial insurance is considered a cash policy, meaning it builds cash value over time. Typically, there are two types of burial insurance: outright and term. Burial insurance costs depend on the type of policy you purchase. Outright policies allow you to buy as much or as little as you need and are active as soon as you buy them, so you pay most of the cost upfront. Term policies require you to pay a premium each month, and the burial insurance accrues cash value. Many term-burial insurances need you to pay at least two years of premiums before you can qualify for the total amount of coverage. 

The average cost of burial insurance tends to be around $100 per month, but this also depends on the type of policy you are purchasing. Some burial insurance policies accumulate cash over time based on the premiums that the policyholder has paid. While some policies allow you to borrow against the value with interest, you must pay back the total amount you borrowed with interest, or your beneficiary will not get the full value of your burial insurance policy.

Is burial insurance worth it?

Burial insurance is worth it for many people because it covers most of their funeral expenses upon their passing. While your estate may have plenty of assets to cover your burial or memorial arrangements, your beneficiaries may need to wait months or even years to claim the money unless your estate is in a trust. This means your family members and loved ones will need to pay out of pocket for any end-of-life expenses.

The thing is, not all policies are created equal. Some term policies may have a 20- or 30-year term which means if you pass away outside the term, you won’t receive any benefits. There are others where you end up paying as much or more in premiums than the policy is worth. 

For burial insurance to be worth it, you want to consider policies that payout to your beneficiaries in a straightforward way. For example, an immediate payout ensures that your loved ones have the necessary funds right away versus having to pay out of pocket for any end-of-life costs. You don’t want to purchase burial insurance that ends up creating more of a burden than it solves.

One way to determine if burial insurance is worth it is to use an end-of-life planning checklist. A checklist will help you understand what you want and need for your end-of-life planning. You may discover that if you forgo a traditional burial and opt for a cremation and alternative memorial service that your end-of-life expenses could be a fraction of the average funeral cost. Once you determine what type of memorial service you want, you can choose the burial insurance policy to cover your end-of-life expenses. 

Alternatively, you may decide that burial insurance isn’t worth it, and you rather set aside funds in a savings account to help cover the cost. One way to make sure that your family members receive those funds quickly is to identify a “pay on death” or “transfer on death” beneficiary for the account rather than having the funds transfer into your estate. Just make sure that the person you’ve named as the beneficiary understands your expectation that the funds will be used for your funeral and disposition expenses. Ultimately, if you select burial insurance, you want a policy that you can be confident will cover your burial expenses and pays out more than you have invested into it.

For many people, it’s important to ensure their family and loved ones can fulfill their final wishes. In some cases, burial insurance can help with that. Planning and paying for your end of life is one of the greatest gifts you can give your family members and loved ones.

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