Burial insurance, funeral insurance or final expense insurance is a category of whole life insurance. The main aim of this insurance policy is to pay for your end of life expenses when you pass away. End of life expenses include funeral and burial costs, debts, unpaid bills, etc. Burial insurance last forever and the premiums never change because it is a whole life policy. This makes is simpler and less complex to understand.
Here is how this policy works, as long as you live, you pay your insurance company a certain amount, the premium. When you pass away the insurance company pays your beneficiaries a tax free lump sum. The beneficiaries use this amount to pay for your end of life expenses. Once those expenses are covered, the amount left is the beneficiaries’ and they have the freedom to use it however they like.
You need to remember that final expense insurance cannot be expected to cover major expenses like college tuition or income replacement or buying a house, like other whole life insurance policies. Its sole purpose is paying your end of life expenses.
What are the major components of burial insurance policies?
Premium payments, cash value and death benefit are the three main components of all burial insurance policies.
This is the cost of coverage for your insurance policy. You have the choice of making this payment yearly or more frequently, every 6 months, 3 months, or monthly. Annual payments can be a good idea in the long run as many insurers charge more for frequent payments and offer discounts on annual payments.
Also known as face value, the death benefit, is the amount the insurance company pays your beneficiaries on your death. The amount of the death benefit is decided by you based on the insurance policy you buy.
For whole life insurance policies, a part of your premium goes to building the cash value. This cash value accumulates tax deferred in a separate account. It takes a very long time to accumulate, mostly decades. You have the choice of withdrawing from it during your life.
Though you can borrow from it, do keep in mind that you are charged interest from the first day till you return the amount. If you are unable to return the amount, it will be deducted from your death benefit. So if you pass away, your beneficiaries will receive a very small or no death benefit at all.
If you decide at any point in your life that you do not want to continue with you burial insurance policy, you can surrender it. In that case, the insurance companies pays you the death benefit. When you pass away, the cash value stays with the insurance company, the beneficiaries only receive the death benefit. The beneficiaries only get both the death benefit and cash value, if you purchase a rider that states that.
Is burial insurance unique?
Burial insurance has some very unique advantages as these policies are designed specifically for end of life expenses. These policies can absorb a lot risk.
A process called underwriting is used by insurance providers to price risk. It involves the evaluation and analyzing of risk associated with a potential client. This is then used to calculate the probability of the client claiming the policy.
Since burial insurance is designed for people who might have health issues, it has the most lenient underwriting among other insurance types.
Small Face Value
The death benefit is also known as face value. Funeral insurance gives you the choice of opting for coverage as low as $1000! Traditional insurance policies generally have a minimum of $50,000. This is a great feature as you only purchase as much as you need.
$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.
Is $5000 burial insurance really worth it?
When you start looking for insurance, you need to start with a number. This number may change once you analyze your needs, requirements and budget. Though a $5000 policy is a cheaper life insurance policy, here are some reasons why a $5000 life insurance policy isn’t a bad idea.
Purchasing a cheaper life insurance policy at the start is a good idea. If you feel that it isn’t enough, you can always get more coverage. Buying a policy that isn’t affordable from the very beginning will only break your bank and result in a policy lapse in the worst case.
Saves you family drama
A loved ones greed for money, it is a sad reality. If you fear family drama after your death, insure an amount that will only cover your end of life expenses and leave nothing for your family. A cheaper life insurance policy is the best for such cases.