What Is Funeral Insurance? A Clear Guide to Coverage
What is funeral insurance?
Nobody wants to think about funeral costs when planning for the future. But the reality is that these expenses can create a significant financial burden for your loved ones at an already difficult time.
Funeral insurance is a permanent life insurance policy that helps cover end-of-life expenses like funeral services, burial, or cremation costs. You might also hear it called burial insurance or final expense insurance. When you pass away, your beneficiaries receive a lump-sum payment to help with these costs.
Unlike regular life insurance policies that provide broader financial support, funeral insurance focuses on one specific need – covering funeral expenses so your family doesn’t have to worry about the money during their time of grief. The coverage amounts are smaller than traditional life insurance, typically ranging from $5,000 to $25,000. Regular life insurance policies often provide much higher coverage, sometimes over $100,000.
One advantage of funeral insurance is that you usually don’t need a medical exam to qualify, regardless of your age or health. This makes it accessible for older adults or people with health issues who might have trouble getting approved for other types of life insurance.
Your beneficiaries can use the death benefit to pay for:
Funeral or memorial service costs
Burial or cremation expenses
Casket or urn purchase
Embalming services
Funeral director fees
Transportation
Headstones or grave markers
Obituary notices
Flowers and tributes
The money can also help cover other final expenses like outstanding medical bills, legal fees, credit card debt, or remaining mortgage payments.
With funeral insurance, you pay the same monthly premium throughout the life of the policy, and the death benefit stays the same. The policy remains active as long as you keep making your premium payments. Keep in mind that many policies include a two-year waiting period. If you die within those first two years (unless it’s from an accident), your beneficiaries will only receive the premiums you paid rather than the full benefit amount.
Funeral costs in Canada continue to rise. Cremation typically costs between $2,000 and $5,000, while burial expenses can range from $5,000 to $10,000 or more. Without funeral insurance, your family would need to pay these costs out of pocket or from money you’ve set aside.
How Does Funeral Insurance Work?
Funeral insurance works quite simply. You pay regular monthly premiums to your insurance company. When you pass away, your beneficiaries receive a tax-free lump-sum payment to help cover final expenses.
Premium Payments and Policy Terms
You’ll pay the same monthly premium amount throughout your policy. These payments secure coverage that typically ranges from $5,000 to $25,000. This amount aligns with actual funeral expenses in Canada. Cremation costs range from $2,000 to $5,000, while burial expenses can reach $10,000 or more.
Unlike term life insurance, funeral insurance covers you for your entire life. As long as you keep paying your monthly premiums, your coverage stays active. You won’t need to undergo a medical exam to qualify, which makes it accessible regardless of your age or health condition.
Claim Process for Beneficiaries
When you pass away, your beneficiaries need to contact the insurance company to start the claims process. They’ll need to provide several documents:
Completed claim form
Death certificate or Funeral Director’s Proof of Death
Policy document
Proof of age (passport, driver’s license, or birth certificate)
Any required medical information
If death occurs outside Canada, additional documentation from that country will be required. Insurance companies typically process claims within two weeks of receiving all the necessary paperwork. This quick turnaround helps your family access the funds when they need them most.
The payout is a tax-free lump sum that your beneficiaries can use however they choose. This system helps ensure your loved ones won’t face financial stress during an already difficult time.
Funeral insurance vs other life insurance options
When you’re looking at funeral insurance, you might wonder how it compares to other life insurance products. Each type serves different needs, so understanding these differences can help you make the right choice for your situation.
Funeral insurance vs term life insurance
Term life insurance and funeral insurance work very differently. Term policies cover you for a specific period, usually between 10 to 40 years. If you outlive the term (without renewing it), there’s no payout. Funeral insurance, on the other hand, stays active for your entire life as long as you keep paying the premiums.
The coverage amounts tell a different story too. Funeral insurance typically offers modest benefits between $5,000 and $25,000. Term life insurance provides much larger coverage amounts, often $100,000 or more. But here’s the catch – term life insurance usually requires medical exams (unless you opt of No-Medical Life Insurance), while funeral insurance generally accepts you regardless of your health.
If you’re looking at cost per dollar of coverage, term life insurance wins. It’s much cheaper for the same amount of protection. But remember, those lower premiums only last for the term period, not your whole life.
Funeral insurance vs whole life insurance
Both funeral insurance and whole life insurance are permanent policies, but they serve different purposes. Whole life insurance offers much higher coverage amounts and includes a cash value that grows over time. This means you can potentially borrow against your policy or use it as an investment tool.
Getting whole life insurance typically involves detailed medical underwriting, which can exclude people with health problems. Funeral insurance uses a simpler application process, making it easier for seniors or those with health issues to qualify.
Most funeral insurance policies have a two-year waiting period where you only get your premiums back if you pass away (unless it’s accidental). Whole life insurance usually provides full coverage right away once approved.
Both types keep your premiums the same throughout the policy. But whole life premiums cost more because of the cash value feature and higher coverage amounts.
The question is: what do you actually need? If you’re mainly concerned about covering funeral costs and can’t qualify for traditional insurance, funeral insurance might be your answer.
Is funeral insurance worth it?
Deciding whether funeral insurance makes sense for you isn’t always straightforward. It depends on your health, age, and financial situation.
For some people, funeral insurance is the right choice. If you’ve been turned down for traditional life insurance because of health issues, or if you have a serious condition like cancer or heart disease, funeral insurance might be your best option. You can get coverage without a medical exam, which means you won’t be denied because of your health.
But if you’re healthy, you might want to think twice. Buying term life insurance often gives you better value for your money. Here’s something to consider: if you live longer than expected, you could end up paying more in premiums than your beneficiaries will ever receive.
The coverage amounts are modest too. Most funeral insurance policies pay between $5,000 and $25,000. That’s usually enough to cover funeral costs, but it won’t help your family with other expenses like paying off debts or supporting dependents. And don’t forget about the waiting period – if you die within the first two years (unless it’s an accident), your beneficiaries only get your premiums back, not the full benefit.
Still, funeral insurance does have its advantages. No medical exam, fixed premiums that won’t increase, and quick payouts to your beneficiaries. For peace of mind, you know that your funeral expenses are covered if you unexpectedly pass.
When you’re trying to decide, think about your specific situation. How’s your health? What’s your age? Do you already have some life insurance? What are your financial goals? If you want broader protection beyond just funeral costs, you might want to look at traditional life insurance options first.
The best insurance coverage is one which fits your individual needs. Connect with the professional Canadian insurance brokers at Maple Bay Insurance to discuss which option will work best for you and your family.