Nobody really likes to think of end-of-life planning, but it's a must-do, especially because nobody lives forever.
However, put yourself in your loved ones' shoes. As they deal with grief, the last thing you want to do is saddle them with the expenses of your burial.
Here's what you need to know about burial insurance and how to help your loved ones financially in the wake of your death.
Burial insurance usually refers to a whole life insurance policy with a death benefit. It's a long-lasting benefit that remains until you die. It won't expire unless you stop paying the premiums. You may choose to buy this type of insurance to help your loved ones pay for funeral and burial costs for yourself or your family members upon your (or their) death.
Burial insurance usually encompasses these two types of whole life insurance:
- Simplified issue life insurance: You won't need to undergo a medical exam and must only answer a few questions. However, you can get turned down for simplified issue life insurance in certain severe health circumstances.
- Guaranteed issue life insurance: Guaranteed issue life insurance doesn't ask you any questions or require you to undergo a medical exam. Just like in the name, you will get guaranteed issue life insurance — it's guaranteed.
The insurance pays the death benefit of your policy directly to your beneficiary or beneficiaries once you die. Your beneficiaries can use the money however they want.
Learn More: Naming a Life Insurance Beneficiary
Like any type of insurance, you have to apply for burial insurance. The application may only ask you to reply to a few health questions and may not even ask you to reply to any questions at all! While this might seem like a great option, it can cost more.
The policies also sometimes have a graded death benefit, which means that your beneficiaries won't get their full refund if you die soon after getting the policy. Your beneficiaries may only get a small percentage of the policy's coverage amount. That's why it's important to check the fine print of every policy before you purchase.
You must pay a regular premium to ensure that you get burial insurance. Your insurance company will cancel your policy if you fail to pay your monthly premiums.
Let's say that Jessica dies and she has her daughter, Katherine, listed as her beneficiary. Jessica's burial insurance policy will pay Katherine the death benefit. Katherine can decide that she wants the full amount to go toward her mother's funeral. However, she may decide she wants to use the leftover money to donate to a charity in her mother's name. She can do that (or whatever else she wants to do with the money).
Burial insurance covers funeral and burial costs. Burial insurance policies can cover either individuals or entire families. You can even buy a burial policy on another person if you have an insurable interest in that individual. You can get burial life insurance for your parents, spouse, siblings, children, a family member, and even a business partner.
As you might imagine, insurance company rates are based on age and gender and can even cost as little as a few dollars per week. The premium price per payout size will cost less for younger and healthier people. However, related to the cost of payout, the cost of burial insurance can be high because you may not have to offer your medical information.
It's best to do your research and price out a few insurance companies so you know exactly what it will cost you based on your particular situation.
Related: How Much Does a Funeral Cost?
As you compare burial insurance at several insurance companies, don't forget that a few other types of life insurance can also cover the costs of death and burial, including term life insurance and permanent life insurance.
Term life insurance
Term life insurance guarantees payment of a stated death benefit if you die during a specified term, such as five, 10, 15, 20, 25, and 30 years. Some companies offer 35- and 40-year term policies. You can either renew your insurance for another term, convert to permanent coverage or choose not to have life insurance at all.
Your beneficiaries can pay for anything they want in the wake of your death, such as funeral costs, burial expenses, and other end-of-life financial obligations. They may also choose to use it for other long-term life goals, such as paying for college or paying off a mortgage.
Permanent life Insurance
Permanent life insurance, an umbrella term for life insurance policies that do not expire, usually covers a death benefit with a savings aspect within the policy.
Guaranteed and simplified issue policies (typical burial policy solutions) are both forms of permanent life insurance. However, they're different from traditionally underwritten permanent life insurance. These usual underwritten policies offer a much more stringent qualification process.
Whole life insurance offers coverage for the entire lifetime of the insured and savings can grow at a guaranteed rate. Universal life insurance also offers a savings element based on market performance.
You may find that burial insurance doesn't fit your needs at all. In that case, you can tap into a few different options, including:
- Payable on death (POD) account: You can put money aside and name who can access the money when you die. You may also hear of POD accounts called "Totten trusts."
- Funeral trusts: A trust names a trustee, who can withdraw from the account to pay for your funeral after you die.
- Savings account: You may already have plenty of savings, but this money could get tied up in probate after your death. (A POD account wouldn't get tied up in probate.)
Whatever you decide to do before your death, make sure you make arrangements. If you don't, you may put your loved ones in a position to determine how to pay for your burial. Eliminate these headaches as much as possible so your death doesn't give your loved ones additional burdens to shoulder.
Melissa Brock is the founder of College Money Tips and a full-time freelance writer and editor. She loves helping families navigate their finances and the college search process.
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