Burial Insurance Explained: What it is and How it Works

So exactly what is burial insurance and how does it work?  In today’s article, we’ll answer those questions and so you know exactly how these policies work, what they cover, the different types of plans that exist,  and the most important factors to think about when considering burial insurance options.

What is Burial Insurance?

Burial insurance (or a burial insurance policy) is a type of whole life insurance policy, typically with a smaller face value that is specifically designed for the purposes of covering one’s burial and the cost of other final expenses.  

You may also hear this type of insurance referred to as final expense insurance and/or funeral insurance.  

The primary way that burial insurance differs from more traditional life insurance products is that the face amounts of coverage (the amount of money paid to your beneficiary) are lower.  

Insurance companies that provide this type of coverage will generally offer anywhere from $2,000 in coverage up to a maximum of $40,000-$50,000 depending on the company and your age. 

When you pass, the company that you have your policy with will pay your beneficiary (typically a spouse, family member, or loved one) a tax free check so they can cover for your funeral/burial costs as well as other expenses such as outstanding medical bills or credit card bills.

Having this type of coverage in place ensures that your loved ones are not burdened financially by being responsible to cover these costs when you die. 

How Burial Insurance Works

When applying for a burial insurance policy, you will determine the face amount of your policy (coverage amount).  This is the amount of money that will be paid to your beneficiary (or beneficiaries) when you die.

Many seniors mistakenly believe that they won’t be able to qualify for coverage due to health conditions they may be currently dealing with or have gone through in the past.

The truth is underwriting guidelines for burial insurance are quite lenient and there are options for virtually everyone to qualify.  While health will impact the specific type of policy you’re able to qualify, there are coverage options for just about everyone.

The process of getting approved for a burial insurance policy is very quick because the insurance companies that offer this coverage use a simplified issue underwriting process

You don’t need to go through an invasive medical exam or have your doctor send in medical records.  By simply answering a few health questions, you can be approved for a policy in as little as 10-15 minutes.

There are some types of policies that won’t ask any health questions in the application process.  Keep in mind that any type of policy that does not ask any health questions is almost always a “Guaranteed Acceptance” policy and will have a 2 or 3 year waiting period before the policy would pay the full face amount (more on this in “Types of Policies” section below).

Once you’re approved for a policy, the insurance company will draft the first premium payment on your policy’s effective date and this will put your coverage into force.  

Typically premium payments are made monthly however some seniors choose to make premium payments quarterly, semi-annually, or annually. 

As long as premium payments are made, you are covered and the insurance company will pay the death benefit to your beneficiaries when you die based on the type of policy you have and its specific terms. 

In order to be paid, your beneficiary will need to file a death claim with the insurance carrier you had your policy with.  Companies will typically require you to sign “claim forms” as well as submit a copy of a death certificate.

Once these items are received the insurance company will process and approve the claim.  Once the claim is approved, they typically send out a check for the face amount of your policy (the amount of coverage you bought) in 1-2 business days. 

Key Elements of Burial Insurance

There are a few key elements of burial insurance that are important to understand.  The fact is this type of insurance is a bit different than other forms of life insurance and because of that, it works a little differently.

First, unlike traditional term insurance, burial insurance will NEVER expire.  It is a type of permanent, whole life insurance so you don’t ever need to worry about outliving the coverage or ever having the coverage expire.  

This is important because if you only have a traditional term policy, you may leave your family in the position of financially responsible for covering your final expenses.

With a burial insurance policy, this is not something you will ever have to worry as it doesn’t expire and you can’t outlive it.  It will provide you with peace of mind knowing that the policy is there for your family when the time comes.

Second, because burial insurance is a type of whole life insurance, as the policy matures it will build cash value.  A portion of your premium payments goes to the cost of insurance and a portion goes towards the policy’s cash value. This give you the ability to access any of the cash in your policy via a policy loan, should you ever want to do so.  

Last, unlike many policies that get more expensive as you age, premiums on burial insurance policies will remain fixed and NEVER increase!  Given that many seniors are on fixed incomes, having premiums that never go up will help ensure your policy never becomes too expensive or that you get priced out of it and have to let it go.

This will allow you to make sure that your policy is there for your loved ones when the time comes so that they are never in the position of having to be financially responsible for covering your final expenses. 

What is Covered By a Burial Insurance Policy?

Burial Insurance for seniors is aimed at providing your loved one the funds to cover the costs associated with your final expenses.  This will often include things like:

• Funeral costs 

• Casket, vault, and viewing

• Cremation services

• Burial Plot

• Headstone

• Memorial Services

• Transportation costs of body/remains

• Flowers

• Grave opening and closing

• Cemetery fees

• Legal Fees/Probate

• Outstanding debts (medical bills and/or credit card bills)

The proceeds of your life insurance do not have any restrictions in terms of how it is spent.  Your designated beneficiary will receive a check from the insurance company and use those funds to cover your final expenses accordingly.

If the amount of your policy is greater than the total amount of your final expenses, any remaining funds are kept by your beneficiary. 

Types of Burial Insurance Policies

Now that we’ve covered the basics of burial insurance above, let’s get into the different types of plans that are available.  

Types of Burial Insurance Policies

There are a number of different types of burial insurance policies that you could qualify for and it’s your age and health that will determine the type policy you’ll be able to get approved for as well as the rate you will pay for the coverage. 

While all the policies below are whole life policies that will never expire and have fixed premiums that will never increase, the specifics on when they pay out and the amount they pay out vary.  

This section will explain how the different types of policies work so you’re fully informed when evaluating options…

Type 1- Level Policy, Preferred Rate Class

This type of policy is the best one you can be approved for.  The insurance company will offer you their lowest rate on this coverage and the policy is effective immediately (no two year waiting period).  This means that when you pass away (regardless of when it happens), the full amount of your policy will be paid to your beneficiary/beneficiaries.

To qualify for this coverage you will need to be fairly healthy and not have dealt with any major medical conditions in the last 2-4 years (depending on the specific carrier.)  

You will not need to go through a medical exam however you will need to answer medical questions to be able to qualify.  Generally speaking, in order to get approved for this type of policy, you’ll need to be able to honestly answer “No” to all the health questions on the application. 

Type 2- Level Policy, Standard Rate Class

This type of policy is the 2nd best type you can be approved for.  This coverage is similar to Type 1 above in that it’s also effective immediately (no two year waiting period) so that when you pass away, regardless of when it happens, the full amount of your policy will be paid to your beneficiary/beneficiaries.  However the rate you will pay for the coverage at the standard rate will be a bit higher than the preferred rate. 

To qualify for this coverage you will need to be reasonably healthy and not have dealt with any major medical conditions in the last 2-4 years (depending on the specific carrier.)  

Like type 1, you will not need to go through a medical exam however you will need to answer medical questions to be able to qualify.  Generally speaking, in order to get approved for this type of policy, you’ll need to be able to honestly answer “No” to Most of the health questions on the application. 

Type 3- Graded Policy 

Graded coverage, sometimes referred to as a “Graded Death Benefit” policy, will only pay a portion of the face amount of your policy to your beneficiary/beneficiaries if your death were to occur in the first two years of your policy.

If you were to pass in the first year of your policy, payout will typically be 30-40% of the full face amount.  If you were to pass in the second year of your policy, payout will typically be 50-70% of the full face amount.  Once your policy has been in force for two full years, it will then pay the full face amount to your beneficiary upon your passing.

The exact percentages paid out in years one and two vary from carrier to carrier so if you are evaluating a Graded Policy, be sure your agent clarifies the exact payout amounts prior to the 2 year mark. 

Premiums for a graded policy will generally be higher than types 1 and 2 covered above.  A graded policy is typically an option for someone that has a number of health conditions or has dealt with something significant recently (less than 2-4 years) that prevent them being able to qualify for a level option.

Type 4- Modified Policy

A Modified Policy typically has higher premiums and there will always be a waiting period before the full face amount of the policy is paid out to your beneficiary.  The waiting period on most modified policies is generally 2-3 years (varies by company)

Typically if death were to occur during the “waiting period”, the amount paid to your beneficiary will be the return of premiums you have paid into the policy plus an additional 10%.  Once you hit the 2 or 3 year mark (again, this varies by company), the full face amount of your policy will pay out.

Similar to the “Graded Policy” option above, a Modified policy is what someone might qualify for who has a number of health conditions or has dealt with something significant recently (less than 2-4 years) that prevent them being able to qualify for a level option.

Type 5- Guaranteed Acceptance Policy

A Guaranteed Acceptance burial insurance policy is one that you are guaranteed to be approved for as long as your age is within the insurance companies “issue range” (this varies from company to company and is typically 45-80 or 45-85).  

A guaranteed acceptance policy will not ask you any health or lifestyle questions so even if you have had or are currently dealing with serious health conditions, you will still be approved. 

This type of coverage will always have a 2-3 year waiting period (varies on the company) before the full face amount of your policy will payout. 

Similar to a modified policy, if death were to occur during the “waiting period”, the amount paid to your beneficiary will typically be the return of premiums you have paid into the policy plus an additional 10%.  Once you hit the 2 or 3 year mark, the full face amount of your policy will pay out.

The premiums for this type of coverage are generally the highest and most expensive of all the different policy types.  This is typically a “last resort” option for individuals who haven’t been able to get approved for anything else due to their health. 

The Importance of Having Access to Many Carriers

When considering burial insurance, it’s important that the company or individual you are working with has access to many insurance companies.  The fact is different carriers have different guidelines in terms of how they evaluate applicants and ultimately the coverage they may offer.

It is possible one carrier may approve you for a level policy at a standard rate where another might offer you a level policy but at a preferred rate, thus allowing you to get better rates on your coverage.

It’s not uncommon for someone to accept a policy that has a two or three year waiting period thinking this is all they could qualify for, when they could have qualified for something that had no waiting period with lower premiums had their agent had access to more companies.

By working with an insurance professional who has many companies at their disposal, you can make sure you’re getting the best coverage and lowest rates based on your personal variables and specific situation.  

Be sure to find how many companies your agent has access to.  Make sure they have the ability to shop around and find the absolute best options for you based on your situation.  

Conclusion

You should now have a better understanding of what burial insurance is, how it works, what these policies are designed to cover, the different types of policies that exist, and why it’s important to have access to many carriers.

There are many things to consider when evaluating burial insurance policies to find the best one for you and your family.  

Our team of licensed brokers works to help navigate folks through this process by understanding your situation and personal variables in order to help you qualify for the best policy at the lowest rates.

We take great pride in making sure our clients are properly protected so their families never have to shoulder the financial burden of covering their loved ones final expenses…

If you’d like to talk with one of our licensed brokers, click this link, answer the quiz questions so we can learn a bit about you and your situation, and schedule your no obligation, Free planning session and strategic assessment. 

Again, the planning session is 100% free and you won’t get some high pressure sales pitch… 

What will you get is a courteous, professional agent committed to understanding your situation and helping you identify where you’ll find your best coverage options and rates.

To schedule your Free Planning Session and Strategic assessment, click here.