It’s not something we like to think about, but funerals can put a financial strain on families. If you reach your 50s, 60s, 70s or 80s and don’t yet have life insurance, a burial policy can step in to take care of that expense.
Burial insurance is a small life insurance policy that’s meant to cover your funeral and burial costs, as well as end-of-life expenses such as medical bills. Typically, these policies start at $1,000 and max out at $25,000, though a handful of insurers offer up to $50,000 in coverage. When you die, your beneficiaries can spend the money however they want.
Also known as final expense insurance, burial policies are usually open to people 50 and older. In most cases, you won’t need to take a life insurance medical exam to get coverage.
Types of burial insurance
Burial insurance isn’t actually a policy — it’s a marketing term. Essentially, it’s a small whole life insurance policy that’s often sold to seniors.
There are two main types of policies: simplified issue and guaranteed issue.
Simplified issue policies provide life insurance without a medical exam, but you’ll need to fill out a health questionnaire. There are a few “knockout” questions that can disqualify you, so if you use a wheelchair, reside in a nursing home, or live with a serious health condition like cancer, diabetes or heart disease, you might be denied coverage. Otherwise, there’s a solid chance you’ll be approved, even as a senior.
Guaranteed issue life insurance skips both the medical exam and health questionnaire, and offers coverage with no questions asked. But since the insurers don’t have any information about the person they’re insuring, they typically charge higher rates to compensate for the extra risk.
While you can buy a term life insurance policy to cover final expenses, it may not be the right solution. It lasts only as long as the policy term, such as 10 or 20 years, and you may live longer than that. Term life insurance is ideal for covering specific financial obligations, like the length of a mortgage, the cost of raising children or the number of years until you plan to retire.
Pros and cons of burial insurance
A final expense policy can offer peace of mind and ease the financial burden on your family while they’re grieving. And since it usually doesn’t require a medical exam, it’s a good option if you have a pre-existing condition that prevents you from getting a traditional term or whole life policy.
But burial insurance is expensive, and many policies have a two-year waiting period in the fine print. This means that if you die of natural causes within the first two years of taking out the policy, your beneficiaries won’t receive the full payout. Instead, the insurer will reimburse your loved ones for the premiums you paid, or pay out a smaller amount.
If this concerns you, take the time to compare burial insurance policies and choose one that doesn’t have a waiting period. Some major insurers — such as Transamerica — have done away with the waiting period for some policies, which means you’re 100% covered as soon as the policy goes into effect.
» MORE: Best burial insurance companies
How much does burial insurance cost?
Burial insurance tends to be on the pricey side because it’s sold to seniors and typically doesn’t require a medical exam — which means insurers don’t have a complete picture of the person they’re covering.
The rates go up with age, so try to buy burial insurance as soon as you know you need it.
Average annual premiums for guaranteed issue policies
Age at purchase
Average annual rate — male
Average annual rate — female
Source: Quotacy. Lowest three rates for each age and policy type averaged, as of June 24, 2021.
How much burial insurance do you need?
When you’re calculating how much burial insurance to buy, think about the specific costs you want the policy to cover.
The median cost of a funeral with viewing and burial is about $7,640, according to figures from the National Funeral Directors Association for 2019, the most recent year available. The median cost with cremation is about $6,645.
Ideally, your burial insurance policy will cover all the costs you have in mind — even if you envision a lavish production with flowers, limos and catered food — so your family doesn’t have to dip into savings to pay for them.
Burial insurance vs. funeral insurance
Although they sound similar, burial insurance and funeral insurance aren’t the same. In short, the payout from burial insurance goes to your beneficiary, while the payout from funeral insurance tends to go directly to the funeral home.
Burial insurance works similarly to a standard whole life policy. When your beneficiaries receive the payout from the life insurance claim, there are no restrictions on how they can use it. Of course you can make your wishes known, but there’s nothing in the policy that specifies how the money is to be spent. These policies are useful if you want your beneficiaries to have the freedom and control over how to use the proceeds.
Funeral insurance (or "pre-need life insurance”), in contrast, has a payout that is directly linked to the costs of a prearranged funeral, burial or cremation.
You typically select a funeral home, choose the details of the funeral and purchase the policy from the funeral director. In some cases, the funeral home will lock in the price of the funeral so the policy is sure to cover the cost, no matter when you die. The life insurance payout from a pre-need policy typically goes directly to the funeral home.
Pre-need life insurance is useful if you want to make sure your final wishes are carried out and that your family isn’t burdened with funeral decisions. If this interests you, contact the funeral home of your choice to see if it offers pre-need plans.
What are the alternatives to burial insurance?
A burial insurance policy is a good fit if you need only a small amount of coverage or want to bypass the medical exam. But there are other ways to cover end-of-life expenses, especially if you’re relatively healthy:
Term life insurance offers temporary coverage and could be a cheaper option if you’re in your 50s or 60s, healthy and willing to take a medical exam. Compared with other types of coverage, term policies typically have lower average life insurance rates.
Funeral insurance allows you to prepay for funeral and burial costs, so it can be a good choice for those who don’t have any other debt or expenses to take care of when they die.
Allocate money for your funeral or burial in your will, but be aware the funds may not be paid out to your family in time.