Funeral insurance, also known as burial insurance or final expense insurance, is a type of life insurance designed to cover expenses related to a person’s funeral, burial, or other end-of-life costs.

In this guide, we'll explore:

• Two popular types of funeral of insurance

• Pros and cons of each

• Key considerations before purchasing funeral insurance

We'll also explore how Funeralplan can help you make more informed end of life decisions.

What is funeral insurance?

When someone dies, their are many logistical and financial decisions that must be made in a short period of time—planning ceremonies, closing accounts, and coordinating payments, to name a few. While some burdens are unavoidable, you can take steps to minimize the financial and logistical burden ahead of time. That's where funeral insurance comes in. Though it's not always worth the cost, funeral insurance is designed to help reduce end-of-life costs by covering expenses related to a person’s funeral, burial, or cremation.

2 most common types of funeral insurance

1. Pre-Need Insurance

   • Purchased directly through a funeral home, with benefits tied to pre-arranged services and costs.

2. Final Expense Insurance

   • A more flexible type of funeral insurance that allows beneficiaries — typically family members or friends of the deceased — to decide how the funds are spent.

1. Pre-need insurance

Key points:

• Purchased directly through a funeral home or provider.

• Covers pre-arranged funeral expenses that the policyholder (typically a person planning for their own funeral) chooses in advance with the funeral home.

• Unlike general funeral insurance, pre-need policies are tied to a contract detailing the funeral plan, including the casket, burial plot, cremation, or memorial services.

Best for:

• Those who want full control over their funeral arrangements, lock in costs, and reduce financial or decision-making burdens on family members.

Worst for:

• People who prefer more flexibility, have sufficient savings, or want their family to have the option to use funds for other purposes.

Pros of Pre-Need Insurance

1. Locks in funeral costs

   • Many pre-need policies lock in today’s prices for funeral services and products, protecting against future inflation and rising costs.

2. Relives family stress

   • Your loved ones won’t have to make difficult decisions during an emotional time or face financial burden to cover your funeral expenses.

3. Control over your arrangements

   • Guarantees that your funeral aligns with your wishes and the services, products, and arrangements reflect your preferences.

4. Financial protection

   • Pre-need insurance prevents your loved ones from bearing the financial burden of your funeral expenses.

5. Transferability

   • Some policies allow you to transfer coverage to another funeral home if you relocate, offering flexibility in case of a move.

6. Excludable for medicaid

   • Irrevocable pre-need insurance policies are excluded from Medicaid’s asset calculations, making them a good tool for Medicaid planning.

7. No medical exams

   • Most pre-need policies do not require medical exams or extensive underwriting, making them accessible to nearly everyone.

Cons of Pre-Need Insurance

1. Tied to a specific funeral home

   • The policy is often linked to a particular funeral home. While some policies are transferable, if the funeral home goes out of business or you move to a location where it’s not convenient, transferring the plan can be challenging.

2. Limited flexibility

   • Once the plan is finalized, it may be difficult to modify or cancel. Irrevocable plans, often used for Medicaid purposes, cannot be canceled or refunded.

3. Inflation risks on non-guaranteed plans

   • If the policy only covers a fixed amount (non-guaranteed plan), your family may need to cover additional costs if funeral expenses increase.

4. Overpayment risk

   • Paying premiums over a long period could result in paying more than the actual cost of the funeral, especially if the policyholder lives a long time.

5. Potential lack of transparency

   • Some funeral homes may include unnecessary services or charge higher fees. It’s important to carefully review and compare policies to avoid overpaying.

6. Funds locked into funeral expenses

   • Pre-need insurance benefits go directly to the funeral home, so the money cannot be used for other end-of-life expenses or family needs.

Purchasing pre-need insurance

You can purchase pre-need insurance for yourself at any age. Most people who purchase pre-need insurance do so in the second half of life (50s-70s); however, starting in your younger years can lock in lower costs for your funeral arrangements, as funeral prices tend to rise over time.

Step 1: Planning Your Funeral

• You work with a funeral home to plan your funeral in detail.

• Together, you choose services and items such as a casket, urn, flowers, headstone, or embalming.

• The total cost of these services is calculated upfront.

Step 2: Purchasing the Policy

• A pre-need insurance policy is then purchased to cover these specific costs.

• The funeral home is typically the beneficiary of the policy and will receive the payout directly to cover the contracted expenses upon your death.

Step 3: Payment Options

• Single Payment: Some pre-need insurance policies allow for a one-time, lump-sum payment. This is ideal for those who can afford to pay upfront and want to avoid ongoing premium costs.

• Installment Payments: Many pre-need plans allow you to pay in monthly or annual installments over a set period (e.g., 1, 3, 5, or 10 years). The longer the payment term, the lower the monthly premiums but the more interest you may pay over time.

• Lifetime Payments: In some cases, premiums continue for the rest of your life, though this is less common in pre-need insurance compared to general funeral or life insurance.

2. Final Expense Insurance

Key points:

• Designed primarily to cover funeral and burial costs, as well as other end-of-life expenses.

• Typically provides a smaller death benefit than traditional life insurance policies, often ranging from $2,000 to $50,000.

• Most final expense policies are whole life insurance, meaning they do not expire as long as you keep paying the premiums.

Best for:

• Seniors or individuals with limited savings who want to ensure funeral costs are covered.

• People who don’t qualify for other life insurance policies due to age or health issues.

• Those who only need a small policy to cover specific end-of-life expenses.

Worst for:

• Individuals looking for large coverage amounts or investment opportunities.

• Younger people with no significant health issues who may find better value in term or whole life insurance.

Pros of Final Expense Insurance

1. Affordable Premiums

   • Compared to traditional life insurance policies, final expense insurance offers smaller coverage amounts, making the premiums more affordable.

2. Simplified Underwriting

   • Most policies require no medical exams and only ask a few health-related questions, making it accessible to people with pre-existing conditions or older individuals.

3. Quick Approval Process

   • Policies often have a fast approval process, sometimes within days, making it ideal for those seeking immediate coverage.

4. Guaranteed Acceptance

   • Some policies offer guaranteed acceptance for individuals within a specific age range (e.g., 50–85), regardless of health conditions.

5. Provides Financial Relief for Loved Ones

   • Ensures that family members aren’t burdened with the cost of funeral arrangements, which can average $7,000–$12,000 or more in the U.S.

6. Flexible Use of Funds

   • The payout can be used for any purpose, not just funeral expenses. Families can allocate the money for medical bills, outstanding debts, or other needs.

7. Lifetime Coverage

   • As long as premiums are paid, final expense insurance typically provides lifetime coverage, ensuring your beneficiaries receive the benefit when needed.

8. Peace of Mind

   • Offers the reassurance that end-of-life costs are covered, allowing both the policyholder and their family to focus on other priorities.

Cons of Final Expense Insurance

1. Low Coverage Amounts

   • Policies generally provide coverage in the range of $5,000–$25,000, which may not be sufficient for families with higher financial obligations or debts.

2. Higher Cost Per Dollar of Coverage

   • While premiums are affordable overall, the cost per dollar of coverage is higher compared to traditional life insurance policies, especially for younger, healthier individuals.

3. Potential Overpayment

   • If you live a long time, you may pay more in premiums than the policy’s payout amount, making it less cost-effective over time.

4. Age Restrictions

   • Policies are typically available only to individuals within a specific age range (e.g., 50–85). Younger individuals may not qualify or may find better alternatives.

5. Limited Investment Value

   • Unlike whole life insurance, final expense insurance has little to no cash value, meaning you can’t borrow against it or use it as an investment tool.

6. Inflation Risks

   • The fixed benefit amount may not keep up with rising funeral costs or inflation, potentially leaving a gap in coverage for your family.

7. Health-Related Limitations

   • Although medical exams aren’t required, some policies have graded death benefits. For example:

     • If you pass away within the first two years of the policy (for non-accidental causes), your beneficiaries may receive only a portion of the benefit or a return of paid premiums plus interest.

8. Better Alternatives May Be Available

   • For younger or healthier individuals, term or whole life insurance may offer better value, larger coverage amounts, or additional benefits.

Conclusion

Funeral insurance can provide valuable peace of mind by ensuring that end-of-life costs are covered and loved ones aren’t left with a sudden financial burden. It offers relatively straightforward qualification requirements, fixed premiums, and a guaranteed payout—useful features if traditional life insurance isn’t an option. However, it's important to remember, premiums can be higher per dollar of coverage, and individuals with sufficient savings or other life insurance policies might find the additional expense unnecessary. Ultimately, deciding whether to purchase funeral insurance or not depends on balancing your desire for immediate financial protection against the possibility of investing in more flexible or cost-effective coverage (or even self-funding funeral arrangements). Carefully evaluate your personal circumstances, compare policy options, and weigh both the benefits and the potential drawbacks before making a final decision.