What’s Cremation Insurance? Cost, Plans + Benefits

Updated

With funeral costs continuing to rise, more people are opting for cremation as a lower-cost alternative to a traditional funeral and burial. But because of the increasing demand, funeral homes are starting to raise their cremation prices, too.

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Because of the increase in cremation costs, many people are now opting to buy “cremation insurance” to pay for their final expenses. Of course, many people are familiar with “burial insurance,” which has been offered by life insurance companies for many years. Still, cremation insurance is a relatively obscure form of life insurance that’s rapidly gaining popularity.

In this article, we’ll delve into what cremation insurance is, how it differs from burial and life insurance, its cost, the best way to find it and buy it, and more.

What is Cremation Insurance?

First and foremost, cremation insurance is a type of life insurance. There are some common elements that cremation insurance shares with other types of life insurance:

  • A policy owner
  • An insured person
  • A policy face amount (death benefit)
  • A monthly premium (payment)
  • A beneficiary

Aptly named, cremation insurance pays for the costs associated with cremating the insured individual, who is often (but not always) the policy owner. The policy face amount, determined by the policy owner, is usually chosen to equal the cost of cremation and associated services. However, some buyers will increase the face amount to pay for other final expenses, such as medical bills, obituary, and religious services.

The life insurance beneficiary is most often an immediate family member who has accepted the responsibility of distributing the policy payout to the funeral home or crematory and other payees identified by the policy owner.

Some individuals who have purchased cremation insurance appoint the funeral home or crematory as the beneficiary if they have signed a contract with guaranteed prices for cremation services in the future. They want there to be no doubt concerning who’s responsible for funeral costs.

What’s the Difference Between Cremation, Burial, and Life Insurance?

When you’re shopping for insurance to cover the cost of your final expenses, you might find yourself asking what the differences are between cremation insurance, burial insurance, and life insurance. The short answer is that there are no real differences in what these policies cover. 

Cremation insurance is life insurance

If you call a life insurance agent and tell them you’d like to purchase cremation insurance, they’re going to sell you life insurance. That’s because cremation insurance is a type of life insurance policy. 

When your agent delivers your approved cremation insurance policy to you, you won’t find the words “cremation insurance” written anywhere in the policy. 

The same thing goes for burial insurance. That terminology won’t appear in the policy, but you’ll see the words “life insurance” written throughout the policy instead.

Cremation insurance can be term or whole life insurance

If cremation insurance is just life insurance, is it term life insurance or whole life insurance? Technically, it can be either. However, cremation insurance is usually a whole life policy. 

That is, it’s a type of life insurance policy with two components: a death benefit and a cash value account (similar to a savings account).

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Cremation insurance may be guaranteed issue 

Because cremation insurance is often marketed and sold to older adults, it’s sometimes sold as a “guaranteed issue” policy. This means that coverage is guaranteed to be issued regardless of the applicant's health history, making it easier for people with pre-existing conditions to find a life insurance policy

Because insurers blindly assume the risk, premiums for guaranteed issue life insurance are substantially higher than term life insurance or traditional whole life insurance. Many insurers market these policies as “final expense” policies because you can use them to pay for cremation or a traditional funeral and burial.

How Much Does Cremation Insurance Typically Cost?

Cremation insurance varies in cost depending on which type of life insurance you purchase: term life or whole life insurance. It also depends on whether or not the policy is guaranteed issue. 

Term life vs. whole life policy costs

Term life insurance is the least expensive type of insurance when you’re younger; however, it can be cost-prohibitive as you get into your 50s and 60s.

Whole life insurance also gets more expensive every year as you age, and prices rise substantially for older adults. But that’s often compensated for by the policy's lower face amount. 

(For example: Instead of selling a 60-year-old a whole life insurance policy with a face amount of $100,000 for a premium of $250 per month, an agent would likely recommend a $10,000 or $15,000 whole life policy for a monthly premium of $65 to $75 per month.) 

Guaranteed issue vs. not guaranteed issue costs

As mentioned previously, guaranteed issue whole life insurance is the most expensive type of insurance someone can buy. 

One of the drawbacks of paying the higher premium for guaranteed issue life insurance is that the full face amount typically isn’t payable for the first two or three years of the policy. Instead, the payout is reduced at first and gradually increases over time.

Life insurance companies structure final expense policies this way to lessen their risk of paying a larger claim before they’ve received premium payments for two or three years.

Despite the high cost, many older adults with pre-existing conditions purchase guaranteed issue life insurance because it’s the only type of life insurance they can qualify for.

How Does Cremation Insurance Work?

If you’ve ever been the owner or beneficiary of a traditional life insurance policy, cremation insurance works in much the same way. 

The insured person must complete an application for life insurance coverage with a life insurance company. If they’re applying for a traditional life insurance policy, they’ll answer a series of questions about their past and current health condition and, depending upon the face amount of the policy, may be required to have a physical examination at the insurer's expense.

After the insured individual passes away, a death claim must be provided to the life insurance company, including a death certificate. The insurer will then process the claim, taking anywhere from one to twelve weeks, depending on the life insurance company. 

If the cause of death is under investigation, the life insurer will typically delay the payout until those issues are resolved. Each state insurance department has its own regulations on how long an insurance company can delay payment.

How to Choose or Compare Cremation Insurance Plans

Buying life insurance is not one of life’s most enjoyable experiences, particularly because we’re talking about our mortality. But it is a responsible and unselfish act to go through the process and pay money every month for a cash benefit to be paid at a later date, from which you’ll never personally benefit financially.

One of the most time-consuming and confusing parts of the process is choosing the right insurance plan. Here’s a simple, three-step process to help you compare cremation insurance policies and choose the policy that best meets your needs.

Shop around. Buying life insurance is a significant financial commitment. You’ll be paying the life insurance company premiums every month, which will add up to a substantial amount over the years. For that reason, getting price quotes from several top-rated life insurers is essential.

Know what you need and what your budget is. You may only want to use the cremation insurance policy to pay for your cremation and associated expenses. In that case, you’ll want to find a policy with a lower face amount at a premium you can comfortably afford. 

On the other hand, you may want the policy to pay for both cremation and other expenses your loved ones may have when you’re gone (like unpaid debts or replacing your income). In that case, you’ll need to create an outline of those costs to determine the face amount you need. Remember to factor in inflation, since costs increase over time.

Select a top-rated insurance company. You’ll find that many big names in the insurance world offer affordable life insurance that can be used as cremation insurance. Consult with an independent agent who works with multiple companies to help you find a life insurance company that you’re confident will be there in the future, as well as a company that has excellent reviews for quick claims payment and policyholder service.

Is Cremation Insurance Worth It?

Whenever we make a significant, ongoing financial commitment, the question we most often ask ourselves is, “Is it worth it?”

It makes sense to apply this question to the purchase of cremation insurance.

Cremation insurance is worth it if your loved ones won’t have the money to pay your final expenses and will need a life insurance payout to cover the costs. However, if you have enough savings that you’re confident will be there for your survivors when you pass away, and you don’t mind your beneficiary using it to pay for your cremation, you quite likely don’t need cremation insurance.

If you just can’t decide, ask yourself if having cremation insurance in place will provide you with greater peace of mind. Sometimes, just having that is a major benefit of a cremation insurance policy and one that you can experience while you’re still alive.

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