Is funeral insurance a good option for you and your family?

Heather Larson

Even though nobody wants to think about the two certainties of life -- death and taxes -- that doesn't make them go away. While insurance can't help with your taxes, it can help you preplan for your funeral and its associated expenses, so these expenses won't fall to your loved ones when you die.

This type of insurance is known as funeral insurance, prepaid funeral coverage, or pre-need insurance. Although the names change, the product remains the same. Insurer Gerber Life, based in Michigan, calls this insurance a guaranteed life insurance plan. People aged between 50 and 80 can purchase a policy worth $5,000 to $20,000 without having to get a medical exam.

funeral insuranceBut should you purchase funeral insurance? And does it offer coverage that a good life insurance policy doesn't?

How funeral insurance works

Funeral insurance is a lower-cost coverage than regular life insurance because it is designed to only pay someone's final expenses. While most life policies will pay out $250,000 to $1,000,000, a funeral policy usually doesn't go over $50,000.

A funeral insurance policy typically covers the cost of the funeral, preparation of the body, a place for friends and family to view the body prior to the funeral, a cemetery plot, the casket and all associated expenses, says Karl Newman, president of Northwest Insurance Council in Seattle.

"(Funeral insurance) payouts vary by carrier, but many send a check within a few days of receiving the death certificate," says Ray Smith, vice president of marketing for StoneMor Partners, a full-service cemetery and funeral home corporation in Pennsylvania.

According to the National Funeral Directors Association, the average funeral cost $6,560 in 2009 (the last year verified). To make the math easier, let's say a $10,000 policy will cover your final expenses.

Premiums for funeral insurance and life insurance can vary according to age and the health status of the applicant. Smith says that generally a 65-year-old woman in good health can conceivably purchase a $10,000 whole life insurance policy for $50 a month. A whole life insurance policy ensures the policyholder is insured for life, as long as they pay their monthly premiums until the end of their life.

However, if this same 65-year-old woman buys $10,000 of funeral insurance through a carrier in Oklahoma, she could pay $345 per month for three years or $247 per month for five years.

Who benefits?

If you're a single senior with little or no debt, and no children or if you haven't been able to qualify for standard life insurance, you might want to investigate funeral insurance.

Smith says, "Final-expense insurance appeals to these target consumers: those of advanced age with limited incomes and little or no savings, people with no life insurance and individuals with declining health."

Funeral policies are often issued on a guaranteed basis. That means older people and those with health issues can still obtain coverage, says Rob Drury, executive director of the Association of Christian Financial Advisors in San Antonio, Texas.

Funeral insurance may give the insured peace of mind, because when they die, the payout will cover burial or cremation arrangements without financially impacting their loved ones.

What are the downsides?

Nontraditional insurance like funeral insurance almost always costs more than traditional life insurance, because older people or those with health problems buy these policies, Drury says. Often these people can't get traditional life insurance or if they can, their premiums will be expensive.

According to Drury, it's much better to plan earlier in life and purchase a life insurance plan, which can pay out for your funeral as well as leave a financial legacy for your loved ones.

"Permanent life insurance such as whole or universal life can meet your final needs protection. They can be purchased earlier in life at a very reasonable cost and are intended to remain in force until you die," Drury says. "I recommend comprehensive planning as soon as one has children, and this planning should include funeral expense."