Funeral Insurance: What It Is, How It Works, and Who Might Need It
Planning for end-of-life expenses isn’t a topic many people enjoy thinking about, but it can be a final act of care for loved ones. Funeral insurance—also known as burial insurance or final expense insurance—is a tool designed to ease the financial burden of your funeral and related costs.
What Is Funeral Insurance?
Funeral insurance is a type of life insurance policy designed to cover the costs associated with end-of-life expenses, such as:
- Funeral and burial or cremation costs
- Funeral home services
- Casket or urn expenses
- Headstone or grave marker
- Flowers, programs, and other memorial items
- Travel or lodging expenses for family (in some policies)
- Unpaid medical or legal bills (optional add-ons)
Unlike most life insurance intended to replace income or transfer wealth, funeral insurance is typically limited to a smaller face value, often between $5,000 and $25,000, to specifically cover final expenses.
What Is Funeral Insurance?
Funeral insurance is a type of permanent life insurance that is relatively easy to obtain compared to traditional life insurance:
Application Process
There are generally two types of funeral insurance policies:
- Simplified issue: No medical exam is required, but you’ll answer a few health-related questions.
- Guaranteed issue: No health questions or exam at all; everyone qualifies, though premiums are higher and benefits may be limited during the first few years.
Where Policies are Sold
You can purchase funeral insurance:
- Through insurance agents or brokers
- Directly from insurance companies online or over the phone
- Through funeral homes as part of a pre-need arrangement (see below)
Some policies are marketed directly to seniors through TV ads or mailers, often with a guaranteed acceptance promise.
Premiums
There are a few different ways funeral insurance premiums may be structured:
- Level Pay or Standard (Most Common Option)
- You pay fixed monthly premiums for life
- Premiums continue until you pass away or reach a specified age, depending on the policy
- Limited Pay
- You pay higher premiums, but only for a set number of years, such as 10, 15, or 20 years
- Once the pay period ends, you’re fully covered for life with no further payments
- Less common and usually more expensive upfront, but ideal for those who want to avoid lifelong premium obligations
- Single Premium
- A one-time, lump-sum payment
- Provides immediate full coverage
- Often used when someone has funds set aside and wants to lock in funeral protection without ongoing costs
Cash Value
Being a permanent life policy, the life insurance will have cash value accumulated in the policy to cover the cost of insurance through the life of the policy. A key feature of funeral insurance is that cash values are generally ignored for Medicaid purposes.
Who Receives the Death Benefit
Life insurance policies are paid to the beneficiaries of the policy. Most often, this is a named individual or group of individuals like children or spouse. A funeral home can also be assigned the death benefit through a pre-need arrangement.
Who Might Benefit from Future Insurance
Funeral Insurance may not be the most cost effective option for covering funeral costs. If your estate is expected to be large enough to cover funeral costs, it may not be the best option for you.
However, if your expected estate isn’t sufficient to cover funeral costs, this may be a good option to set aside protected funds to pay for a funeral.