What Is Funeral Insurance? | Ever Loved (2024)

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While you may have heard about funeral insurance, burial insurance or final expense insurance, none of these actually exist—technically.

However, these terms are generally used interchangeably to refer to a small whole life insurance policy that is purchased with the intention of making sure that beneficiaries have money available to pay for a funeral. The average funeral costs about $9,000, so these policies generally range from about $2,000 to as much as $50,000. Due to the target audience for these policies, you should use caution when researching and purchasing funeral insurance. You may find yourself in a position where purchasing a small whole life insurance policy (that isn't marketed as a funeral insurance policy) is a better deal with better returns. Funeral insurance is marketed towards older individuals who are sometimes taken advantage of, especially if they don't have much knowledge about the funeral industry as a whole.

Why purchase funeral insurance?

Funeral insurance is one way to help reduce the odds of stress and conflict for your loved ones following your death. The majority of Americans don’t have the several thousand dollars in available savings that is needed for a funeral. Even in the case of an inheritance, the average estate takes 16 months to settle, meaning the money won’t be available when the funeral is being planned. A funeral insurance policy will make the funds needed for a funeral available quickly, so your family doesn’t need to worry about how they will cover costs.

How large of a funeral insurance policy do I need?

While the average funeral costs around $9,000, prices can vary dramatically by location, services wanted, and individual funeral home. A good starting point would be to think through the kind of funeral that you want. Do you want to be buried or cremated? Do you want there to be a viewing? Do you want a more formal funeral service or a more casual celebration of life? What kind of venue would you choose? Or maybe you’d prefer to not have a service at all. To get help understanding your options, try our free funeral planning tool.

Once you have an outline of what you want, take a look at the price lists of a few local funeral homes and cemeteries. You can add up the items to get a rough sense of what things will cost. If you're unable to find accurate price lists online for funeral homes, make some calls to your chosen funeral homes and request a price list. Funeral homes are required to provide clear and transparent price lists for their customers.

Sharing these preferences with your family will also help to simplify the funeral planning process and reduce any potential for disagreements. Make sure you also let your family know that the funeral insurance policy exists, as it'll save them time and stress when they need it. Not letting your family know about lief insurance policies increases the potential that your family will need to cover the financial burden of the funeral and that your policy will be turned over to the state.

It’s worth noting that these insurance policies are non-binding in terms of how they can be used. Even if you make your wishes known, the beneficiaries may technically use the money for whatever they wish.

If you want to ensure that the money goes toward your funeral, you may want to consider pre-need life insurance.

What is pre-need life insurance?

Pre-need life insurance involves choosing a funeral home and/or cemetery and directly making arrangements with (and payments to) them. The advantage of this type of policy is that you ensure that you have the funeral you want (without your family having to make arrangements) and that your money goes directly to it. The downside is that it generally locks you to a specific location, so it’s important to ask what would happen to your money if you happen to move or if the funeral home or cemetery goes out business. Generally, pre-need contracts are non-transferable, meaning that even if the funeral home goes out of business, you'll be unable to transfer this policy to a different funeral home. If you're concerned about this, consider simply setting aside money in a savings account to cover funeral costs when the time comes.

Are there other alternatives?

Since the money paid into funeral insurance and pre-need insurance could generate a better return if invested, some people prefer to set up a funeral trust or a shared bank account with the money needed for a funeral. As with funeral insurance, however, there’s no guarantee that the money will go toward what you wish, so conversations with family are critical.

Every family’s situation is different, so you should do your own research to decide which payment option makes the most sense for you. Regardless, talking about your funeral wishes with your family in advance is almost always helpful.