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Should I get life or funeral insurance?

Both types of policies can cover your end of life expenses, but one offers added benefits.

Both life insurance and funeral insurance provide a lump-sum benefit in the event of death or terminal illness, but each offers different benefits that can impact your decision of what option works best for you. We’ve outlined what each covers and which might be right for your situation.

Life insurance vs. funeral insurance

In order to make a more informed decision about which form of coverage is best for you and your loved ones, consider the following pros and cons

Life insurance

  • Benefit is paid as soon as the claim has been approved.
  • If you’re in poor health, coverage may be expensive.
  • Generally more affordable compared to funeral insurance as you age.
  • Your benefit payout may be received after the funeral.
  • Some policies also cover accidents, illnesses and injuries.
  • A medical examination may be required, which is not ideal for people with health issues — particularly seniors.

Funeral insurance

  • Benefit is paid as soon as the claim has been approved.
  • Premiums can be more expensive than premiums on term life insurance.
  • Medical exam is usually not required.
  • You may live older than expected and end up spending more on a policy than it would have cost for a funeral.
  • Suited to people with health issues who struggle to get affordable life insurance or cannot get coverage at all.
  • A medical examination may be required, which is not ideal for people with health issues.

There are two types of funeral insurance

The two types of funeral insurance or burial insurance have distinct differences in coverage.

  • Preneed insurance. Also called prepaid funeral insurance, you purchase this type of coverage from a funeral home. You can choose to pay your premiums over time in installments or all at once. After death, the insurance only covers funeral expenses.
  • Final expense insurance. This is a policy you purchase from an insurance company. After death, your beneficiary gets the funds and can use them to cover other expenses as well as funeral expenses, including medical bills or legal fees.

Burial insurance may not be necessary

Most life insurance policy benefits are enough to cover the expense of a funeral. If you feel the amount you’re currently covered for isn’t enough, you can add additional coverage to your life insurance policy. Some people also consider saving money designated for their funeral expenses in a traditional savings or investment account instead of paying premiums for burial insurance.

What if I’m over the age of 50?

People over 50 and senior citizens should consider whether life insurance or burial insurance is the better option.

  1. Assess your current financial situation, as well as your loved ones’ circumstances, to make an informed decision.
  2. Talk with your financial adviser for help figuring out what is best for you and your family.
  3. Research other options you have, like life insurance through your employer or union.
  4. You may already have a policy to cover funeral expenses. Sometimes your bank, credit union or credit card company provides a small life insurance policy when you open your account. This $3000 or $5000 policy could be just right for your burial expenses.
  5. If the cost of a burial insurance policy is prohibitive, consider saving an amount similar to the premiums each month in a savings account earmarked for funeral costs. You can add a family member to this account so they have easy access to the funds when they need to pay for your funeral.
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Key benefits of Funeral insurance

The basic purpose of burial insurance is to take care of all funeral expenses, we’ll lay out the key benefits of this type of policy.

  • Simple. Since it will only cover for your funeral expenses, there aren’t other factors to understand.
  • Inexpensive. Typical burial insurance coverage is between $5,000 and $15,000, and this low coverage amount makes it an inexpensive type of whole life insurance. However, it is usually more expensive than term life insurance, especially as you age.
  • No medical exam. Funeral policies don’t require a medical exam to get approved for coverage, though you may pay more for less coverage.
  • Prompt payout. Once the insured dies, you can process your claim and receive the benefit payment to financially take care of the funeral.

Is funeral insurance for me?

  • If funeral expenses are your only worry when you die, this policy can meet your needs.
  • If you’re ineligible for life insurance, then funeral insurance may be suitable for you since it doesn’t require a medical exam.

    Key benefits of life insurance

    Depending on the type of life insurance policy you take out, you can be covered for death, accidents and illnesses. The key difference between life insurance and funeral insurance is that you get a lump sum benefit that you can use for whatever you’d like. Other key benefits include:

    • Covers more than just funeral expenses. The biggest benefit of life insurance is that you get a lump sum of cash after the insured’s passing. This can help you cover more than just the funeral expenses.
    • Tax treatment. In most cases, death benefits are tax-free, and you could avoid paying tax on the cash amount you withdraw up to the premium you paid for the insurance.
    • Flexibility. You’ll have the option of choosing a term policy that lasts a number of years of your choosing, such as 20 years or a permanent policy that lasts your entire life and builds cash value.

    Is life insurance right for me?

    • If you want to leave behind enough money to cover more than your funeral, you may need a life insurance policy instead of a burial-only policy.
    • If you’re young or in good health you may pay less for more coverage with a term life policy.

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    20 - 64
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    Policygenius - Life Insurance
    18 - 85
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    Bottom line

    Life insurance provides broader coverage than burial insurance since your beneficiary can use the proceeds from life insurance however they wish. But if your only reason for having life insurance is to pay for your funeral and burial expenses, a burial insurance policy may be right for you.

    Before committing to a life insurance or burial insurance policy make sure to compare insurers.

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