What is Funeral Expense Insurance?

Funeral expense insurance is a very specific type of insurance designed to cover an individual's final expenses. Covered expenses include those associated with preparing and burying the body as well as conducting the funeral. This type of insurance is usually purchased by the individual covered and is intended to make funds readily available at time of need and to prevent the deceased's children or other heirs from having to pay the costs.

Each funeral expense insurance policy will stipulate the types of services covered. Some cover only necessary expenses such as a vault, coffin, urn or other receptacle along with mortuary or crematory services. Others cover basic funeral expenses such as facility uses and organist and officiant fees. More inclusive policies cover flowers, programs and even food for a wake or memorial service. Some policies cover purchase and installation of a headstone, but few cover purchase of a burial plot.

In most cases, the funeral expense insurance payout is a fixed amount, much like a life insurance policy. Upon death of the covered individual, the person responsible for final dispensation of the remains, or a funeral home selected in advance by the deceased, receives a set amount as stipulated in the policy. If final expenses exceed the policy amount, the difference is payable by the estate or by the person responsible for final dispensation. This can be a concern if the policy is purchased many years prior to the covered individual's death. Rising costs may mean that a currently adequate policy will not fully cover expenses in the future.

Variable-payout policies are also available. These funeral expense insurance policies pay for the actual cost of covered services at the rate in effect at the time of death. Such policies anticipate inflation and provide greater assurance that all expenses will be paid. Many such policies, however, contain payout caps, meaning that a shortfall may still occur. In addition, these policies usually have significantly higher premiums than fixed-payout policies.

Most funeral expense insurance is sold through specialty companies or brokers as opposed to traditional insurers. Premiums may be payable on a monthly, annual or semi-annual basis. Exclusions, stipulations and other terms often apply. Qualification conditions vary, but individuals who are at high risk of needing to use the policy in the near future may be unable to qualify.

The value of such insurance is widely debated by experts. On one hand, the benefit may be a useful way to ensure that the insured's beneficiaries will not have to absorb final expense costs. On the other hand, some experts contend that pre-paying expenses through a selected funeral home may be a wiser use of funds.