Burial Insurance vs. Life Insurance

While most people don’t like to talk about it, laying a loved one to rest can involve a potentially high cost. In the past, family members would simply pool their funds or would be able to pay for services over time. Today, however, the average cost of a funeral can exceed $7,000, and most funeral homes require payment in full at the time that their services are rendered.

As everybody will be faced with the cost of a funeral at some point, preplanning can be a helpful way to deal with expenses.  Two of the most common types of preplanning include purchasing either a life insurance or burial insurance policy and in this article we help you compare the benefits of burial insurance vs. life insurance.

Both types of insurance provide you with financial stability and support upon the death of the policy holder, but how do they differ, and how are they difference?  Most importantly, which type of insurance is best for you?

How Burial Insurance Works

Burial insurance is a type of life insurance policy that is used specifically to pay for funeral services and other related costs. This type of insurance policy may also be referred to as funeral insurance or final expense life insurance. These policies are available for purchase until age 80, and typically cover the insured individual through age 100, and they will usually pay benefit amounts of between $5,000 and $25,000; although some policies offer higher sums.  To help you determine the policy value to best fit your needs, call (888) 953-9816 to speak with a licensed professional and receive a no-obligation quote.

Just some of the costs that can be paid for with the proceeds from a burial insurance policy include the policy holder’s actual funeral service and procession, as well as the insured individual’s cemetery plot, headstone, and casket. Proceeds from the policy may also be used to pay off other “final” expenses such as the policy holder’s medical bills, probate costs, and unpaid debts such as credit card balances.

When an insured policy holder passes away, the death benefit from the burial insurance will be paid to a beneficiary who is named in the policy. Once the policy proceeds are received, the beneficiary (or beneficiaries) may then allocate the funds to the appropriate service providers and creditors.

Types of Burial Insurance Payout

Burial insurance policies may differ in how the death benefit proceeds are paid out. Payout options can include graded benefits or immediate benefits. A policy with immediate benefits is essentially a “level benefit” policy. This means that 100% of the death benefit on the policy will be paid out if the insured passes away any time after the policy is issued.

Graded benefits differ from immediate benefits in that a policy with a graded benefit payout option will only pay a portion of the applied-for death benefit if the insured dies within a certain time after the policy is issued.

An example of how a burial insurance policy with graded benefits may pay out could include:

• 25% of the total death benefit if the insured dies within the first year of policy issuance
• 50% of the total death benefit if the insured dies within the second year of policy issuance
• 75% of the total death benefit if the insured dies within the third year of policy issuance

In this case, the policy beneficiary would only receive 100% of the death benefit if the insured does not pass away until the policy has been in force for at least three years. Typically, graded benefit payouts are used for burial insurance policy holders who possess certain health issues.

While the graded benefit option may not cover all of an insured’s final expenses in the early years, it does provide a way to obtain coverage for those who may otherwise be declined altogether for more traditional types of life insurance plans.

Traditional Life Insurance Options

There are two very common types of life insurance available for purchase: Whole life and term life.  These insurances offer a wide variety of coverage’s, and costs vary widely as well depending on qualifications and coverage desired.

Whole Life Insurance

Whole life insurance is a type of life insurance that guarantees a certain amount of money will be paid at the time of the policy holder’s passing.  Whole life insurance policies are attractive because there is no risk involved; the full value of the policy will be paid to the beneficiary no matter what happens.  Because of this guarantee, whole life insurance policies are extremely expensive and have very stringent health qualification requirements.  Because of the cost and restrictions, whole life insurance plans are less commonly purchased.

Term Life Insurance

Term life insurance is a type of life insurance that guarantees a certain amount of money will be paid at the time of the policy holder’s passing, so long as the policy holder dies within a certain pre-determined date range.  For example, a 40 year old male purchases a 25 year term life insurance policy.  With this policy, he is covered in the event of his death for 25 years.  If he dies between the age of 40 and 65, his beneficiary will receive the full value of his life insurance policy.  If he dies after the age of 65, his beneficiary will receive nothing.

Term life insurance policies are attractive because they carry a relatively low cost and have much less difficult qualifications than whole life.  Additionally, you have the option to renew your policy if your current one expires, allowing you the opportunity to shop around between providers and save some money on your monthly premiums.  Term life insurance policies do carry a significantly higher amount of risk than whole life insurance, as you may end up paying your monthly premiums, only to have your policy expire and receive no insurance benefit.

Comparing Burial Insurance vs. Life Insurance

Many people shopping for insurance are often confused by the wide range of insurance plans offered.  It can be difficult to decide which type of policy is best for you, but it is easy to determine which type of insurance is best for you.

There are three simple aspects to consider when comparing burial and life insurance products:

• Consider you age
• Consider your budget
• Consider the policy value that you need

In addition, most regular term life insurance policies will typically require re-qualification for benefits at certain time intervals, as well as an associated increase in premium that is based on the insured’s then-current age. Burial insurance premiums remain constant throughout the life of the policy.There are several ways in which burial insurance differs from more traditional life insurance policies. First, burial insurance policy premiums are extremely affordable, even compared to the low rates often charged for term insurance.  Second, only burial and whole life insurance offer a guaranteed payout; term life insurance carries with it the risk of not receiving anything.  Third, unlike most traditional forms of term and whole life insurance, an applicant for burial insurance will not be required to go through a health exam in order to qualify for coverage. The individual will be required to state that they are not terminally ill or residing in a nursing home.

Advantages of Owning Burial Insurance vs. Life Insurance

A number of key benefits can make burial insurance a better alternative than traditional life insurance coverage. These advantages include:

• Less Stringent Underwriting Requirements – When purchasing a burial insurance policy, an applicant is not required to undergo a medical examination. Although approval is still not guaranteed, the more relaxed underwriting requirements can help many individuals who would not otherwise qualify for traditional life insurance coverage to obtain final expense funds. No medical exam can also lead to faster policy approval time, and thus the obtaining of coverage much sooner than if the applicant was required to go through the traditional life insurance underwriting process.

• Affordable – Burial insurance is usually considered more affordable for many policy holders, as these policies’ premiums typically remain constant, as does the amount of the death benefit in most cases.

• Peace of Mind – Even greater than the actual amount of benefit that is received is the peace of mind that survivors can have in knowing that expenses will be taken care of.  This frees them from worries of major financial matters and allowing them to focus on other important matters during an already difficult time.

Taking the Next Step

With the volatility and uncertainty in today’s financial markets, simply setting money aside for the future may not yield the amount that is needed at the time of a loved one’s funeral. A burial insurance policy, however, will provide an exact amount of funds that can be counted on, giving family and friend’s peace of mind during an emotionally difficult time.  We are here to help you create a policy made especially for your needs and help you decide whether to go with burial insurance vs life insurance.  Call (888) 953-9816 to speak with a licensed representative who can provide you with a free quote on a custom policy.