What Is Burial Insurance and Why You Need It?

It’s not cheap to die. Funeral homes, headstones, cremation and all of the things associated with death are often considered morbid. That doesn’t make them cheap, though. Burial and cremation can cost more than you think, so that’s why considering burial insurance can be a smart way to ease the financial burden after the death of a family member.

Just how much burial insurance you need can be tricky to figure out.

In 2017, the average funeral costs were between $8,000 and $10,000 but that doesn’t include the cost of a burial plot or the digging of a grave.

Of course, what you pay can vary by where you leave.

A full service funeral in D.C. can run close to $14,000, while in Seattle that cost would be closer to $5,500

To make matter even more complictated, sometimes the fees provided by a funeral home are not always clear. 

“Most funeral homes need to give consumers much better access to price information,” says Josh Slocum, executive director of the Funeral Consumers Alliance.

One suggestion from Slocum is to require funeral homes to disclose prices clearly on their websites. It makes the most sense, Slocum says, because many people are reluctant to price compare at such an emotional time.

RELATED: How to Choose a Life Insurance Policy

“This disclosure will grealty increae consumer search for price information,” he says, adding that this also will help consumer groups “more easily research, compare and report on prices.”

Regardless of what upfront or hidden costs may arise when planning a funeral for a loved one, it’s always smart to have money set aside to cover the expenses. That’s where burial insurance (sometimes called final expense or pre-funded burial insurance) comes in.

What is burial insurance?

Burial insurance usually refers to a “whole life” insurance policy with a death benefit that typically ranges from $5,000 to $25,000.

People buy burial insurance to cover burial and funeral costs for themselves. A burial policy can cover the burial costs of one person or an entire family.

Funeral and burial costs can be expensive. Acquiring a burial insurance policy can help determine how much you will need to pay for a funeral. In addition, certain types of burial insurance may help “lock in” costs at today’s prices.

Some funeral expenses that burial insurance may cover include:

• Casket or urn
• Cost of cremation
• Cost of embalming
• Headstone
• Hearse or other vehicles needed for your service
• Digging and filling the grave
• Flowers
• Cost of the plot

It’s important to note, however, that burial insurance is a popular term for the coverage of these expenses, but it can be a bit misleading because these policies — regardless of what they are called — also cover cremation and non-burial costs. 

That’s important because a recent report report found that 50.2 percent of Americans chose cremation in 2016, up from 48.5 percent in 2015, while 43.5 percent of Americans opted for burial, down from 45.4 percent in 2015, according to the National Funeral Directors Association.

“The rate of cremation is projected to continue to rise as more Americans choose [that option],” says NFDA President W. Ashley Cozine. “This shift has prompted many funeral homes to expand their service offerings to meet the emerging needs of consumers who prefer cremation.”

Cozine says many consumers are not aware that cremation can be accompanied by a memorial service or viewing. Many of the services provided with a traditional burial, such as flowers and transporation needs, can still be associated with creamation. That can tack on a lot of additional costs.

“Our role as a funeral director is to help make sure families understand all of the available options and commemorate the life of their loved one in a meaningful way regardless of whether they choose burial or cremation,” Cozine says.

If I have life insurance do I need burial insurance?

Many people do not factor funeral and burial costs when calculating their family’s need for life insurance. Similarly, many people do not intend for their beneficiaries to use life insurance to cover burial expenses.

Burial insurance is a great option for someone who does not want their beneficiaries to dip into funds from a life insurance policy to cover costly funeral and burial expenses.

Similar to life insurance, burial insurance is cheaper when purchased at a younger age. Although it may not be fun to think about, the time for you to buy burial insurance is today.

The different types of funeral insurance policies, according Trusted Choice, a group of independent insurance agents, include:

• Pre-funded funeral Insurance: This is directly or indirectly linked to a funeral service provider. It has installment payment plans which can be either one, three, five, seven or 10 years. The policy remains in effect for your entire life after the premiums are paid. This type of policy can be either a term insurance policy or a permanent policy.
• Final Expense Insurance: This type of policy is not linked to a funeral service provider and tends to be cheaper than pre-funded funeral insurance. It can consist of either a term or a permanent life insurance policy.
• Burial Insurance: This type of policy is usually a term life insurance policy with lower death benefits such as $5,000 or $10,000 dollars. The death benefits are paid to a named beneficiary who can use the death benefits in any manner.

FAQs about burial insurance

Still have questions about burial insurance? Here are some frequently asked questions answered by Assurant, a company that provides a wide-range of specialty insurance products.

How much does pre-funded life insurance cost? That depends on the cost of the merchandise and services you select for your funeral during the preplanning process. As for your insurance payments, you can make a single premium payment and owe nothing further or you can choose a plan that provides insurance coverage while you make payments over several years. You may also choose to have the monthly payments withdrawn from your checking or savings account automatically.

Are there tax issues with preneed insurance? As a general rule, preneed life insurance benefits are paid in a lump sum to the funeral home and have no tax consequences to you or your family. However, consult your tax adviser for specifics.

Where does my money go? Premiums are paid to a company and typically used to pay expenses and establish reserves, which are used to pay future claims benefits as they come due. At the time of death, the death benefit can be paid to the funeral home.

What if I just want to set aside funds for my funeral expenses? Final expense insurance plans are available for this type of coverage. You can choose any amount of money to be paid to your beneficiary at the time of your death. You may specifically designate this money to help pay for your funeral arrangements or expenses related to death, whatever they may be.

Can my prearranged funeral contract be transferred if I move? If you want to change your funeral home preference prior to your death, you may contact the funeral home of your choice to determine if they will honor the price guarantees offered by the funeral home where the prearranged funeral contract was written. If they do accept the charges, then notify your insurer that you have changed funeral home locations.

How do I file a claim and how long does it take? To file a claim, your family simply needs to contact the funeral home. The funeral home normally will handle all of the paperwork and correspondence with our company. The claim is processed and a check will be mailed or electronically transferred to the funeral provider. That can happen in as little as  24 hours of receiving all of the required documentation.

Editor’s note: This is an updated version of an article that was originally published on Dec. 31, 2013.