Burial and cremation are expensive. The National Funeral Directors Association reports that the median cost for burial is $7,848, and the median cost for cremation is $6,971. Considering that death often happens without warning, it’s natural for people to worry about how their families will pay those expenses.
Television commercials seem to have a solution. Commercials often advertise burial insurance and life insurance for seniors, explaining how a policy can help ensure that a person’s loved ones have money to settle their final expenses when they die. It sounds good, but it leaves a big decision: Which type of insurance should a person buy?
Burial insurance and life insurance have a lot in common, and that can make it hard to determine which is the right fit. It’s difficult for some to even understand how the coverage differs. Fortunately, the choice between burial insurance vs. life insurance becomes much easier with the facts about both. This guide introduces these facts and provides tips on who should consider each type of insurance.
What Do Life Insurance and Burial Insurance Cover?
One of the biggest differences between life insurance and burial insurance is what they pay for after a person passes away.
Burial Insurance Coverage
The purpose of burial insurance is to pay for final expenses. These may include:
- Fees for viewings and a funeral service
- Embalming or other preparation of a body
- Burial or cremation
- Casket or urn
- Burial vault or grave liner
- Headstone or marker
- Perpetual care fees for cemeteries and mausoleums
- Fees for extras like flowers or music
- Transportation of the body
With burial insurance, the person or people named in the policy quickly receive a lump sum that they can use to pay for the items listed above. In some states, the insured can even make a funeral home or crematorium the beneficiary or recipient of the payout. This way, the money goes directly to the business, and family members don’t have to worry about costs.
Life Insurance Coverage
Life insurance doesn’t have a set purpose. When the insured dies, a life insurance policy pays out money to beneficiaries, and they can choose how they use the money. With a life insurance death benefit, they can:
- Pay for a funeral or cremation
- Settle any debts, like a mortgage or credit card bills
- Replace income they depended on to buy groceries, pay rent or meet other needs
- Cover living expenses while taking time off from work to settle the deceased’s affairs or grieve
- Save for a future cost like a college education or purchasing a home
These are just a few ways that the recipient can use the money. Life insurance doesn’t have any rules regarding usage. The beneficiary doesn’t even have to take a lump sum. In some cases, they can receive a set amount of money regularly, such as monthly or annually. They may also be able to use the money to buy life insurance for themselves if they desire.
This table lists some of the key features of burial insurance and life insurance side by side for easy comparison.
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Burial Insurance
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Life Insurance
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Pays for burial or cremation and other final expenses
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Can pay for final expenses as well as debts and other costs
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Paid in a lump sum
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May be paid in a lump sum or monthly or annual payments
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Usually for $50,000 or less
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Pays wide-ranging death benefits, from $100,000 to over $1 million
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Money can sometimes go directly to a funeral home
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Money usually can’t go directly to a funeral home
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Coverage generally lasts until death
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Some types have an expiration date
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Waiting periods for payout of 2 to 3 years or more are common
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Waiting period for payout is usually a year or less
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Doesn’t require a medical exam
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Generally requires a medical exam
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Looser approval requirements
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Stricter approval requirements
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How Are Life Insurance and Burial Insurance Different?
The truth is that burial insurance and life insurance aren’t completely different. Burial insurance is just one type of life insurance policy called permanent life insurance. It simply has special features and rules that make it different from other life insurance products.
Death Benefit Size
Burial insurance generally pays a smaller death benefit than other types of life insurance. Most companies cap the amount an applicant can get at $50,000. A person can obtain life insurance that pays much more. Some policies even offer death benefits over $1 million.
Wait Time for Payouts
Burial insurance pays out very quickly to cover final expenses. Once the insurance company receives proof of death, the money usually becomes available within a few days. Often, insurance companies take longer to process claims for other types of life insurance. They may conduct investigations, and legal challenges might mean beneficiaries have a lengthy wait.
Who Can Receive the Payout
As previously stated, the insured can make a funeral home or crematorium the beneficiary of a burial insurance policy in some states but not for a life insurance policy. Normally, only one or more people, a charitable organization or a trust can be the beneficiary of a life insurance policy.
How Easy It Is To Get Coverage
Because the death benefits for burial insurance are usually small, the rules regarding who qualifies are more lenient. In some cases, the insurance company won’t ask for medical information. Other times, only a short questionnaire is necessary. Having a chronic health condition doesn’t automatically trigger a denial. In fact, some policies offer guaranteed acceptance, meaning an applicant generally can get coverage regardless of their health status.
Life insurance has stricter guidelines. Many policies require applicants to undergo a medical exam as a part of the application process. Health conditions may make someone ineligible for coverage or result in a higher monthly premium. Guaranteed acceptance life insurance is available; however, premiums tend to be much higher for these policies.
How Long Coverage Lasts
Burial insurance and some other types of life insurance products like whole life and universal life usually last until the insured dies. Term life insurance policies are different. They last for only a set period and then expire. Some policies are renewable but with higher premiums for the new terms.
Waiting Period for Death Benefit Payouts
Burial insurance often has a waiting period. If the insured dies before the waiting period ends, their beneficiaries won’t receive a death benefit. Waiting periods are usually 2 to 3 years and can be longer in some cases. With other types of life insurance, the waiting period is generally shorter. Most policies will pay out death benefits on policies in as little as a few months to a year.
Premium Costs
For people under 40, life insurance premiums are likely to be inexpensive, especially for term policies. As people age, burial life insurance may be more affordable. For example, with a chronic health condition like diabetes, guaranteed issue burial insurance may cost less than other types of life insurance. The best way to determine which type is more affordable is to obtain quotes for both burial insurance and life insurance plans and compare costs.
How To Know if Life Insurance or Burial Insurance Is Right for You
Insurance isn’t one size fits all. Which type is right for someone depends on their age, health, goals and overall financial picture.
Who Should Consider Life Insurance?
Life insurance may be the best option for those who:
- Are under the age of 40 and in good health
- Want to provide money for their families to live on for years to come
- Wish to pay for their children’s future expenses
- Have significant debt
- Don’t want to wait more than a year for insurance to take effect
When shopping for life insurance, getting quotes from more than one company is highly beneficial as rates vary.
Who Should Consider Burial Insurance?
Burial insurance may be the best option for those who:
- Are over the age of 40 and only need a small amount of coverage
- Suffer from a health condition that makes it difficult to get conventional insurance
- Have little to no debt
- Already have savings or investments to leave to their beneficiaries
- Want their families to have quick access to money after they die
- Wish to avoid a medical exam
- Prefer a faster, easier application process
Learn more about insurance options by reviewing the best burial insurance plans.
