Should Seniors Consider Funeral Insurance?

funeral grave stoneNobody wants to think about it, but the fact is we’re all going to die someday. Hopefully not for a long time, and only after a full and happy life. But this inevitable truth should be approached with a little forethought, particularly for the loved ones you may leave behind. On top of the grief that your passing will no doubt inflict upon them, there can be financial burdens as well. You might want to look into funeral insurance to spare them from this concern.

Dying Doesn’t Come Cheap
Many spouses, families and beneficiaries are blindsided by the costs of a loved one’s burial and final arrangements, and having to make nickel-and-dime decisions at that raw moment can add to their mourning anguish.

The average cost of a typical funeral in North America is around $7000 to $10,000. This usually includes the funeral home service, cemetery burial and installation of a headstone. Depending on the package, it may or may not include fees for the casket, embalming, grave digging, flowers, obituary placement and the like.

Even a low cost cremation and no-frills memorial service can set you back $2000 to $4000. And costs keep going up as the years progress. One company projects the average cost of a traditional funeral will rise to $18,276 by 2030. Who knows what the number will be when your number is up.

Death and Taxes
It’s not just the funeral costs that hit you at the end. You may have other lingering debts, probate fees and expenses that have to be wrapped up. Any income or capital gains made after your death will most likely be considered income of your estate. Your executor or personal representative will have to pay taxes on that income with money from your estate.

If you happen to owe back taxes, the IRS will automatically attach an “estate lien” to your property upon your death. Your next of kin won’t be vulnerable to collections for your tax debt after your demise, but the money and/or assets you intend to leave them can be. Any outstanding tax liability must be paid before your your heirs are allocated anything.

Sorry, but the taxman doesn’t give you a pass just because you’ve passed on.

Enter Funeral Insurance
You’ve probably seen the touching ads that tout funeral insurance as the most important thing you can do for your family and friends so they don’t struggle to pay for your funeral and settle your final bills.

Sometimes referred to as burial insurance, final expense insurance or pre-need insurance, this is a niche product that is particularly marketed to seniors. Some policies or contracts only pertain to funeral expenses, while others are sold as a prudent proactive option for aging adults who want to ensure their financial loose ends are tied up as they depart this mortal coil.

It can be quite complicated to navigate the various options out there, so take your time to understand the details before signing on the dotted line or writing a check. Some require one lump-sum payment, while others involve continuing monthly premiums. Some require a medical exam, a medical questionnaire or no medical information at all (prices vary accordingly). Many of these policies are a form of life insurance that designate a family member as the beneficiary, who can then allot the money to various expenses. Others are more of a pre-paid funeral plan with a funeral director or funeral home on the contract, so the money goes directly to them to make all the necessary arrangements for a final send-off.

Here are some things seniors should to keep in mind when considering funeral insurance:

  • Research all the different options out there so you are well informed of the pros and cons before speaking with a provider.
  • Coverage is usually best suited for those 50 to 85 years old. Plans get more expensive the older you are.
  • Burial insurance is easy to get and many policies do not require a medical exam. However, policies with better death benefits usually require that you complete a medical questionnaire and not be terminally ill. You pay more if you want to avoid medical questions.
  • Women usually pay less than men for these types of policies.
  • It is essentially a whole life insurance policy, but with a significantly smaller benefit amount than traditional life insurance. Many are in the $5000 to $10,000 range, so try to calculate how much you’ll need to take care of final expenses.
  • Don’t buy coverage that isn’t essential. Figure out if you have life insurance or savings that can be used for these expenses already. Burial insurance may not offer as much value per premium dollar as a larger life insurance policy.
  • Be aware that guaranteed issue policies do not pay a death benefit for the first two or three years of the policy. However, if the insured dies within the waiting period, the beneficiaries will usually get back the paid premiums, plus interest.
  • Review your local laws before you meet with a funeral director or insurance agent. Note, there are some unscrupulous ones out there that are more focused on making a sale rather than meeting your need. Always discuss the policy and plan with your family and a lawyer.

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