Can Life Insurance Cover Funeral Costs?
It Sure Can!
Can Life Insurance Cover Funeral Costs? Yes, it can and in fact, I think it’s a terrific tool.
When people think about life insurance, term coverage is what usually comes to mind. This type of coverage provides income protection for a period of time when your family is most vulnerable.
Hey if you have dependents, debt and your income is needed to pay the bills then life insurance is a no brainer.
But what about later in life? If you had term coverage and it expired there is no payout to rely on to pay funeral costs and/or the final tax bill.
So who is going to foot that bill? Your family is, that’s who.
This is where life insurance comes to the rescue. Let’s find out some more information now!
Why Should You Listen to Me?
Before we really get into this meat of this article I want to introduce myself. My name is James Heidebrecht and I am the founder of Policy Architects.
When I first embarked on my search for life insurance there was very little user friendly information out there. The truth is, my wife searched for Life Insurance on Google and entered her name and contact info to get a quote from a random agent.
Thankfully our agent was the best – but that didn’t have to be the case.
Fastforward many years later and now I am running my own business. My goal is to provide all the information you need to be informed BEFORE you speak to an agent.
A lot of people lose money because they don’t really have a grasp on what they need before they buy their coverage. Hopefully I will help a few people avoid this situation.
Now Back to Business: Can Life Insurance Cover Funeral Costs?
If you are wondering – do life insurance policies cover funeral costs – you are far ahead of the pack. Most people don’t really think about death until it’s pretty late in the game and even fewer look at the available tools. So congratulations. You are thinking about those you love and planning for future generations.
Did you know that funerals are very expensive? Yeah, they sure are. In Canada, the government through the Canadian Pension Plan (not to be confused with CPP insurance) offers a benefit of $2,500 to help with costs.
There are two issues with this. First and foremost the average funeral costs in Canada today are $8500 and can even go up to $15,000….ouch…
…and this doesn’t include outstanding tax obligations etc. connected with passing away.
The second issue is the speed of receiving the benefit. This cash is not going to arrive right away. Where is the money going to come from when the funeral parlor is looking for payment?
“How much is it going to cost?” This is, undoubtedly, one of the questions we are most often asked. Unfortunately, there is no simple answer, as funeral costs vary greatly. We did a Google search on the “average cost of a funeral in Canada”; headlines from the first page of search results included the following:
- the average overall cost is $8,500
The cost of a funeral can start from $5,000 to a very basic one … on average a funeral cost can be $15,000
- A traditional burial (including a casket, funeral, and cemetery costs) averages around $7,000 to $10,000
- The costs of funerals varies enormously. But on average, burials cost between $5,000 – 10,000.
- Cremations cost considerably less from $2,000 to $5,000.” How much is it going to cost?, InMemory.ca
The Funeral Bill Goes to Your Family
I think this is something that escapes most people. When you die, the bills are going to be attached to your estate – and your family.
So if your final wishes are to be buried next to your grandparents in a casket, with a small party to celebrate your life – it’s your kids, wife of some other person you care about that handles all the details.
For most people $8,500 is a lot of money… if your daughter has to pick up the bill and she has 4 kids this could really knock her for a loop…
…or if your widowed husband has to pay all the bills because your paycheck is gone and now he has to shell out $10 grand this could make or break his financial situation.
Even if your family is well off there are a lot of considerations. Settling an estate can easily take 6 months to a year. Who’s going to cover the funeral costs immediately after your death?
This Is Where Life Insurance Comes In
Can Life Insurance Cover Funeral Costs? Yes, but there are different ways to do this. But first of all, you should know that there are two types of life insurance that are available. The first is term insurance which covers you for a period of time and the second is permanent insurance which covers you for life.
If you are looking to protect your family from final expenses, permanent insurance is the type of coverage you must use. If anyone tries to sell you a term policy to cover burial costs, run as fast as you can in the other direction! That said there are a couple of different ways to execute this:
Traditional Permanent Life Insurance For Funeral Costs
There are three types of traditional permanent insurance you can use to pay your funeral expenses: Guaranteed Universal Life, Whole Life or Term to 100 (T100).
Assuming you’re a senior, all these policies require full medical underwriting. If you’re looking for a policy that will grow in value, Whole life is your best bet. Cash will accumulate in your whole life policy and when you die, the nest egg (plus interest) is paid out to your loved ones.
A Guaranteed universal life or T100 policy are similar in that you only pay for the pure cost of insurance. There is no cash value in either of these plans. As such, the rates are more affordable than a whole life policy.
Benefits from any of these options may be used to pay off all the expenses associated with your death from taxes to burial costs. The good part (or bad depending on your situation) is your beneficiary has free reign to do what they want with the money.
The Pros? Traditional life insurance for funeral expenses is slightly more affordable and has better guarantees. What does that mean? You receive higher guaranteed cash values and paid up insurance amounts with these policies. Not to mention, a full medical exam is the gold standard when it comes to underwriting, so your coverage will be very secure.
What are the Cons? If you have any moderate health issues – many seniors do – you won’t qualify for the best rates, if you qualify at all. Also, these traditional plans have minimum coverage amounts of anywhere between $25,000 to $50,000. So if you’re only looking for $5,000 to cover a cremation, you’re out of luck.
In Canada, there’s a fast growing niche of no-medical life insurance companies who sell small, whole life policies used primarily to cover funeral costs. As the name suggests, these plans do NOT require a physical or medical test to qualify. You do however, have to answer a number of simple, straight-forward health questions.
No-medical life insurance plans are affordable, easy to qualify for and can be purchased in smaller face amounts of $5,000 and up. These programs are ideal for seniors who are on fixed incomes.
The only funeral insurance plans we recommend at Policy Architects have the following guarantees:
- The monthly cost or premium is locked in for life and can never increase
- The death benefit amount can never decrease
- Benefit is paid out tax-free to your loved ones
- The policy cannot expire at any age
There are 10-15 carriers in Canada who sell simplified or no medical life insurance policies. One of the best and most well known companies is Canada Protection Plan. Other simplified-issue life insurance companies include Assumption Life, Industrial Alliance, Specialty Life and Wawanesa Life.
You can also purchase final expense preneed plans through your local funeral home. Canada Purple Shield or Assurant Life of Canada, underwrite almost all of the plans available through funeral providers across Canada. Because of this near-monopoly, Assurant’s programs tend to be less competitive price-wise.
Use an Independent Agent to Purchase Life Insurance for Funeral Expenses
So now you’re thinking about using an insurance policy to cover funeral expenses. That’s great, but make sure you talk to an independent life insurance agent who has experience in the funeral insurance niche.
If you have been reading my blog you know that all insurance carriers are unique. This is especially true when it comes to no-medical life insurance companies. Canada Protection Plan may be right for you but then they may not be. You need to find the final expense carrier that’s going to be most lenient when it comes to your health issues.
At Policy Architects, we know these companies inside and out. For example, if you’re a smoker who happens to have a larger build, we know that Wawanesa life will likely have the most affordable policy for you.
We shop to multiple carriers to find you the most affordable burial insurance plan on the market.
If You're Googling: Can Life Insurance Cover Funeral Costs? Call Us TODAY!
Final expense planning is VERY important. My wife and I want to make sure the kids don’t have to deal with anything when we move on.
It’s hard enough to say goodbye to people you love without adding financial pressure and administrative burdens.
If you are in the process of working out all these details – give us a call. We can help you go through the options to see what works best for your particular situation.
Different approaches work for different people. Save money, time and hassle and call Policy Architects today.