Burial insurance is a small life insurance policy that pays for your funeral and burial expenses, as well as other end-of-life expenses such as medical bills. These policies typically start at $1,000 and top out at $25,000, though a few insurers offer up to $50,000 in coverage. When you die, your beneficiaries are free to spend the money however they see fit.

Burial policies, also known as final expense insurance, are typically available to people aged 50 and up. In most cases, you will not be required to take a life insurance medical exam in order to obtain coverage.

Types of burial insurance

Burial insurance is a marketing term rather than a policy. It is essentially a small whole life insurance policy that is frequently sold to seniors.

Policies are classified into two types: simplified issue and guaranteed issue.

Simplified issue policies provide life insurance without requiring a medical exam, but you must complete a health questionnaire. There are a few “no-brainer” questions that can disqualify you, so if you use a wheelchair, live in a nursing home, or have a serious health condition such as cancer, diabetes, or heart disease, you may be denied coverage. Otherwise, even as a senior, you have a good chance of being accepted.

Guaranteed issue life insurance eliminates the need for a medical exam and a health questionnaire, and provides coverage with no questions asked. However, because insurers don't know anything about the person they're insuring, they typically charge higher rates to compensate for the increased risk.

While you can purchase term life insurance to cover final expenses, this may not be the best option. It only lasts as long as the policy term, which could be 10 or 20 years, and you could live longer than that. Term life insurance is ideal for covering specific financial obligations, such as the term of a mortgage, the cost of raising children, or the number of years until retirement.

Pros and cons of burial insurance

A final expense policy can provide peace of mind while also easing the financial burden on your family during their time of bereavement. It's also a good option if you have a pre-existing condition that prevents you from getting a traditional term or whole life policy because it usually doesn't require a medical exam.

However, burial insurance is costly, and many policies include a two-year waiting period in the fine print. This means that if you die as a result of natural causes within the first two years of purchasing the policy, your beneficiaries will not receive the full payout. Instead, the insurer will either reimburse your loved ones for the premiums you paid or pay a lower amount.

If this is a concern for you, compare burial insurance policies and select one that does not have a waiting period. Some major insurers, such as Transamerica, have eliminated the waiting period for some policies, which means you're fully covered as soon as the policy takes effect.

How much does burial insurance cost?

Burial insurance is typically expensive because it is sold to seniors and does not typically require a medical exam, which means insurers do not have a complete picture of the person they are covering.

Because the cost of burial insurance rises with age, it is best to purchase it as soon as you know you need it.

Average annual premiums for guaranteed issue policies

How much burial insurance do you need?

Consider the specific costs you want the policy to cover when determining how much burial insurance to purchase.

According to figures from the National Funeral Directors Association for 2019, the most recent year available, the median cost of a funeral with viewing and burial is around $7,640. The average cremation cost is around $6,645.

Ideally, your burial insurance policy will cover all of the costs you anticipate, even if you plan a lavish event with flowers, limos, and catered food, so your family won't have to dip into savings to cover them.

Burial insurance vs. funeral insurance

Burial insurance and funeral insurance are not the same thing, despite their similar sounding names. In short, the payout from burial insurance is distributed to your beneficiary, whereas the payout from funeral insurance is distributed directly to the funeral home.

Burial insurance works in the same way that a standard whole life policy does. There are no restrictions on how your beneficiaries can use the payout from the life insurance claim. Of course, you can express your wishes, but nothing in the policy specifies how the money will be spent. These policies are useful if you want your beneficiaries to have flexibility and control over how the proceeds are used.

Funeral insurance (or "pre-need life insurance”), in contrast, has a payout that is directly related to the costs of a prearranged funeral, burial, or cremation.

Typically, you choose a funeral home, plan the funeral, and purchase the policy from the funeral director. In some cases, the funeral home will lock in the price of the funeral so that the policy will cover the cost regardless of when you die. A pre-need policy's life insurance payout is usually paid directly to the funeral home.

Pre-need life insurance is beneficial if you want to ensure that your final wishes are met and that your family is not burdened with funeral arrangements. If this is something that interests you, check with the funeral home of your choice to see if they offer pre-need plans.

What are the alternatives to burial insurance?

If you only need a small amount of coverage or want to avoid the medical exam, a burial insurance policy is a good option. However, there are other options for covering end-of-life expenses, particularly if you are in relatively good health:

• Term life insurance provides short-term coverage and may be a less expensive option if you are in your 50s or 60s, healthy, and willing to take a medical exam. Term policies typically have lower average life insurance rates when compared to other types of coverage.
• Funeral insurance allows you to prepay for funeral and burial costs, so it's a good option for people who don't have any other debts or expenses to deal with when they die.
• Allocate money for your funeral or burial in your will, but be aware the funds may not be paid out to your family in time.