What is Burial Insurance?
Burial insurance is a type of whole life insurance. It is also known as funeral insurance or final expense insurance. The purpose of this insurance is to provide for any end of life expenses like funeral and burial costs, debts, bills, etc. Burial insurance policies are very simple to understand. They never expire as they are whole life, the cost of the premium cannot change, and neither can the death benefit.
How the policy works is simple, you make your payments to the insurance company throughout your life and on your death the insurer pays your beneficiaries a lump sum. The beneficiaries use this money to pay for your end of life expenses. After those costs are covered, if some money is left, it is the beneficiaries’, and they are free to use it however they like.
It is also important that you remember that unlike other whole life insurance policies, the sole purpose of final expense insurance is to cover your end of life expenses and not replace income or pay for huge costs like buying a home or paying college expenses.
What are the main components of burial insurance policies?
All burial insurance policies have three main components, the premium payments, the death benefit and the cash value.
The premium payments are the cost of the life insurance policy. You can make this payment yearly or more frequently. You have the option of paying it yearly, every 6 months, 3 months, or monthly. But keep in mind that insurance providers often charge more for frequent payments and may offer discounts on annual payments.
The death benefit, also known as the face value, is the amount your beneficiaries receive on your death. The amount of the death benefit is decided by you based on the insurance policy you purchase.
For whole life insurance policies, part of your premium payments go to building the cash value. This cash value stays in a separate account and grows tax deferred. It takes a very long time to accumulate, decades in most cases. You can withdraw from it during your life.
It is important to remember that although you can borrow from it, you will be charged interest from the very first day and if you die before paying back the amount you borrowed, the death benefit will be reduced by that amount. So if you borrow, be sure to borrow an amount that you can pay back, as failure to do so may leave very little or nothing for your beneficiaries.
If at any point in time you decide to surrender your burial insurance policy, you get the cash value. The cash value goes to your insurance company when you pass away, unless you purchase a rider that specifically asks that it be given to your beneficiaries.
How is burial insurance unique?
Since burial insurance policies are designed specifically for end of life expenses, they can absorb a lot risk. This gives buying final expense insurance some unique advantages.
Underwriting is the process used by insurance providers to price risk. This involves evaluating and analyzing the risk associated with a potential client, estimating the coverage they may need and then calculating the likelihood of them claiming the policy.
Burial insurance has the most lenient underwriting, because it is designed for people who may have some major health conditions.
Small Face Value
Face value is another term for the death benefit. Final expense insurance gives you the option for getting coverage as low as $1000! This is an amazing feature as it allows you to buy as much coverage as you need. With traditional insurance policies, the minimum face value is usually around $50,000.
$5000 Burial Insurance Companies
This section will give you a brief overview of the different insurance providers that offer $5000 life insurance policies.
The prices for these $5000 life insurance policies are non-tobacco. So if you have smoked during the last one year, you will have to pay around 20% to 50% more as compared to the non-tobacco users in your age group. The exact rate will vary depending on the insurance company.
If you use pipe or chew tobacco, there may be some insurance companies that will offer you non-tobacco rates.
As mentioned above, all the $5000 life insurance policies are whole life insurance therefore the rates will remain constant and the policy will not expire.