Burial insurance is explicitly different from life insurance, which is why no matter the type of coverage you have, it’s always important to read the fine print to understand all of the coverages, not to mention exclusions. There are a few important differences you should understand in what the insurance industry calls “final expense plans.” Understanding the differences will help you with the deciding factor for the policy that will help with the planning for your final expenses down the road.
Burial Insurance Can be More Expensive
First, understand that burial insurance is different than prepaying a funeral policy with a funeral director. Those who apply for a burial insurance policy from an insurer like Lincoln Heritage usually only have to answer a handful of medical questions without taking a health exam. No medical exam required means the cost of burial insurance can be driven up much more than traditional term life insurance. Burial insurance tends to attract unhealthy individuals who are seeking out “no health exam” options, which drives up the cost for everyone seeking burial insurance. Healthy individuals can likely get a better deal by signing up for term life insurance, so keep that in mind on your search, which is why most insurance companies view burial insurance as a last resort for people who can’t qualify for term life insurance but still want to purchase a policy.
How the Contestability Clause Comes into Play
One of the underlying facts of burial insurance is that it often comes with a contestability clause with varying length. Most insurers have a contestability clause that says they will fight payout of the policy for a length of two years. Insurers are notorious about this contestability clause because burial insurance appeals primarily to those who are left without options. If you sign up for burial insurance and pass away within a year of the policy being active, it’s highly likely that your insurer will investigate the claim. This investigation could hold up payment to your beneficiaries and could result in them paying out of pocket expenses until the claim has been resolved.
Factor in the Costs
Burial insurance usually costs about $50 a month for around $10,000 of coverage. That cost may vary according to your insurance provider and your current state of health. The premium could be higher or lower depending on several factors, including the state in which you live. It’s worth noting that a monthly premium towards an underwritten life insurance policy will likely get you more coverage for the same amount of money. Likewise, if you already have a life insurance policy but feel that coverage isn’t necessarily needed anymore, you can explore options like senior life settlements. Those of us that with few to no dependents, might not need the security net of a full blown life insurance policy like we had intended earlier in life. Perhaps a simpler approach is to cash that in and take out a less expensive burial policy with the proceeds and then pocket the rest.
Cash Burial Insurance Policies Might Not be Best
Burial insurance policies can be handled as cash value policies, but there’s no guarantee that this type of policy will get you a return. For people buying burial insurance with an intention to be able to cash out before their death, other investment opportunities would likely yield more of a return on your money.