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Ask the Life Insurance Expert

Q

What are some ways other than prepaying for a funeral to make sure the expenses are paid when I die? I don't know that I want a full out life insurance policy.

A

If you don’t want a traditional life insurance policy, consider purchasing burial insurance (also known as final expense insurance).

Burial insurance is a life insurance policy with minimal benefits compared to standard life insurance policies.  A small, traditional funeral with burial costs can easy run around $10,000.  You’ll find burial policies as either term life or whole life. If you want to make sure the policy lasts until your death, choose a whole life product.

Unlike most traditional life insurance policies, with burial insurance you can’t be turned down due to medical issues. 

However, the lack of a life insurance medical exam  makes final expense insurance relatively expensive compared to other types of life insurance.

Another downside is that burial insurance typically doesn’t payout during the first two years.  If you pass away before that, your heirs may be entitled to a refund of your paid premiums plus interest, but that’s it. 

Final expense insurance may also have age restrictions. For example, State Farm only makes it available to those age 50 to 80.

Burial insurance can be a better choice than a prepaid funeral policy.  Many issues can crop up with prepaying a funeral home.  For instance, the funeral home can go out of business, or you may move away and want to be buried elsewhere.

If you have money of your own that you’d like to set aside for burial expenses, another option is to set up a payable-on-death (POD) bank account, also referred to as a Totten trust (named after a 1904 court case that helped lay the groundwork for this type of bank account).

With a POD, the beneficiary has no right to the money while you’re alive, but after your death he or she can collect the funds. This money isn’t required to go through probate; thus, it’s available right away to pay for your funeral expenses.

Last updated: Sep. 2, 2014