Burial, funeral or final expense insurance all describe a type of insurance that focuses specifically on insuring the cost of a funeral, burial or cremation and related final expenses. The connection to traditional whole life insurance is very general, however, as the wide variety of burial insurance plans have their own rules and costs.
Burial Insurance vs. Whole Life
Burial insurance differs from traditional whole life insurance in a number of ways. First, burial policies are often not available for purchase until an individual reaches about 45 years of age. Maximum coverage limits typically range from $10,000 to $30,000, while the face amount of whole life policies often start at $100,000 or more. This helps to ensure burial insurance will be used as intended rather than as a general source of income or funds to be distributed between heirs. In addition, the application consists mainly of “yes/no” questions. Carriers can request a copy of an applicant’s medical records, but unlike whole life policies, the application process usually does not include a medical exam.
When someone looks to buy burial insurance, underwriters consider his medical records, past prescriptions and sometimes his driving record to make a judgment call about his current health status and whether a waiting period should apply. Applicants in good health can expect a burial insurance policy to include an immediate death benefit. Modified/graded waiting periods, in which the payout increases over a period of 24 to 36 months before reaching the full face value, often apply when an applicant in less than excellent health. Very ill persons might not even qualify for burial insurance. Instead, they might be offered a guaranteed issue policy that works like burial insurance but has a full waiting period of up to 36 months.
Exceptions and Payout
Burial insurance policies often include an exception that allows for full face value payment when death occurs because of an accident, even if it happens during a modified/graded or full waiting period. If an insured person dies before a modified/graded or full waiting period ends, an insurance company will make the payout by returning all monthly premium payments paid in and may, depending on the company, increase the amount by applying a specific rate of interest.
In an article on Bankrate.com, Byron Udell, CEO and co-founder of AccuQuote.com, said that burial insurance can be one of the most expensive forms of insurance. Where a 50 year-old person in good health may pay $150 per year for $50,000 worth of term life coverage, the same person might pay $150 per year for only $5,000 in burial insurance coverage. In the same article, Bob Hunter, director of insurance for the Consumer Federation of America, said that either purchasing term life insurance or putting the money you would spend in premiums in a savings account is a much better deal in the long run.
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