Funeral Insurance- What is it?

Overview

Published: 01/31/2010

by Funeral Home Resource Team

Photos

At its core, funeral insurance (also called burial insurance) is a way to make sure your final expenses are taken care of. Funeral insurance is becoming a primary venue for people, particularly seniors or those suffering from a chronic illness, to prepay and arrange for their funeral expenses. With funeral insurance coverage, you plan the services and items you would like for your funeral and pay for them in advance. By purchasing funeral insurance, you remove the emotional and financial stress of funeral planning from your loved ones.

The first thing to know about funeral insurance is that there is no ‘standard’ type of coverage. The term funeral insurance describes any insurance policy or other legal contract purchased with the intent of paying for final expenses. In most states, the only people licensed to write a funeral insurance policy are life insurance agents and funeral directors. Your policy can be as specific or non specific as you want. For example, you can include every detail down to where people sit at a memorial service and the types of flowers used or simply have the money available for your family to spend on the funeral expenses as they decide.

There are three main types of funeral insurance:

• Life insurance with family member as beneficiary—Many people who already have traditional life insurance only purchase enough to include funeral expenses. You can name a family member as your beneficiary, and discuss your funeral plan with them.

• Life insurance with funeral director named as beneficiary—Funeral homes may include a small whole life policy with a contract for funeral services, with the requirement that the funeral director is the beneficiary of the policy. In this way, you pay for part or all of your funeral expenses using a life insurance policy that you pay for—and the death benefit goes exclusively to the funeral home—not to your family.

• Pre-need contract with funeral home—A pre-need contract often covers the burial plot, grave marker, casket or urn, embalming or cremation, flowers and funeral cars. Some policies may not specify what the death benefit can be used for. In that case, the money can be used however the beneficiary decides.

Funeral costs are increasing every year. According to the American Association of Retired Persons (AARP), funerals and burials are among the most expensive purchases older Americans make. The average cost for an adult funeral ranges from $4,500 to $5,500. About one-third of that is the casket.

The products and services you can purchase with your funeral insurance include:
• A casket or urn
• Cremation
• Embalming (not legally required unless there will be a public viewing)
• Burial vault or grave liner
• Grave marker
• Hearse and other funeral vehicles
• Flowers
• Digging and filling the grave
• The plot

Because these policies are individualized, there's nothing that you can't include in them, unless, you have a policy that is capped at a specific dollar amount. Most funeral insurance policies do have caps- ranging from $10,000 to as high as $25,000. Also, some people choose to omit certain items from their specific coverage- such as flowers, so that their family can still participate in the funeral planning service. While the policy may cover the expenses of flowers, the actual selection can be determined by your survivors.

It is important to keep in mind that many states have felt the need to implement protections because of significant problems with some types of unscrupulous funeral insurance sales. Before you sign anything, speak to your state Department of Insurance to make sure the policy is legal and follows all state and federal laws. Always be sure you understand the terms of the policy, and weigh the funeral insurance policy cost against the actual policy coverage.