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Funeral insurance is a type of coverage that pays for your funeral costs in advance or provides money to a beneficiary who can then pay for your funeral.

Funeral expense insurance is designed specifically to pay funeral costs, including cremation, casket, burial and the cost of the funeral service itself. There are some funeral insurance plans, often called burial or pre-need insurance, that don’t pay any money to your family, but instead pay the funeral home directly for your expenses.

Below we’ll cover what funeral insurance is, how it differs from final expense insurance, and whether funeral coverage insurance is a good choice for you.

KEY TAKEAWAYS
  • Funeral insurance is a type of policy that's designed mainly to pay for funeral expenses.
  • Both final expense policies and pre-need policies are considered types of funeral insurance, but each pays out differently.
  • Any life insurance death benefit can be used by the beneficiary to pay for a funeral.

What is funeral insurance?

Funeral insurance is a term that can refer to a few different types of policies. First, there’s final expense insurance.

These are small guaranteed-acceptance life insurance policies marketed to seniors specifically for funeral expenses. "Guaranteed acceptance" means you don't have to answer questions about your health or undergo a medical exam.

These policies are easy to obtain, and may also be called burial insurance. They have a small death benefit that is usually just enough to pay for a funeral. The payout goes to the beneficiary of your choice, who will then pay for the funeral.

The term funeral insurance can also refer to pre-need insurance, which is a different type of policy altogether. And, of course, since traditional life insurance can be used for any expenses, it's technically funeral insurance, too. 

What is pre-need insurance?

Pre-need insurance is another policy sold by funeral homes to pay for funeral expenses. With a pre-need policy, you choose the services you want for your funeral and buy a policy to cover the cost.

Many funeral homes have licensed life insurance agents on staff who sell pre-need policies. In some states, you name the funeral home director as the beneficiary, so the proceeds go directly to the provider to carry out the funeral according to your plans.

Other states don't allow you to name the funeral home as the beneficiary, so you must name someone you trust to fulfill your wishes.

Many funeral homes guarantee prices, such as fees for overhead, transferring, embalming, hearse and other basics, says H.W. "Skipper" Ragsdale III, a fourth-generation funeral professional and a licensed life insurance agent in San Diego. With a guaranteed pre-need policy, you don't have to worry about prices escalating and exceeding the death benefit.

Not all policies include this guarantee, so make sure you review the contract and understand exactly how much you'll pay, what's guaranteed and what will happen if you can't pay the premiums.

"It's for the person who wants to have his funeral paid for and all choices made and written down, so the family doesn't have to worry about anything," Ragsdale says.

With a pre-need policy, the carrier pays the death benefit immediately – a major benefit, says John E. Lindquist, president and CEO of Great Western Insurance Co., a pre-need insurance carrier headquartered in Ogden, Utah. By contrast, you might wait 30 to 60 days to get the money from a traditional life insurance policy.

What does funeral insurance cover?

If you choose to buy a final expense policy that pays out a death benefit to your beneficiaries, they can use it to pay for whatever they want. Since there’s really no way to stipulate how it’s spent, it can be used for any of your funeral expenses and even non-funeral costs.

What expenses other types of burial insurance cover depends on your selections. With a pre-need policy, you’ll be covered for exactly what you selected when you made the purchase.

How much does funeral insurance cost?

The cost of a burial insurance policy really depends on the type of coverage, how much coverage you want, and personal factors like your age and health status.

The cheapest funeral insurance is not always the best choice; you might not end up with enough coverage. It’s important to shop around and compare not only quotes for your final expense coverage but also other ways to pay for your funeral.

Alternatives to funeral insurance

While it's important to know how your funeral expenses will be paid, don't forget to look at other expenses your loved ones will incur after you're gone.

Scott Zuckerman, president and CEO of Wexford Financial Strategies in New York, urges you to consider other needs besides the funeral, such as paying medical bills, paying off a mortgage and protecting an estate for heirs.

"It's difficult to peg what final expenses are," he says.

Zuckerman recommends talking to a trusted financial adviser to get a handle on what those expenses might be and the amount and type of life insurance to buy. Rather than purchase a small, guaranteed issue life insurance policy or a pre-need policy for your funeral, you might want to buy a larger, traditional life insurance policy, which could take care of funeral expenses as well as other financial needs your family might have.

You should also look into other ways of saving for a funeral. Your money will likely see more growth and provide more for your final expenses if you invest it wisely rather than paying life insurance premiums.

Frequently asked questions: Funeral insurance

Does life insurance cover funeral costs?

Life insurance pays out a death benefit to your beneficiary. They can use that money to pay for your funeral. The policy itself doesn't provide a specific funeral payment.

Is funeral insurance worth it?

There are a lot of ways to plan for funeral costs, and life insurance is just one of them. Whether or not it’s worth it depends on your personal circumstances. If you have very specific desires for your funeral, pre-need insurance is a way to ensure it happens the way you want it to. That may be worth it to you.