Burial vs. Life Insurance: Which Do You Need?

Updated

If you’re under age 50, you probably haven’t heard of burial insurance. That’s because you’re not the target market of the insurance companies that offer this type of insurance. You’re a more preferred target for life insurers that market mortgage and credit insurance policies. 

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If you are over age 50, you are in the sweet spot for insurance companies that offer both burial insurance and life insurance. Technically, burial insurance is a form of life insurance, but it’s different from other types of life insurance in that it is designed to pay for funeral and burial expenses

Do you need burial insurance, or is life insurance a better product to provide you with the financial security you’re looking for? This article will go into detail about both products, what they cover, what they don’t cover, their costs and some other frequently asked questions about burial insurance. 

Overview: Burial Insurance vs. Life Insurance

Due in part to 10,000 baby boomers turning age 65 every day, some life insurance companies have developed an increasingly popular product known as burial insurance policies. Like life insurance, burial insurance pays a lump sum of money to a named beneficiary when the insured dies.

However, they differ in a couple of ways:

  • The face amount of a burial insurance policy rarely exceeds $25,000. Insurers don’t intend for this type of coverage to do much more than pay for final expenses and disposition. 
  • Most burial insurance policies are issued only to people over age 50. This is of benefit to people that have developed medical conditions over the years and may not qualify for regular life insurance.

Both types of insurance serve the purpose of providing financial resources and security to family members of the deceased individual. 

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What They Cover: Burial Insurance vs. Life Insurance

You might be wondering what the difference is in what life insurance and burial insurance actually cover. Here are the basics:

Burial insurance can cover anywhere from $5,000 to $25,000 of final expenses, though there are a few companies that will issue up to $50,000 of face value. Burial insurance for $10,000 or more will pay for the cost of an average funeral in the United States; a smaller face amount of $5,000 to $9,999 could pay for the cost of a standard cremation.

Life insurance can also cover funeral and burial expenses. But it can also pay off a mortgage balance, fund children’s college educations, or replace the earnings of the deceased individual. That’s because life insurance policies typically have a much higher face value. 

What They Don’t Cover: Burial Insurance vs. Life Insurance

There are very few limitations on what burial insurance and life insurance will cover. Both policies pay a death benefit to a beneficiary, who is free to do with the money as they please. 

The only limitations either type of policy has is determined by its face amount. For example, a $5,000 burial policy is not going to cover the cost of an elaborate funeral with an expensive casket and a large, ornate headstone. Similarly, a $50,000 whole life insurance policy isn’t going to cover the costs of four years of medical school. 

Any type of life insurance has basic limitations. For example, most polcies have a two-year exclusion for death by suicide, and most policies won’t cover a death that occurs in the commission of a crime. 

Costs: Burial Insurance vs. Life Insurance

Burial insurance almost always costs more than a standard life insurance policy. For example, $10,000 in burial insurance for a healthy 50-year-old male with no medical exam might cost $46 per month. For just about the same amount of money, the same male could purchase $100,000 in term life insurance with the monthly premium locked in for 30 years.

Whole life insurance falls somewhere in the middle between burial insurance and term life insurance because. In addition to providing a death benefit, the policy also accumulates cash value from the premium payments, which is similar to a savings account that can be borrowed or withdrawn from.

Though term insurance is the least expensive option, the insured individual can conceivably outlive the term of their policy and the policy would expire without a benefit being paid. If the insured’s health status has worsened, they might have to purchase a burial policy if they don’t qualify for a term life policy, or the rates at their current age make it unaffordable. 

Should You Get Burial Insurance, Life Insurance, or Both?

You should get burial insurance if you can’t qualify for a regular life insurance policy because of pre-existing medical conditions.

You should get permanent life insurance if you can qualify for it medically, because the rates are lower, and with whole life insurance the lower premiums, compared to a burial policy, will remain the same for the life of the policy. The policy will also accumulate cash value that you can access after a few years.

If you want the lowest rates for life insurance and you only need insurance for a set period of time, term life would be an excellent option for you, provided you’re in good health.

There is really no need to buy both. If you qualify for a traditional life insurance policy, part of the death benefit could pay for burial costs, negating the need to own both. One traditional life insurance policy can meet just about all of your life insurance needs, as long as you can be approved for it medically.

When Should You Get Neither Burial Insurance nor Life Insurance? 

There are very few instances where someone wouldn’t want to have some life insurance in force when they die, if only to leave some money behind for someone they care about.

But you may be dead set against life or burial insurance and have absolutely no need for it, like if you have enough cash to pay for any financial obligations you might leave behind. If that’s the case, you could get by with neither burial insurance nor life insurance.

Burial Insurance vs. Life Insurance: Frequently Asked Questions

If you still have questions about burial insurance and life insurance, the answers to these FAQs might help. 

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Does life insurance pay for funeral or burial expenses?

The beneficiary of a life insurance policy can use it to pay for the cost of a funeral and burial expenses, or for any other purpose they’d like to use the money. Unlike some forms of life insurance, like credit life insurance which pays the death benefit directly to the lender to cover the outstanding debt, life insurance pays for whatever the beneficiary wants it to.

How do you pay for final expenses if you don’t have burial or life insurance?

The funeral director and cemetery don’t care where the money comes from, as long as it’s legal tender and pays their invoice to you. If you die without burial or life insurance, it will fall upon your survivors to take care of your final expenses.

However, if you have enough set aside in cash or some other investment that can be liquidated, your heirs can use that money to pay for your final expenses. You may even ask for a cash discount on the policy.

How do payouts work with burial insurance or life insurance?

The payouts work the same for both types of policies in that when an insured person passes away, premiums were paid, and there is no investigation into any irregularities concerning payment or cause of death, then upon presentation of a death certificate and claim form, the payout can occur anywhere between 2-8 weeks.

There can be one exception. Some burial insurance policies have what is called a “graded death benefit.” This means that during the first few policy years, when the insured dies, only a percentage of the policy will be paid to the beneficiary. For example, if John is insured under a burial policy for $25,000 and dies during the first year, only 25% of the death benefit would be paid out.

What are the different types of burial insurance policies?

There are basically two types of burial insurance policies: simplified issue policies and guaranteed issue life insurance policies. 

  • Simplified issue policies ask a few limited medical questions pertaining to your current and past medical conditions. There is no medical examination needed to qualify. An applicant can be denied coverage if the insurance company doesn’t like the risk involved because of pre-existing medical conditions.
  • Guaranteed issue policies have no medical questions and no medical examination required for this type of policy. Regardless of your health history, you are guaranteed acceptance. Because the insurance company is taking a risk by insuring you and not knowing anything about your health history, the premiums for guaranteed issue policies are the highest of any type of life insurance mentioned in this article.

A professional insurance agent can help you find a life insurance policy that meets your needs.

Bottom Line

Both burial insurance and traditional life insurance offer financial protection for your loved ones. They are both excellent to own, in that respect.

However, if you’re in good health and can qualify, either a whole life insurance policy or a term life insurance policy is likely a better choice for you because you can get a higher face amount for a lower premium than you can with burial insurance.

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