Funeral Insurance: It’s Just Life Insurance Repackaged

September 19th, 2011 | Author: Mitch Reynolds

Funeral Insurance or Burial Insurance is Just Life Insurance Packaged for Final Expenses

Beware of Funeral Pre-Payment Plans vs. Funeral Insurance

Funeral insurance Canada Many Canadians have heard about funeral insurance to protect their family against the final expense costs that come due after death. No one wants to be a burden on their families once they pass, but what are your best options to provide necessary funds to pay for these expenses? If you were to look on Google for a search of “funeral insurance Canada” the top sites are all offering some form of guaranteed or simplified issue life insurance. This might be a good way to cover off final expenses, but there might be even better options.

Be careful not to fall for a funeral pre-payment plan, as these plans will not give you the same value as a funeral insurance or life insurance policy.

What if you own life insurance already?

If you already own a life insurance policy you are in luck. It is either a term life insurance plan or a permanent life insurance policy. Here’s what you do:

If it’s Term Life Insurance

Check to see if you are still young enough to exercise your guaranteed right of conversion. If so, you can convert all your term life insurance or a smaller amount of it into a permanent life insurance policy offered by your life insurance company. Determine how much permanent life insurance you will need (best done with the help of an insurance broker) and then exercise your conversion privileged. Converting without providing medical evidence to qualify for the life insurance policy will guarantee you get the best rate for life insurance, regardless of your current medical condition.

If it’s Permanent Life Insurance

If the policy you have is a whole life or universal life insurance policy, you already have permanent life insurance in place that will provide a large amount of tax free cash to your beneficiaries and your estate once you die. There are a few things to do now. Make sure the benefits are going, at least in part, to someone who is responsible for your funeral. They can use some of the life insurance proceeds to pay for funeral expenses and any other final expenses that might come due. Secondly, you need to make sure that you have enough insurance. You should plan for a minimum of $10,000 for a funeral plus the costs of taxes and legal fees. If you have a very small life insurance policy that will not cover all these expenses, you can look at getting additional coverage (see below).

Getting a new life insurance policy

When shopping for a new life insurance policy to act as funeral insurance you need to be looking at a permanent life insurance contract. A term life insurance policy just won’t do the trick. You might easily outlive a term life policy that lasts only to age 80 with most life insurance companies. If you live beyond the expiry date of the term life policy, the coverage cancels and there is now refund of premiums you have put into it. Your money will be lost, and you will be left without any life insurance. I would recommend either a whole life insurance policy or a term 100 policy.

Whole life insurance has a cash value inside the plan. The cash value grows as the policy gets older, and there are dividends being paid out by the life insurance company. You can use these dividends to increase your life insurance coverage, reduced your premium over time or even be refunded to you as a cash payout. So, a whole life insurance policy is an asset and can give you a growing level of coverage.

Term 100 life insurance is a guaranteed, permanent life insurance policy that has been stripped of its cash value component. It is simple and straight forward. There is a level premium set for life, guaranteed never to increase. You know that your life insurance policy will pay out a guaranteed death benefit when you die. This plan can be easily budgeted and set up to run just as long as you do. Simple, straight forward and guaranteed.

Guaranteed issue life insurance vs. normal life insurance

When buying a new life insurance policy you can either go through the full medical qualification for coverage, which is the normal procedure for getting life insurance, or you can opt for a guaranteed issue life insurance policy. The guaranteed issue plans, like the Canada Protection Plan, offer smaller amounts of life insurance (like $15,000 to $100,000 maximum coverage) without providing medical evidence. There are a few basic questions that you must answer “NO” to in order to qualify for the coverage; i.e. are you currently dealing with cancer, in a hospital or require long-term care assistance? If you can answer NO to these questions then you get the coverage. No nurse will visits. You don’t have to give blood or do any of the other invasive tests required for normal life insurance.

The price, however, is higher for non-medical guaranteed life insurance than for normal life insurance. The life insurance company has to price the plan to make sure they can cover the cost of future claims, knowing that their pool of insured people are more likely to pass away at an early age than the pool of normal life insurance policy owners. If you are in good health, and there are no significant health problems you are dealing with, then you should look at getting normal life insurance. Once going through the medical exam and qualifying for the insurance it will cost a lot less than the guaranteed life insurance plan. If you’re dealing with some medical issues, the guaranteed life insurance policy, issued non-medically, is your best bet at getting the funeral insurance coverage you need.

The trouble with funeral pre-payment plans

Funeral insurance should not be confused with funeral pre-payment plans. Many funeral homes and sales organizations are offering something they call funeral pre-payment plans. These can also be packaged up as funeral insurance, but they have nothing to do with life insurance. A funeral pre-payment plan is like a specialized savings plan or trust account where you invest money into an account for the costs of your funeral. The money is locked away from you so you can’t take it out and spend it during your life. Once you die, the beneficiary of the money is the funeral home you wish to be buried at. The funeral home then uses the money to pay the costs of the funeral. These plans are usually sold for 3, 5 or 10 year payment plans.

Here is the problem. This is a locked account and you don’t have access to it. This means there is no liquidity if you run into financial trouble and need cash. You’re needs might change in your life and you no longer want to be buried in Canada at a funeral home. Too bad. The money invested into this plan is for one purpose only – to fund a funeral by a Canadian funeral home. You would then have to transfer the funeral pre-payment plan to another family member, thus losing your own investment into your final expenses. Lastly, the cost is higher than life insurance. You are pre-paying the entire cost of the funeral, so you need to put in enough money to pay these costs now. If you cannot afford to make all the payments, then the funeral home can ask your family to pay out of pocket for funeral costs because there was not yet enough money in the pre-payment plan to cover the entire funeral.

Permanent life insurance has a far greater return on investment than a funeral pre-payment plan, so your premiums go further. Plus, with life insurance, your beneficiary is not the funeral home. Your family can use the cash any way they please. If this means finding a lower cost funeral home and then using the remaining money for other expenses or to create a legacy for the next generation, then they are free to do that.

Life Guard Insurance can help with Funeral Insurance for your estate

If you have been thinking about getting a funeral insurance plan, we can help. Contact Life Guard Insurance so we can have a qualified life insurance broker speak with you about designing the best life insurance plan for your funeral and final expenses. We can find either a non-medical guaranteed life insurance policy or a normal permanent life insurance plan that will cover your funeral and other final expenses.

The article was written by Mitch Reynolds+. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about funeral insurance would be very much appreciated.