There comes a time when every family has to lay a loved one to rest. This is a time of reflection, mourning, and celebrating the wonderful life of the deceased. Though the financial aspect to the end of someone’s life can easily be overlooked.
These costs leave a significant monetary burden for family members attempting to honor their loved ones. Fortunately, there are ways to plan ahead for these costs, but deciding which product or planning tool can be overwhelming.
A simple and easy way to plan for these costs is by securing a Burial Insurance policy. There is a formula to make sure this product will be a quality option for you.
Is Burial Insurance Worth It?
If your family has no savings set aside for burial costs then burial insurance is a vital alternative to honor the deceased without causing a financial disaster for the next of kin.
To better understand the monetary needs for the costs associated with the end of one’s life it is important to comb through the numbers.
How much are end-of-life expenses?
The average cost for a traditional service with a viewing in the United States is $7,643 for a burial and $6,280 for cremation. This can vary drastically depending on a wide variety of options.
Not included in these price estimates:
- Cost of Headstone, Monument, or Marker
- Cemetery Property, Plot of Land, Columbarium, etc.
Additionally, there can be additional expenses that come at the end of life other than just service costs.
- Leaving an Inheritance
- Legal Expenses
- Medical Bills
- Charity Donations
- Post-Mortem Expenses
- Remaining Balance on a Mortgage
- Credit Cards
- Remaining Car Loan Balances
- Other End-of-Life Expenses
After adding all these expenses up the final bill can be well over $20,000.
How is the price calculated?
When looking into this product for seniors the price will vary depending on four important factors:
Age: The older you are when you take out coverage the higher the monthly premiums will be.
Gender: Males will pay more for coverage than females. There are a number of reasons why this is, but the most prominent component is that females live on average four years longer than males.
Health: Your health has a major factor in the price point. If you are in good health you will qualify for a less expensive plan than those who are in compromised health.
Policy Amount: The more coverage you take out the higher you can expect your monthly payment to be.
How much does coverage cost?
The chart listed has a range of prices someone will pay according to their age.
If you are in great health you can expect to pay towards the low end of the price range. If you have a complex medical history or a terminal illness anticipate paying towards the high end of this range.
|45||$26 – $46||$37 – $68||$48 – $89|
|50||$29 – $58||$42 – $77||$55 – $101|
|55||$35 – $65||$51 – $84||$67 – $125|
|60||$43 – $69||$62 – $99||$82 – $138|
|65||$56 – $86||$82 – $125||$108 – $184|
|70||$73 – $117||$108 – $150||$143 – $215|
|75||$99 – $169||$148 – $207||$196 – $303|
|80||$133 – $246||$197 – $368||$262 – $539|
|85||$183 – $300||$273 – $449||$363 – $597|
|45||$22 – $34||$32 – $49||$42 – $64|
|50||$24 – $46||$35 – $53||$46 – $74|
|55||$28 – $51||$41 – $64||$54 – $95|
|60||$33 – $53||$48 – $74||$62 – $110|
|65||$41 – $65||$60 – $91||$79 – $135|
|70||$53 – $84||$78 – $110||$103 – $164|
|75||$72 – $123||$107 – $160||$141 – $235|
|80||$98 – $175||$146 – $262||$194 – $383|
|85||$132 – $191||$202 – $284||$269 – $377|
How Does Burial Insurance Work?
This product is a type of whole life coverage. The primary differences between this product and most traditional whole life plans come down to two main factors:
Simplified Issue Underwriting: This means that there are no medical exams and the application can be completed in approximately 30 minutes over the phone.
Lower Coverage Amounts: The coverage amount ranges typically from $2,000 – $40,000, this makes the monthly premiums affordable for any budget.
Once the plan has been issued and is in force, the policyholder will make a simple and affordable monthly payment. The insurance company in return will guarantee three key benefits.
Coverage Lock: The coverage will never decrease or expire, it is locked in for life. Whether the insured passes in year one or year forty of the plan the coverage amount will always be the same.
Price Lock: The price will never increase. Seniors on a fixed income know how important it is to budget costs and expenses down to the penny each month. With this product, you will be awarded this luxury, there are no price games just simple and straightforward payments.
Builds Cash Value: For every payment made a portion will go towards the cash value and over time you will be able to borrow from the policy if you choose. This money will need to be paid back and typically has a low-interest rate for the borrowed amount.
If you are unable to pay this loan back before passing, the outstanding loan balance will simply be deducted from the money given to your beneficiary.
There are four types of plans that you will be able to qualify for depending on your health.
Level: This plan type offers no waiting period options and will have the lowest prices. Level is reserved for the healthiest of applicants, but some providers will take on specific medical conditions like diabetes or morbid obesity.
Graded: This product has a two-year waiting period that typically has a progressive payout schedule within years one and two. Graded offers midpoint premium prices. If you have had a more serious medical condition, like recent heart surgery, this plan could be your best option.
Modified: This plan has a two-year waiting period. If you were to pass away in the first two years, your beneficiary would receive all the premiums paid plus 10 percent interest given to them. This product type is not recommended due to the high premium prices in correlation with the underwriting standards.
Guaranteed Issue: This plan asks no medical questions and approves every applicant. To offset this risk, there is a two-year waiting period in which if the policyholder passes away during the first two years the beneficiary will receive all premiums paid plus 10 percent interest. A guaranteed issue plan could be your best option if you have a chronic or terminal illness.
Do The Math
To make sure this product is right for your specific financial situation all that is needed a calculator and a little basic math.
The average life expectancy in the United States is 78.7 years old.
If a healthy female takes out a $10,000 policy when she is 65 years old, how long would she need to live for her to be overpaying the amount she could have saved in a savings account?
Let’s dig into the numbers:
Here is a simple chart to illustrate the amount of money she would pay into the account up until the day she passed away.
Amount Paid Into Policy
The monthly premium would be $41 per month, and it would take over 20 years (244 months) for her to pay more than what she could have saved.
In this example, the women would only begin to overpay for the policy after turning 86.
Other Financial Options
There are other vehicles to use when planning for the costs associated with the end of life.
Everyone’s financial situation is different, the next four planning tools are available for end of life planning but each of them comes with its own considerations.
Savings or Investment Account
Placing money in a savings or investment account is noble and an idea that is worth pursuing in certain situations.
If you are a disciplined and frugal saver then this could be an option for you, however, there are risks that still come into focus. As shown in the above example you would need to live much longer than the average life expectancy to overpay for a plan.
Passing Away Unexpectedly: Saving or investing is a good thought in theory but no one knows when their health will decline.
Investment Risk: There is always the possibility of your investment not performing the way it is supposed to, this can leave your family members in a crippling financial position.
Inflation: No one knows what our dollar will be worth in the coming years.
Traditional Whole Life Insurance
Traditional Whole Life has very similar benefits to Burial Insurance with a few major differences.
Standard Whole Life Benefits: Just like Burial Insurance this product offers a coverage lock, price lock, and builds cash value over time.
Larger Policy Amounts: The policy amounts for this product type typically start at a higher coverage amount. This means the monthly premium will be much more expensive than what one would want to pay for a policy designed to cover their end of life expenses.
Used To Preserve Wealth: There are many financial planners and experts that will counsel individuals to use this product as a tool to protect their wealth.
Term Life Insurance
Term coverage differs from Whole Life for a few main reasons.
Coverage Expires: The coverage amount will eventually terminate at a specific age. There are multiple products on the market that will end the coverage agreement when you turn 80 years old.
Ultimately you are rolling the dice that you will not outlive your policy.
Price Is Cheaper: Due to the fact that coverage expires term policies will be cheaper than whole life coverage. Keep in mind not only do plans expire some even raise in price the older you age.
Purchasing this plan type is fine as a short-term option but if you outlive your policy you will have no coverage when you need it the most.
Pro Tip: There are products that market themselves as a plan meant for your end of life expenses but actually expire when you reach a certain age. An example of this would be the AARP term plan.
Does Not Build Cash Value: Unlike a whole life plan, this product does not allow you to borrow from the policy. You are simply paying a monthly fee for temporary coverage.
Pre Need Insurance
Pre Need is much different than the previous products we discussed.
Covers Services Specifically: Unlike the other two life insurance products that allow the beneficiary to use the funds on whatever they choose, this product is designed to pay specifically for your burial costs.
Mortuary Is The Beneficiary: The insurance company will pay the distribution directly to the mortuary. This will handcuff your family to what the funds are used for.
One Mortuary Only: You are making these arrangements and have an agreement with one mortuary. This raises a few red flags, what happens if you decide you want to be buried in another state or the company goes out of business?
These are all things to keep in mind when determining your best option.
a. The only way to answer is burial insurance worth it is by doing the math and seeing how long you need to live to overpay into the policy. Not only do you receive coverage but you and your family will have peace of mind knowing your expenses are covered.
b. This plan type is straight forward and will help you leave a financial legacy for your family.
c. After doing the math and seeing how much coverage is needed, you will know how to move forward with your financial plan. There are many variables that come into play and every person has a different financial situation, the key is understanding your options and choosing the best plan to use.
I’m the owner and founder of Willamette Life Insurance. Willamette Life specializes in Final Expense Insurance. We compare prices with different insurance carriers while finding the perfect match for your health and budget. This company was started to help educate the public on why Final Expense Insurance could be a great option for them and their family. We strive to be friendly, informative, and always have the client’s best interest as our top priority. Everything in this article is my own professional opinion and experiences I have had during my time in helping clients.