If you’re worried that your loved ones would struggle to cover your end-of-life expenses, funeral insurance may be an option. Funeral insurance is a small life insurance policy that’s intended to pay for your funeral, cremation or burial, plus other outstanding expenses such as medical bills.
» MORE: Types of life insurance
What is funeral insurance?
Funeral insurance is a whole life insurance policy with a modest payout that’s designed to cover final expenses. It’s sometimes referred to as burial insurance or final expense insurance.
Funeral insurance policies are typically capped at low amounts, often between $5,000 and $25,000. The reason the payout — or death benefit — is small is because it’s meant to take care of a specific set of expenses.
Technically, your life insurance beneficiaries can spend the money however they choose. But it’s common to use the death benefit to pay for funeral-related expenses, including:
- Funeral service, including viewing.
- Burial or cremation.
- Medical bills and other debt.
- Probate costs.
Most insurers don’t require a medical exam for funeral insurance. Instead, approval is based on your answers to a health questionnaire. Some burial insurance policies are guaranteed issue policies that will cover any applicant, even if they have major health problems. However, these policies usually come with a two-year waiting period. That means if you die during the first two years that the policy is in force, your beneficiary will only receive a refund of your premiums plus interest instead of the full death benefit.
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How much does funeral insurance cost?
As with any life insurance policy, your premiums will vary based on factors like your age, gender, health and tobacco use. For a 50-year-old, a $10,000 burial insurance policy with Lincoln Heritage may cost as little as $25 or $30 a month. But someone who’s 80 could pay monthly premiums as high as $187 to $268 for $10,000 of coverage.
» MORE: Average life insurance rates
Funeral insurance vs. preneed insurance
Both funeral insurance and preneed insurance are designed to cover final expenses. The key difference is that funeral insurance is a type of life insurance policy, while preneed insurance is a prepaid funeral plan.
You can buy funeral insurance through a life insurance company, while you would purchase a preneed plan directly from a funeral home. Unlike a funeral expense policy, a preneed plan doesn’t pay out to your loved ones when you die. Instead, the money goes to the funeral home — so you’re essentially prepaying for your funeral costs.
The terms of preneed plans vary by funeral home. Some services are guaranteed, which means that even if the costs go up after you purchase the plan, they’ll be covered by the funeral home. However, some services may not be guaranteed, meaning your family could have to pay extra if costs increase.
