Burial and funeral insurance differences

Types of life insurance for funeral costs

Two common types of funeral expense life insurance policies are burial insurance and preneed funeral insurance.* Having either one of these types of funeral expense life insurance policies can allow you to plan ahead for the costs associated with your funeral/final expenses. However, there are key differences between the two. Before deciding on one or the other, here are the basics of how each one works.

What is burial insurance?

Burial insurance is a type of funeral expense life insurance policy designed to cover the cost of your funeral or cremation expenses when you die. Because many people don't realize that funerals can cost upwards of several thousand dollars, they don't often think about planning ahead. This type of situation can sometimes lead to a financial hardship on families or loved ones who must cover the costs. 

How does burial insurance work?

After you die, burial life insurance pays the death benefit of your policy directly to your beneficiary who can use the money in any manner. For example, if you have a $15,000 burial insurance policy and funeral expenses came in at $10,000, your beneficiary might choose to use the additional funds to pay for other final expenses such as outstanding medical bills, legal costs, or any other outstanding debts you may owe.

Burial insurance cost

Burial insurance policies can vary between life insurance companies, so you may find them offered in the form of term or whole life policies. Generally speaking, the death benefits for burial insurance are low, ranging anywhere between $5,000 up to $25,000 (although some insurers may offer higher limits). Your specific premium will vary depending on gender, health and age.

Generally, policies go through a simplified underwriting process, meaning that you may be able to a buy a policy after answering just a few health-related questions on the application with no medical exam. 

Burial insurance benefits

Burial insurance offers some flexibility and can help relieve the financial burden of paying for your funeral at a difficult time. Because the death benefit is paid to the beneficiary you specify, that person has the ability to use the money in any way they see fit. Ultimately, this leaves your loved ones with the task of making funeral decisions at the time of your death. 

Burial insurance may be a way to provide your loved ones with financial support to cover other unexpected expenses that you may have incurred at the end of life such as medical bills, legal costs or hospice care. 

Who should consider burial insurance?

Your need for burial insurance depends on your individual situation. You might want to consider a burial insurance policy if:

• You have no other life insurance coverage in place
• You have limited savings with no other means to pay for your funeral expenses and outstanding debts
• You want a separate policy to specifically cover your final expenses

Burial insurance can be part of an estate plan and an ideal way in which to manage your final burial and funeral expenses.

Burial insurance for seniors

If you’re 65 or older, you may be thinking more about end-of-life planning and consider purchasing burial insurance. However, the older you are, the higher the premium for the policy. Burial insurance is more affordable the younger you are. In addition, with many policies, there is a vesting period between the time of purchase and when the policy will be paid out. If you were to pass away during this vesting period, your loved ones would not receive the death benefit. For these reasons, it’s important to carefully examine the terms of the policy and ensure it is the best policy for you.

What is preneed funeral insurance?

Not unlike burial insurance, preneed funeral insurance is designed to set aside funds for your funeral, before the need arises. It is another type of insurance policy that aims to protect your loved ones from shouldering the financial burden after you die. It covers the costs of predetermined expenses such as standard funeral home services, funeral merchandise, church and burial services. In some instances, this type of policy can protect against inflation and the rising cost of funeral expenses by locking into today's prices for services and merchandise.

How much does funeral insurance cost?

Pre-paid policies typically range from $10,000 to $25,000. You can make a lump sum payment or pay in installments. This type of policy does not require a medical exam. 

Preneed funeral insurance benefits

Preneed funeral insurance can help remove administrative burden from loved ones during a difficult time of grieving. The decision to purchase preneed funeral insurance allows you to work with the funeral home of your choice to identify, outline and pay for exactly what you want for your funeral. This can help avoid leaving your loved ones with difficult decisions that may not be in accordance with your wishes.

Choosing between burial insurance and preneed insurance

Preneed, too, can be offered as either a term life policy or type of permanent policy. However, instead of paying the benefits of your policy to your beneficiary when you die, the money goes directly to the funeral service provider of your choosing. At the time of your death, preneed life insurance proceeds are often made payable immediately to an assignee (typically the funeral home) to cover expenses.

Other frequently asked questions

Here are some additional frequently asked questions (FAQs) that may be helpful when assessing if burial or preneed insurance is right for you.

Q — Does life insurance cover funeral costs?

Q — What is the difference between burial insurance and life insurance?

A — Burial and preneed insurance are both policies designed specifically to cover funeral and other final expenses. Life insurance policies are designed to provide proceeds to the named beneficiary/ies to help them maintain financial stability after the death of a loved one. 

Q — How much does the average funeral cost?

A — According to data from the National Funeral Directors Association, the national median cost of a funeral with viewing and burial is approximately $7,848, while a funeral with cremation is approximately $6,971.

Learn more about final expense life insurance.

*Note: There are other options to pay for funeral expenses, but this article's focus is on burial insurance and preneed funeral insurance.

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