We don’t hear too much about burial insurance these days, but it actually figures significantly in the history of life insurance in the US, or at least one very prominent insurance company. According to the article on Prudential Insurance in Wikipedia, the company was actually built on burial insurance policies:
“Started in Newark, New Jersey, in 1875, Prudential Financial was originally called The Widows and Orphans Friendly Society and then the Prudential Friendly Society and was founded by John F. Dryden, who later became a U.S. Senator. It sold one product in the beginning, burial insurance.…A history of The Prudential Insurance Company of America up to about 1975 is the topic of the book Three Cents A Week, referring to the premium paid by early policyholders.”
According to the book, which I actually read many years ago, Dryden started the company by selling burial policies with a face value of $100 to working class families who couldn’t otherwise afford life insurance. The name of the book comes from his practice of going door-to-door to his client’s homes, collected three cents each week to pay the cost of the policy.
At the time, it was just enough to give a person a dignified funeral, and not much more – but at that time, that was plenty. Such policies still exist today. Are they a good deal?
Burial Insurance – The Most Basic Form of Life Insurance
Burial insurance does today pretty much the same thing it did back in 1875. It pays for final expenses and little else. But that actually fills an important niche; after all, if you can’t otherwise afford life insurance, a burial policy may be a family’s chance to provide proper burial to a loved one. However, the difference today is that there are more life insurance options then there were in the 19th century.
Burial insurance is most likely to be a whole life policy. That means that it will represent permanent insurance, and as a result it will carry a higher premium than what you will pay for other types of life insurance. The policies are sometimes sold by funeral homes, but more typically by employers, where they are available to employees as something of a benefit.
How Much Burial Insurance Do You Need?
Burial insurance policies generally run between $5,000 and $25,000 for the death benefit. Depending upon what kind of funeral you might plan to have, this will provide just enough coverage to pay for it. However, you have to be aware of what funeral costs are your area, as well as to consider the type of funeral that you might want to have, and what the costs will be to pay for it.
In most locations, a $5,000 policy won’t be nearly enough. This is particularly true if you plan to have burial, rather than cremation, since that will involve the purchase of a casket as well as a burial plot. For that type of a funeral, a policy with a death benefit approaching $25,000 would be completely necessary.
Burial Insurance Premium Costs
On a payment basis, burial insurance premiums are incredibly reasonable. The payment might be just $2, $3 or $5. However, the premium is made to seem more affordable by virtue of the fact that it is collected on a weekly basis.
But if you are paying $5 per week for a burial policy with a face value of $10,000, the annual cost of that premium would actually be $260. A premium at that level could be used to purchase a term life insurance policy with a much higher death benefit, but we’ll get to that in a minute.
Burial Insurance Complications
The basic concept of burial insurance is pretty simple. You make your weekly payments, and you have a fixed death benefit that will be available to pay for the final expenses of your loved ones. But there can actually be complications in the process.
One of the biggest is a waiting period. You have to look closely to see if this is contained in the policy, but it is possible that a burial policy will not pay benefits within a certain period of time. For example, a policy may contain language that exempts the insurance company from paying the death benefit for the first two or three years that the policy is in force. Typically, such provisions will require that the insurance company return the premiums that you paid for the policy while it was in force. But that won’t come close to the death benefit that you were expecting.
Another issue could be pre-existing conditions. The policy may exclude payment of benefits in the event that the insured dies as a result of conditions known to exist at the time the policy was taken. In this way, insurance companies protect themselves from paying a claim on a person who may have been terminally ill at the time the policy was originated.
Why a Term Life Insurance Policy Will be Even Better Than a Burial Policy
While a burial policy is certainly an excellent option if it is inexpensive, contains no provisions for waiting periods or pre-existing conditions, and comes with a reasonable death benefit, you may want to investigate other options.
If you are going to pay a premium that is likely to be several hundred dollars per year for just a few thousand dollars in death benefit, you may be better off looking at a term life insurance policy.
A term policy is likely to provide a larger death benefit for the same premium. That will be important because there are usually other expenses connected with the death of a loved one beyond funeral costs alone. Typically, there are uncovered medical expenses that will have to be paid, as well as the possibility that the family will need to make certain financial adjustments after the fact.
Even though term insurance is not permanent coverage, you can usually get policies that will run for as long as 20 or 30 years, and may also contain automatic renewal provisions that will allow the term to be extended, or for the policy to be converted to permanent insurance at a later date.
If you have a burial insurance policy on any loved ones, you might want to consider your options under a term life insurance policy.