Life insurance isn’t one of those topics people want to discuss. In fact, most people don’t even think about its value until they buy a house or have dependents…
...but did you know it’s an important topic even for seniors? If you don’t have enough savings to pay your funeral costs at the end of your life, it can cause serious financial hardship for your family. If you’re like most people, you want to give your loved ones a memorable send-off. The thing is, if you don’t have immediate funds to do so it makes a sad and stressful situation even more difficult for those you love.
Even if you do have enough savings, that money will likely be caught up in probate ensuring your will, trust, or local laws are followed before making it to your beneficiaries pockets.
To avoid this delay, some people pre-pay their funerals. Unfortunately, there is a downside to this. You need to do your homework before you make this financial commitment with a funeral home. They’re businesses and there’s no guarantee they will be around when the time comes to bury you.
Ouch! You Really Need to Be Sure You Pick The Right Funeral Home
If the funeral home mismanaged your prepaid funds for whatever reason and was unable to cover agreed upon funeral expenses, you would not have an easy time recovering those funds. Speaking of mismanagement of funds, if your chosen funeral home goes out of business, in most cases there is no guarantee that your funds will be returned to you. Once you make your prepayment to the funeral home, those funds cannot be transferred to another funeral home because the original plan is specific to that funeral home. Worse yet, if they declare bankruptcy, you will be standing in a long line to get your money back and may only receive cents on the dollar, if anything.
This Is Where Final Expense Insurance Comes In
What is Final Expense Insurance?
Simply put final expense or cremation insurance is a life insurance policy. It pays out money tax-free to your survivors (family members or loved ones) when you pass away.
Insurance agents and companies use lots of different jargon to describe final expense insurance and it can be really confusing. But let’s set the record straight – all this different terminology is really talking about the same thing:
Final Expense Insurance = Cremation Insurance = Burial Insurance = Funeral Insurance.
Do you get the idea?
The best part? Unlike prepaying your funeral, final expense or cremation insurance proceeds go directly to your beneficiary(s) who will use the funds to take care of your final affairs. These life insurance policies designed to cover funeral costs and final expenses, bypass probate which eliminates a lot of waiting time.
All final expense insurance or burial insurance policies are whole life insurance. This simply means you’re covered until the day you die. Final expense or cremation insurance differs from traditional whole life in that it is designed specifically to cover funeral costs, not to accrue cash value.
If you don’t know this already, funerals are very expensive. The Funeral Association of Canada (FSAC) pegs the average burial cost at between $8,000 and $10,000. The average cost of cremation in Canada is slightly cheaper coming in around $5000 to $6000.
…and this doesn’t include any of the bells and whistles most people like to include when they say goodbye to a loved one. Which means the price tag for a funeral can be more than $10,000 in the end. For most people, this is a serious chunk of change.
Cremation & Why It Makes Sense For Many People
While we’re all familiar with a traditional burial, some are unaware of what the cremation process entails. Cremation reduces the body to its basic elements through exposure to intense heat. The body is committed to a cremation chamber in a casket and once the cremation process is complete the ashes are collected for the family to dispose of as they wish. Typically you take them away in an urn, but this is something the family decides as part of the planning process.
Because the cost of cremations is significantly less expensive than burials, many people choose cremation. Final expense insurance for cremation helps to cover these costs.
What Does Cremation Insurance Cover?
Cremation insurance plans provide a death benefit payout to your beneficiaries when you pass away. The money provided is used for funeral home fees, cremation, cremation casket, the urn, and/or any lingering debt or financial obligations.
Because cremation insurance is specifically created to cover final expenses, it’s always permanent insurance (whole life). The good news is as long as you pay your cremation insurance premiums, your loved ones will receive a payout.
In order to keep the cost of this type of insurance down, the face value is smaller which allows people to afford it later in life. Final expense insurance policies, like cremation insurance plans, are designed with senior citizens budgetary constraints in mind.
How Much Insurance Is Needed for Cremation
As you can imagine this figure varies substantially from person to person.
While the median cost of cremation in Canada is approximately $5,000, you can spend more or less. It’s a good idea to ask local funeral homes for information regarding the pricing for their services. The next step is to determine what sort of environment you would like to provide on the day. Remember each decision you make has a price attached. Often families employ the services of musicians, speakers, and caterers. All of this should be taken into consideration.
Once you have your final figure, tack on a bit more for inflation. Funeral costs typically double every 10 years.
Note: If you have any remaining debt to pay, it’s a good idea to include that in your calculations.
How Much Does Cremation Insurance for Seniors Cost?
The cost of cremation in Canada fluctuates depending on the amount of coverage purchased, age, and health history. Because the coverage is specifically earmarked for funeral costs and other final expenses, the face value isn’t as high as other life insurance policies.
To figure out how much final expense insurance will cost you, it’s a good idea to work with an independent life insurance agent, like James at Policy Architects or reach out to companies directly.
The truth is, cremation insurance plans are very affordable.
Planning & Your Beneficiary(s)
Choosing Your Cremation Insurance Beneficiary
Life insurance terminology is tricky, especially if you’re not familiar with the industry.
The insured is the person whose life is covered under the policy and the person who pays the premium is called the policyholder or owner. More often than not the insured and the policyholder are the same person, especially when we’re talking about final expense insurance. But that’s not always the case. Some adult children choose to buy a life insurance burial policy for their parents because they know in the end they’ll be paying the funeral costs. For them, it’s easier to make small payments over time than pay out a larger lump sum when one of their parents die.
The beneficiary is the person people who receives the death benefit when the insured passes away. You may assign multiple beneficiaries. In fact, this is something you should consider. Having more than one beneficiary is a smart move because it ensures that the death benefit goes to someone of your choosing. It’s always good to remember that if your beneficiary passes away, the disbursement of the death benefit gets a lot more complicated.
That’s why it’s very important to pick your beneficiary wisely and to have a backup. Also, make sure all of the information on the policy is filled out to the best of your ability. If a life insurance company isn’t able to locate the beneficiary the proceeds may be held up or even left in limbo altogether.
How Do You Pre-Plan Cremation With Life Insurance?
Preplanning is the key to financial success and this holds true through the end of your life. The most important aspect of preplanning your cremation is understanding what the REAL costs will be. Honestly, a little research and thought go a long way. Talk to local funeral homes to get a better understanding of the services available and their pricing. Look into different crematories to see how their services and costs differ and then create a budget to determine the realities of your expenses.
If you already have a whole life insurance policy, you may want to consider the death benefit as part of your final expense insurance plan.
The thing is, many of us don’t have a whole life insurance policy. That’s why it’s a good idea to look at final expense insurance for cremation today. Policy Architects has access to the best funeral insurance companies in Canada.
Another important point is to speak to your friends and family about your plans. It’s always a good idea to put your wishes regarding your funeral and final affairs into writing. This leaves little room for confusion in an already stressful time.
Remember, cremation insurance really helps your loved ones out when they need it the most. This coverage will finance most if not all of your funeral costs if you plan ahead. Alleviating these worries and financial burdens give them more space to grieve and cherish fond memories.