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Burial insurance basics

By Maryalene LaPonsie on May 13th, 2011

According to the National Funeral Directors Association (NFDA), the average cost of a funeral in 2009 was $6,560. Add a vault, and the price jumps to $7,775. The cemetery plot, monument, flowers obituaries and other extras will push the final bill even higher. With the NFDA reporting that funeral prices have increased 21 percent from 2000 to 2009, planning for final expenses is becoming increasingly important.

For those looking for a way to pay for funeral and cemetery costs, a burial insurance policy may be the solution. Also known as final expense insurance, these inexpensive life insurance policies often cost only a few dollars a week and can provide coverage up to $25,000.

Basics of burial insurance

Burial insurance is a type of whole life insurance. As the name suggests, whole life policies are good for your whole life, so long as you keep the policy in force by continuing to make your premium payments. Burial insurance is meant to provide lifetime coverage.

However, burial insurance is different from traditional whole life insurance policies in two distinct ways.

The first difference is that burial insurance does not have a cash value feature. Typically, whole life insurance policies have a built-in savings component called cash value. The savings portion of the policy grows over time, and the cash value can be tapped into as needed. However, burial insurance does not include this benefit.

The second factor setting burial insurance apart from other forms of whole life insurance is the size of the death benefit. While some whole life policies may have death benefit of hundreds of thousands or even millions of dollars, burial insurance plans are often limited to benefits of $5,000 to $25,000.

Who should consider burial insurance

Because of the smaller benefit amounts, most burial insurance plans can be purchased without a medical exam. Many policy applications require minimal information and can be ideal for individuals with health conditions who are unable to obtain other life insurance coverage.

In addition, burial insurance offers low weekly or monthly premiums that make them attractive plans for those with limited budgets. According to the Insurance Information Institute (III), premiums may be as low as $2 or $3 a week, and many companies will collect payments directly from your workplace or home. These insurance plans typically have fixed premiums that remain the same even as a person grows older.

How to buy burial insurance

Depending on the laws in your state, the III states that some funeral homes may be licensed to sell burial insurance. However, burial insurance should not be confused with pre-need insurance, which is also commonly offered by licensed funeral homes.

Pre-need insurance involves making specific funeral plans, such as selecting a casket, vault and funeral home. Upon death, benefits from a pre-need insurance policy are used to pay for the items selected by the policyholder. Burial insurance, on the other hand, is not restricted and may be used by the beneficiary for any purpose.

Other than funeral homes, burial insurance may also be purchased through almost any insurance agent or broker licensed to sell life insurance. Policies may be written for individuals or, in some cases, they may cover everyone in a family.

Like any life insurance policy, be sure you understand the details before signing on the dotted line. While most burial insurance policies generally provide lifetime coverage, some policies "term out" once you reach a certain age. Other benefits may decrease benefits as you get older.

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