Did you know that today, average funeral expenses cost approximately $7,000?

This includes just the basic costs and does not even take into account expenses related to the cemetery, headstones and flowers. As more and more people come to terms with death being inescapable, buying insurance to cover one’s own funeral expenses has become a necessity today as one seeks to unburden his/her family from financial expenses after his/her demise. So, what exactly is funeral insurance?

A common misinterpretation of the funeral expense policy leads people to believe that by purchasing this policy every conceivable cost related to the funeral will be taken care of after one’s death. However, that is not the case. Funeral expense policies, also commonly known as burial expense policies are small life insurance policies which are designed to cover the funeral expenses of the policy holder after his death. Well established insurance companies do not even offer these insurances. The highly reputed ones only offer life insurances with claim payouts of at least $25,000 and require high premium payments and have a whole set of eligibility criteria for policy purchase. Funeral expense policies are mostly sold by smaller insurance companies targeting the geriatric community. Such policies are generally categorized as guaranteed-acceptance. What this means is that there are no eligibility criteria that one has to qualify in order to purchase this insurance. Age and health conditions are not looked at. While this ensures that anyone can purchase burial insurance, it also comes with a downside.

Because there are no eligibility criteria, these policies tend to be priced much higher. These do provide coverage throughout life and provide beneficiaries the option of borrowing or withdrawing cash, but they offer little cash value compared to full term life insurances provided by well-established larger insurance companies. Financial advisers recommend that if you are well enough medically to be insured, then you should preferably go in for traditional life insurance that assures of a higher claim payout. However, with any kind of policy, it is important to research the insurance company well before you make a purchase. One should also read the terms and conditions in the contract before signing up for a policy. Even guaranteed-acceptance policies pay only a part of the death benefit if the policy holder expires within two years of purchasing the policy.

Another type of funeral expense policy is the pre-need policy which can be purchased directly from the funeral home. Many funeral homes enlist licensed life insurance agents onsite who can explain to you the benefits of and sell pre-need insurance. In a pre-need insurance, you decide on all the options related to a funeral and the pre-need insurance policy covers the cost of all these options. Pre-need insurance policies can also have the funeral home director named as the beneficiary so that policy claim payout goes directly to the funeral home. In certain states where this is not allowed, you would need to add a family member as the beneficiary and he/she would need to carry out your wishes. While some funeral homes can guarantee prices depending on the options you pick, contrary to traditional life insurance, life insurance policy value’s aren’t always fixed and premium payments depend on a multitude of factors. One should always be aware of any penalty payments in case of not being able to make the premium payments so the basic intent of not burdening family with financial troubles is still met. The benefit of a final expense policy over traditional life insurance is that with insurance, claim payouts are made immediately where with traditional life insurance, claim payouts take 1-2 months to process. On an average, clients opting for cremation are guaranteed an average insurance coverage of $5000 as opposed to $8000 for those clients who opt for a traditional burial ritual. burial insurance policies also factor in age and policy value in order to determine premium payment values.

However, all said and done, one would like to release any and every financial burden from his family like medical bills, credit card debts, mortgages and such not just the ones related to funeral expenses. In such cases, it is highly recommended that you purchase a traditional life insurance policy which provides better coverage. A whole life insurance or universal life insurance policy would provide coverage for one’s entire life as compared to term life insurance policies which only provide coverage for 10-30 years of lifetime and then require annual renewals to be made.