“I never want to be a burden on my children.” That is a sentiment so many people have as they age. It becomes even stronger as we think about what we will leave behind when we are gone: unpaid bills, or just good memories? Some of us have assets embedded in carefully crafted wills, plus insurance policies that will cover any mortgages, loans or credit card balances. Some of us don’t.
In either case, what about the immediate costs of burial? If those arrangements are not prepaid, will we be asking loved ones to find the cash to pay for our final honoring? Whether paid by us (because we can) or by others (because we can’t), what if there were a cost-effective way to be sure the cash was readily available when needed? That is what burial insurance is.
Insurances come in many forms. As we age – and particularly as our health declines – our insurance options become more and more restricted.Eventually, we get turned down for traditional life insurance policies or premiums are higher than we can afford.
Term insurance, which must be renewed at the end of each term, has no residual value so if we stop paying we have lost all the paid-in premiums.Premiums are skewed towards good health and youth, so they will be very high for seniors, especial at renewal if we outlive the established term.
Whole life insurance also remains active only while premiums are paid, but policies offer lifetime coverage. Over time, they are growing in cash value which can be sold or borrowed against. Premiums are higher than for term policies, and most require initial health underwriting based on questions or a medical exam, which seniors may not be able to pass.
“Burial insurance,” while not a type of life insurance, has been developed specifically to cover funeral expenses for older people, with policies usually being offered up to age 80. These policies have a small face value, usually between $2,500 and $20,000, with some going to $50,000. If a policy is “simplified issue,” a few health questions will be asked. If our health qualifies us for simplified issue, these policies have the lowest premiums and are available for an immediate payout of death benefits.
If we do not qualify for simplified issue and our policy is“guaranteed issue,” no questions or exams are required, but they have slightly higher premiums and require a waiting period of two (or rarely three) years before the full death benefit is paid in the case of death from natural causes. Many policies will pay out in full from date of issue in case of accidental death.
While simplified issue policies are preferred, even a guaranteed issue policy is a good way to ensure that funds are available for burials and other final expenses. If a senior does not reach the end of the waiting period of a guaranteed issue policy, at a minimum the paid-in premiums will be paid back, sometimes with a small extra benefit.
Burial insurance benefits are paid out to beneficiaries immediately, without the normal delays of standard life insurance, and are available to be used for the burial itself, plus any excess going for whatever else the beneficiary needs to cover. (Note: funds can be used however the beneficiary wishes, and maybe not as you had intended.)
One thing remains the same with burial insurance as with any other insurance: it should be purchased from a known insurance company with a high financial rating(such as A.M. Best’sFinancial Strength Rating) and a reputation for good customer service. You do not want to pay in for years and have the company go bankrupt.
Whatever measure one uses of the financial situation of today’s seniors, a substantial percentage is living on Social Security plus the proceeds from savings that are lower than they would have liked.Some continue to work to supplement their finances, and others have adjusted their lifestyle to make the numbers work.
Regardless of one’s financial situation, burial insurance may make sense to ensure ready cash to cover funeral and other end-of-life expenses that may have accumulated. The need is for cash, which may be tied up. Estates take time to settle, traditional insurance policies may not pay out immediately, the market timing might be wrong to pull cash from stock portfolios, and assets such as real estate take time to convert into cash. Burial insurance can be the ideal source of ready cash.
Having a burial insurance policy in place means:
- Giving our loved ones the means to honor our wishes without having to compromise for lack of funds;
- Not creating any burden on those left behind at what is already a difficult time;
- Leaving the example for our children and grandchildren of the need to plan and be responsible right to the end;
- Not causing losses to estate assets because they must be liquidated at bad market timing to free up cash; and
- Having the peace of mind in our final days that comes from knowing we have offered a true act of love.
Buying burial insurance is no different than buying any other form of insurance. Your questions will include: what it costs, how easy it is to enroll, what is covered, if there is a waiting period and what support the insurance company offers.
In selecting a burial insurance policy, you also want to know about any limitations you might be facing: the need for a medical exam, minimum coverage, age limitations, living benefits, exclusions and exposure to rate increases.
Once a senior has decided that it makes sense to have burial insurance, whether in addition to or in place of traditional life insurance, there are three major questions:
- Are you in reasonably good health for your age?
- How much coverage do you want?
- What is your life insurance budget?
Remember that this is a small policy to finance funeral and end-of-life expenses, such as leftover medical co-payments, for example. The goal is to lessen the burden on those you leave behind.In selecting your burial insurance, you aim to get as much payout benefit as possible, within the constraints of your health and your budget.
Health considerations: Burial insurance rarely requires a medical examination, but health questions will usually be asked over the telephone or by questionnaire. Health records are easily confirmed or denied these days, so it is not worth risking the benefit not being paid out because initial questions were answered dishonestly. Ultimately, your answers will determine which of three risk classifications each insurer puts you in, and that influences the premium cost heavily.
Those in relatively good health may qualify for “simplified issue” plans (also called “level benefit” or “preferred” by insurers). As burial insurance plans are tailored to older people, the insurance company knows some health issues will be present. Minor health issues such as high cholesterol or routine medications are rarely a reason to refuse coverage. The company is simply calculating if there are risk markers for foreseeable death within the first two years of coverage, while it accumulates the premiums you pay.With simplified issue, full benefits are paid out as soon as coverage is active, with no waiting period.
For seniors who do not qualify for simplified issue plans because they are too old or too ill, “guaranteed issue” (or “guaranteed life insurance”)plans do not ask health questions or require a medical exam. However, premiums will be higher than simplified issue plans, and there will be at least a 24-month waiting period after the policy is issued before death benefits can be collected for death by natural causes.
Within guaranteed issue plans, insurers will differentiate between “graded” (or “standard”) plans, or the highest risk tier of “modified” plans.
With a graded plan, in case of death before the waiting period is met, the beneficiary will receive a percentage of the full benefit. The percentage depends on when along the waiting period the insured dies. Some companies will pay 25 percent of the entire face value during the first year and 75 percent during the second year, and then the full benefit anytime after the 24 months.
With the highest-risk modified plan, during the waiting period the beneficiary will receive the value of premiums paid in since the start, plus a small percentage. For example, some companies may add 10 percent above the paid-in premiums if death occurs during the first year, and 20 percent in the second year. The full death benefit will be paid upon the insured’s death after two years.
In any case, money paid into a guaranteed issue policy is never lost.
Amount of coverage: Burial insurance most typically offers payouts between $5,000 and $20,000. The lump-sum death payment from Social Security to surviving spouses and very specific dependents is only $255. If you do any research, a low-cost estimate of funeral costs runs $8,000 to $12,000, including everything from casket and embalming to a memorial service and burial plot. Cremation runs about $1,000 less.
Such costs will likely escalate if decisions are made last minute, with no time to plan and comparison shop. The fact that a senior is already looking at burial insurance should trigger the rest of the planning exercise.
Once you have an idea of the amount of desired coverage, several reputable insurance providers should be contacted for quotes, using the knowledge accumulated up to this point. Simplified issue plans should be attempted first, only going to guaranteed plans (graded or modified) if you fail to qualify for the first. The insurer will determine your “monthly premium per thousand” based on factors such as your health and age, and multiply that number times the ‘number of thousands’ you want as coverage.
Budget considerations: If you have a fixed amount budgeted for burial insurance, you want to compare that with the quotes received from the reputable insurance providers. Since most people plan to keep this type of coverage for years, or even decades, even a few dollars more (or less) in monthly premiums can add up.
Besides your health, your premiums are affected by two things over which you have little control: your gender and your age. Regarding gender, women live longer than men, so premiums for women are somewhat lower. Regarding age, premiums increase the older you are when you first buy the insurance. (Most insurers offer policies up to age 80; a few will go beyond that.) Insurance companies consider that older people are statistically closer to death, which leaves a shorter period during which premiums will be collected.
Factors that affect your premium and that you can control include whether you smoke cigarettes (if you chew or if you smoke a pipe, e-cigarettes or cigars, you may still be granted a non-tobacco rating) and the amount of coverage you select.
The only relevant fee for burial insurance is the monthly premium. The premium is affected by your gender, your age, your health, your tobacco status and the amount of coverage you select.
Women pay less than men because they live longer than men do. Next comes your age at the time you take out the burial insurance policy: each insurance company has a set price for each age, or perhaps for each age band (50-54, 55-59, etc.), based on the company’s experience.
Your health will determine the type of burial insurance plan for which you qualify (simplified issue versus guaranteed issue), based on risk category (level, graded or modified). If you do not have a ‘non-tobacco rating,’ your premium will be pushed higher because smoking cigarettes greatly reduce one’s life expectancy.
Lastly, all the other factors will determine an exact cost of insurance per $1,000 of coverage. That number is used to multiply by the number of thousands you want in coverage. The more coverage you buy, the higher the monthly premium will be.
In general, the average monthly premium for burial insurance is around $50, and the most common face value is $10,000 of coverage.
As you start evaluating burial insurance policies, the primary factors are the cost, the ease of enrollment, the amount of coverage available, if there is a waiting period and how supportive the company’s customer support will be.
Cost: A monthly premium is the only cost related to burial insurance. That premium is locked in when you initiate the plan and will not be affected by age or health as long as premiums are paid. However, if you allow a break in payment and have to take out a new policy, it will reflect your age and health at that time.
Ease of enrollment: The degree of initial interaction with a potential insurer will depend on whether you are purchasing a guaranteed policy that requires no health questions asked, or a simplified issue policy that does. Compared with traditional life insurance that might require medical underwriting and health examinations, enrollment is relatively straightforward, with premiums based on a formula that depends on very few factors. Enrollment is often possible online, by phone or by mail.
Coverage: Different companies offer different ranges of coverage, with the most common being $5,000 to $20,000 in face value benefits. Some companies may offer less than $5,000 and some may go well beyond $20,000. Where coverage greatly exceeds $20,000 (one company starts its face value coverage at $1 million), while it is still burial insurance (or ‘guaranteed term insurance’), it is much closer to traditional insurances in its application process. The coverage decision is one that each senior needs to make individually based on what end-of-life needs might be.
Waiting period: Most simplified issue plans will have no waiting period and the policy will pay out, if needed, as soon as it is in effect. The insured’s health risk is perceived as low in the eyes of the insurance provider. Guaranteed issue plans typically have 24-month waiting periods (36-month waiting period plans exist, but are rare). If the insured dies within the waiting period, the paid-in premiums are not lost. The insurance provider will either pay a percentage of the face value of the policy (depending on where along the waiting period the insured dies) or will return the paid-in premiums, sometimes with a small 10-to-20 percent bonus payment.
Customer support: How easy it is to contact the company’s customer service if you need assistance is important to your overall experience with a service. Most plans only provide live customer support during regular business hours, Monday through Friday, with some Saturday hours. The nature of this insurance does not require greater hours.
As you look at burial insurance, you will want to check whether a medical exam is required, although they rarely are for this type of insurance. You may want to know the minimum and maximum coverages available. You might want to check whether living benefits, such as illness benefits, are covered and what exclusions are in the policy. Lastly, you want to confirm that rates will remain unchanged throughout coverage as long as you pay your premiums.
The reason for buying burial insurance is to make it easy for the loved ones and friends you leave behind. The greatest gift would be to leave a document giving a clear indication of your burial wishes, to avoid any discussion or argument. Attach that to your burial insurance policy and put them both wherever your will is kept. Advise whoever needs to know where the documents are located, and you will have done your loved ones the greatest favor.
Not everyone believes in burial insurance, saying its premiums are skewed higher because it covers older and less healthy people, or the equivalent of a high-risk pool. In that case, hopefully they at least believe in self-insurance and are willing to put enough money aside in an easily accessible account to cover all end-of-life expenses. Barring that, the decision to buy burial insurance can be made late in life and still be very affordable at age 70.
For example, using a real premiums table, say a woman at age 55 takes out a simplified issue burial insurance plan where the monthly premium is $46.00 for a $20,000 benefit. If she is age 80 when she dies, she will have paid 25 years x 12 months x $46, or $13,800 to receive $20,000. If she takes out the same plan at age 70, when the monthly premium is now $103.00, and she dies at age 80, she will have paid 10 years x 12 months x $103, or $12,360 to receive $20,000.
One downside to waiting to buy burial insurance is that you may no longer qualify for simplified issue because of health problems. The guaranteed issue premiums will be higher ($137 per month in the example above, or $16,440 total) and there will be a 24-month waiting period, although the money paid in will never be lost.