The National Funeral Directors Association reports that the median cost of a funeral is around $7,500 with burial and $5,000 with cremation. For many people, coming up with the money needed to handle a loved one’s final expenses is a financial burden. Both burial insurance and life insurance can provide money to cover the cost of a funeral, viewing, and burial or cremation. Examining the features of burial insurance versus life insurance can help you decide which type of policy is right for your needs.

Life insurance and funeral insurance are similar in that they both pay out death benefits to a beneficiary after the policyholder passes away. Knowing the differences between the policies can help shoppers decide which to choose.

Some differences between life insurance and funeral insurance include the coverage amount, payout schedule, cash value, and the policy length. Here’s what life insurance shoppers need to know about the difference between life insurance and funeral insurance.

Definition

• Life insurance is a large category of insurance products that includes term life issued for a set time period and permanent or whole life, which remains in effect until you die. When shopping for life insurance, you have many options available to choose from.
• Burial insurance is a specific type of permanent insurance. Most insurance companies only offer one burial insurance plan.

How funeral insurance & life insurance works

Funeral insurance is a type of life insurance policy that’s designed to cover the cost of a funeral or cremation after the policyholder passes away. The beneficiary can use the money to pay for funeral home services, burial costs, and other related expenses. The benefit can also be used to help pay off other debts such as credit card bills and medical bills. Standard funeral insurance pays the death benefit to a person the policyholder selects. Pre-need funeral insurance pays the death benefit to a funeral home. Life insurance shoppers should be aware that if the full coverage amount isn’t used, the leftover money likely won’t be paid to the policyholder’s loved ones.

Life insurance covers a policyholder for a specific period of time, depending on what type of plan is chosen. Term life insurance provides temporary coverage that can range from a year to multiple years. Premiums are typically lower compared to other types of life insurance. Whole life insurance covers a policyholder for the duration of their life. It comes with a savings component called “cash value,” which comes from a portion of the premium. Policyholders are able to withdraw the money or borrow against it.

Differences between life insurance and funeral insurance

Coverage Amount

When it comes to coverage amount, other types of life insurance usually offer higher coverage than funeral insurance.

• Regular Term life policies can offer benefits between $50,000 and 2 million.
• The benefit amount for some funeral/burial insurance policies is up to $35,000.

Payout Schedule

• Life insurance often gives beneficiaries the option to receive a lump sum or monthly payments.
• Burial insurance usually pays in a lump sum only.

 Length of Coverage

• Life insurance allows you to choose between term policies that expire and permanent policies that don’t. If you opt for term insurance, you may have to undergo further underwriting each time you renew your policy. Your premiums may also increase with renewal.
• Burial insurance is usually a type of permanent insurance that remains in place until you die. Your premiums usually remain the same over the life of the policy.

Cash Value

• Life insurance policies that are permanent usually build up a cash value over time. Term policies do not.
• Burial insurance normally has a cash value because it’s a form of permanent insurance.

How to decide which Insurance to purchase

Deciding on which policy to purchase depends on the financial and personal circumstances of the life insurance shopper. Some shoppers may have many expenses that will need to be taken care of after their death beyond funeral costs. In this case, it may be best to choose a term life or whole life policy that provides a higher coverage amount. If funeral costs are the only debts the beneficiary will have to be concerned with; a funeral policy may be the most suitable option. Life insurance shoppers may even choose to get both, so one policy can cover the funeral, and the other can help keep their family financially stable. It’s important to keep the differences between these policies in mind when choosing a life insurance policy.

Fidelity Life offers RAPIDecision Final Expense which provides policyholders up to $35,000 of coverage. Applicants aren’t required to take a medical exam. Life insurance shoppers can also choose between simplified issue final expense insurance or guaranteed issue final expense insurance. A simplified issue is ideal for those who are in good health wanting to cover end-of-life costs. Guaranteed issue is ideal for those whose health or age prevents them from purchasing life insurance. Policy approval is given within days, and there’s no waiting period.