How does Burial Insurance Work?

Have you ever wondered how burial insurance works?

In most cases, “Burial Insurance” refers to a whole life policy with a death benefit that is sufficient to cover funeral and burial expenses.

Recent surveys show that the average funeral and burial can cost from $8,000 to $12,000 depending on the bells and whistles that you would like to add to a traditional service.

Most people who buy these types of policies are seniors who want to have peace of mind knowing that their final expenses will not be left to surviving loved ones and family members.

Although burial insurance or some form of pre-need insurance can be purchased through your neighborhood funeral home, the best value and rates are generally offered by private insurance companies.

Is Burial Insurance Affordable?

Whether your burial insurance policy is affordable depends on several things that must be considered when shopping for a policy:

• Your age at the time of purchases (the younger, the cheaper)
• Medical history and current health issues
• The death benefit you prefer
• The company you select
• The plan you qualify for

So then, to get an idea if your burial insurance will be affordable for you, we need to take a look at what a burial insurance policy will cost.

Let’s say that Sam Jones and Kathy Jones are healthy non-smokers and are looking to purchase a $10,000 burial insurance policy to cover their funeral and burial when they die.

Here’s what Sam and Kathy can expect to pay each month for that $10,000 policy from Liberty Bankers Life Insurance Company:

Although these are accurate quotes, Sam and Kathy would need to get a quote for each of the actual ages and remember that all quotes are subject to underwriting.

What Sam and Kathy do not need to worry about is a medical exam. Because the majority of companies that offer burial insurance policies never require a medical exam or blood and urine tests.

What if I don’t qualify for the best Plan because of Medical Issues?

Most companies offering Burial Insurance are aware that many seniors have common health issues and as such, the company will offer a secondary plan that is designed to accept applicants who don’t medically qualify for a LEVEL benefit plan (lowest rates with first-day coverage).

These secondary plans are call graded-benefit plans and they allow the insurance company to accept high-risk applicants. Here’s how they work.

Let’s Sam (from our earlier example) indicates that he is dealing with diabetes and COPD, and those conditions together disqualify him from getting a level benefit plan.

Sam’s independent agent sends his application to a company that offers a graded benefit plan that will accept an applicant with diabetes and COPD.

Sam would then be offered the graded-benefit plan that has higher rates and a two-year period when if he dies from natural causes, the company would pay a graded death benefit.

Although these plans can vary from company to company, Sam could expect the following if he died within the first two years from natural causes.

1. First Year – Sam’s beneficiary would receive 30% of the full death benefit
2. Second Year – Sam’s beneficiary would receive 70% of the full death benefit
3. Third-year and afterward – Sam’s beneficiary would receive 100% of the full death benefit.

However, if Sam’s death resulted from accidental causes, the beneficiary would receive the full death benefit from the first day of coverage.

Here is what Sam should expect to pay for a $10,000 Burial Insurance Plan with a graded death benefit:

For example, if Sam died in the 9^th month of his $10,000 graded benefit plan, his beneficiary would receive 30% of the full death benefit ($10,000) or $3,000. If he died in the 23^rd month of the policy, Sam’s beneficiary would receive 70% of the death benefit ($10,000) or $7,000.

Then in the third year and after, Sam’s beneficiary would receive the full death benefit of $10,000.

What if I don’t medically qualify for the Level Plan or Graded Benefit Plan?

The good news is that there is a third plan called a Guaranteed Issue (Guaranteed Acceptance) Plan available to those seniors who do not medically qualify for the level benefit or graded benefit plan.

In fact, with a guaranteed issue plan, the insurance company doesn’t consider the applicant’s health conditions at all. There is no medical exam and there are no medical questions. Virtually, anyone who is alive between the ages of 50 and 80 can buy a guaranteed issue burial insurance policy.

The insurance company will, however, charge higher rates and require a two-year waiting period before they will pay the full death benefit for death from natural causes.

The waiting period and higher rates offset the risk of accepting an applicant that is an unknown medical risk. The guaranteed issue burial insurance policy should not be considered unless the applicant’s application has been denied for a level benefit and graded benefit burial policy.

Here are actual rates for a $10,000 guaranteed issue Burial Insurance Plan:

As was mentioned earlier, seniors should never apply for guaranteed issue life insurance until they’ve exhausted all attempts to purchase level benefit or graded benefit burial insurance.

We have found a few companies who advertise on TV their “guaranteed acceptance” plan to everyone but fall short of explaining the higher rates and waiting period that will come with every policy purchased.

Hopefully, now that you have a better understanding of how burial insurance works, you’ll feel comfortable about buying a plan that is the right fit for you and your budget.