If you or a loved one are dealing with a terminal illness, the last thing you need to worry about is how to pay for a funeral. Unfortunately, this cold reality is a problem many people face. As a result, they turn to burial insurance. But is it really a solution? Let’s consider it.
How does burial insurance work?
Burial insurance (otherwise known as final expense insurance) is coverage you put in place specifically to pay for a funeral. It is whole life insurance rather than term insurance because nobody knows exactly when they are going to pass away. Even though I am a big fan of term life, it wouldn’t make sense to buy a term policy for final expense. If you went that route, there is a strong possibility that the policy would lapse before you do. If that happened, your family wouldn’t get the proceeds of the policy.
What to look for in a burial insurance plan
Not all final expense insurance plans are the same. Of course it’s important to compare costs. But also consider the following:
- Will your premiums change over time?
- Is there a waiting period during before the insurance is in force like there is with guaranteed issue life insurance?
- How difficult will it be to qualify for this insurance?
- What is the policy about pre-existing conditions? (I read one horror story about a woman who died and even though she made her payments for 2 years, the insurance company claimed she had a pre-existing condition and they didn’t pay the claim. Make sure you understand how your insurance company defines “pre-existing conditions”.
How much coverage do you need?
The cost of a funeral varies from state to state and by what kind of service you want.
- A casket can cost anywhere from $500 to $10,000
- A service can run you from $2,000 to $8,000
- A burial plot could cost between $2500 and $10,000
- A memorial could cost between $500 and $4,000
As you can see, the costs add up quickly.
What to do if you don’t qualify for burial insurance and you don’t have much money
If you or your loved one is very sick, it will be difficult to buy a life insurance policy. Even if a company sells coverage, the “look back” period (something very important to check on) may kick in. Many policies stipulate that if you die within 2 or 3 years of buying the insurance, all you get back is the premium you paid.
If you face this situation, you’re going to have to think “outside the box”. It’s simply a matter of reducing costs and increasing resources. The best way to slash your cost of a funeral is to consider cremation. This is far cheaper than burial and a serious option to weigh. If you deal with a funeral home, you can expect to pay between $2,000 and $4,000. If you go directly to the crematorium, you’ll probably save at least $1,000.
Another option is to do some fund raising. By this I mean asking the friends and relatives to share in the cost. If I was going to do this, I’d send out letters (not emails) with return envelopes and I’d ask for everyone to send $100 or more. By framing the contribution amount, you are probably going to have more success getting at least some money from most of the people on your list.
Final expense insurance can work for the right person. You have to think ahead and make sure the policy is a good fit. Too many people wait to buy insurance until they imminently need it. That can be a costly error.