Introduction
Preparing for one’s passing is probably something we’d all rather not think about. However, planning for something practical like funeral insurance can make a world of difference for your loved ones during a time of loss. Funeral insurance pays an agreed amount to your beneficiaries when you pass away. While it’s intended to cover the costs of your funeral, generally the lump sum can be used for any purpose. With so many product options available, it can be a challenge to find the right policy. The following considerations can guide your decision-making process and make it easier to find the best value policy for your requirements.
1. Benefit payout vs final expenses
Your benefit payout or sum insured is the amount specified in your policy. This is paid out in a lump sum to your beneficiaries upon your passing. Funerals can cost thousands or tens of thousands depending on your final wishes. Consider how much you will need for your funeral, so you have a clear idea of how much your benefit payout should be. For example, you will need to factor in the costs of burial or cremation, casket, funeral service, and burial plot. If you will have other funds left over in your estate, you might need to be insured for only some of your funeral costs.
Also, consider other costs for your beneficiaries that could be covered by your benefit payout. For example, depending on your estate plan, your estate could be paying thousands or more in taxes. Given this, you could plan to have some of your benefit payouts to cover your taxes so your beneficiaries aren’t disadvantaged.
2. Accidental death, illness, and injury cover
Although funeral insurance is designed to cover the costs of your funeral, some insurers offer additional add-ons. These include terms relating to accidental death, illness, and serious injury. You can choose to add these options to life insurance for seniors to your policy.
- Accidental death – With this add-on, your insurer makes an extra payout to your beneficiaries if you pass away from accidental death.
- Terminal illness – This add-on pays out an early lump sum in the event of a terminal illness diagnosis.
- Serious injury – This option means you will receive a payout if you experience a serious injury.
3. Premiums and caps
When reviewing premium-related terms, consider how much you’ll likely pay in premiums and whether it’s likely going to end up being more than your estate receives in a payout. It’s essential to think about how much you can afford to pay and the preferred frequency of your installments.
It’s a good idea to choose a funeral insurance product with level premiums. This means your premiums stay fixed instead of going up every year. By contrast, stepped premiums increase with each birthday. Also, a great policy will have terms for premium waivers for financial hardship; this is usually a temporary waiver to help you get back on your feet.
Additionally, you’ll likely come across products with either a sum insured cap or an age cap. The former means your premiums stop when the total premiums you’ve paid reach the sum you’re insured for. The latter means your premiums stop when you reach a certain age, such as 85. Some hybrid products are a mix of both, where your premiums stop when you meet either cap. Understanding which applies helps you with your budget and paying premiums.
4. Exclusions
Understanding the exclusions can also help you compare funeral insurance policies more effectively. It’s common for insurers to cover you only for accidental death in the first 12 or 24 months of you taking out the policy. After this initial period, you will be covered for any cause of death.
Most policies pay your beneficiaries a lump sum to spend as they choose. However, others may exclude or have capped costs for specific options such as cremation, headstones, or burial plots.
5. Process for claiming
Check the insurer’s process for claiming and make sure it’s as straightforward as possible for your beneficiaries. Review their timeframe for making payouts and check whether they have a contact support team for resolving any issues.
6. Additional terms and conditions
Other terms and conditions to consider include joint cover, which allows you to take out cover with your spouse or partner at a discount. Typically the main criteria for eligibility is meeting age and residency requirements and insurers won’t require medical checks unless you add an illness option onto your policy.
Funeral insurance comes in the form of whole life or term life policies. A whole life policy applies until you pass away. A term life policy will expire when you reach a given age or when you’ve had the policy for a given period, whether it’s 20 or 30 years. At that stage, you’ll receive your payout to spend as you like. You could be paying more in premiums with a whole life policy but it guarantees your beneficiaries will have the funds when they need it.
Conclusion
Taking out funeral insurance can make a time of grief easier and less stressful for your loved ones. Consider what your costs will be and make sure your payout figure is adequate. Review whether you’d like to be covered for extras such as illness and accidents. Check the premiums are in line with your budget and review the claims process as well as exclusions with care. By following these tips, you should be able to find a good value policy that meets your requirements.