With all of the TV advertising out there today, we are bombarded with ads about burial insurance, final expense insurance, and funeral insurance for seniors. First things first, they are one and the same.
Is it important to you that when you pass away your funeral and burial insurance costs will have been pre-paid using life insurance rather than passing this debt onto surviving loved ones?
Do you think it may be very difficult for your friends and loved ones to scrape together the $8,000 to $10,000 it takes to pay for a moderately priced funeral? Here, we’ll discuss burial insurance for seniors and arm you with the information that will help you make an informed decision.
What is Burial Insurance?
To be clear, burial insurance is not a type of insurance but a purpose for life insurance. In most cases, burial insurance for seniors is a whole life insurance policy that is designated for paying funeral and burial expenses of the policyholder. Whole life insurance is the best life insurance product for burial insurance because of the various guarantees and benefits that are a part of the policy contract.
- Coverage for Life – When you purchase a whole life insurance policy, your insurer cannot cancel the policy for any reason other than non-payment. Additionally, unlike term life insurance, whole life insurance policies do not contain an expiration date.
- Level Premiums for Life – With a whole life insurance policy, once the policy is issued the insurer cannot raise your periodic premium for any reason. Even if you come down with a terminal illness or forced to live in a nursing or hospice facility, your insurer cannot increase your premiums.
- Cash Value over Time – Since your burial insurance policy is whole life insurance, it will build cash value over time that you can access through policy loans, withdrawals, or policy surrender. It's important to note that when you borrow from your cash value account, you are not taking money from the account, you are simply using the funds in the account to collateralize your loan from the insurance company. This means that your cash value account will continue to grow and earn interest even though it is being used for collateral for your loan.
Although whole life insurance policies have the same guarantees and benefits, there are several different types of plans available for burial insurance:
- Level Benefit with First Day Coverage – The level benefit policy is traditional whole life insurance that when issued, it will pay the full death benefit from day one. Although no medical exams are required at the time of application, there are questions about the applicant’s current and past health that could disqualify them form coverage. It is important to note, however, since most burial insurance policies have a death benefit less than $50,000, most insurance companies have very liberal underwriting guidelines. This means that applicants with diseases like diabetes, COPD, or Hepatitis C can still qualify for a level benefit policy with many of the insurance companies that offer burial insurance for seniors.
- Graded Benefit – A graded benefit policy was designed for applicants who might not medically qualify for a level benefit policy. Typically these burial insurance policies will pay out a percentage of the death benefit if the policyholder dies within the first three years. Normally, in the fourth year and afterward, the full death benefit will be paid. Here's an example of the graded death benefit:
Jerry purchased a $15,000 burial insurance policy but did not qualify for the level benefit. He agreed to purchase a graded benefit policy with the following provisions: if Jerry dies within the first year, his beneficiary would receive 25% of the death benefit. If he dies in the second year, his beneficiary would receive 50% of the death benefit and if he died in the third year the beneficiary would receive 75% of the death benefit. If Jerry passed away in year four or later, the beneficiary would then receive 100% of the death benefit.
- Guaranteed Issue (guaranteed acceptance) – A guaranteed issue burial policy should be considered as a last resort because it has a waiting period and the premiums are much higher than the level benefit or graded benefit policies. With the guaranteed issue burial insurance policy, no medical exam or medical questions are considered to issue the policy. Almost any person who is alive and of eligible age can purchase a guaranteed issue life insurance policy.
A guaranteed issue policy also has a waiting period attached. Typically if the insured dies within the first two years, the insurer will pay the beneficiary the sum of all premiums paid plus an additional 10%. It ’s important to note, however, if the insured’s death is the result of an accident, the waiting period does not apply.
Who Should Buy Burial Insurance for Seniors?
Unfortunately, many seniors wait until they see a TV advertisement or have to help pay for a funeral before they realize how important burial insurance really is. Here are some examples of seniors who should consider burial insurance:
- You are still working and have life insurance through your employer. It’s certainly a bonus in having group life insurance that is typically paid by your employer. The problem with depending on these types of policies is that they are not portable which means when you leave they will not follow you.
- Seniors who have Term life insurance. Term life insurance is temporary and most policyholders outlive their coverage. Even if you can renew your coverage at the end of the policy term, your rates will go up with every birthday to a point where the insurance may be unaffordable.
- Seniors who have no life insurance. Many seniors were forced to surrender or cancel their life insurance during the recession in order to make ends meet. Regretfully, many of these folks think they can no longer purchase affordable life insurance. In most cases, burial insurance for seniors will fit in their budget.
Show Your Family Members How Much You Care
Having a burial insurance policy in place at the time of your death shows your surviving loved ones how much you love them and that you made the decision to make certain that your funeral was paid for in advance so your surviving loved ones don’t have to deal with the financial stress of your funeral while they are grieving.