you can use the death benefit of a burial policy to pay estate taxes

Burial Insurance: What Can the Benefits Be Used For?

Burial insurance can be used for a variety of final expenses but is typically geared towards funeral costs. Let’s look at burial insurance benefits and how to use them in a way that best serves your needs.

What Is an Insurance Payout?

First things first, what is an insurance payout? Most people are at least semi-aware of the concept, but few have a full understanding of the exact way in which it works.

When you purchase a life insurance policy, you will purchase a certain amount of coverage. This number will hugely vary depending on the type of insurance plan you invest in and the amount you feel comfortable investing over time. There are two key factors of an insurance payout that you need to remember:

  • It is also called a death benefit for a reason. Few people are “excited” about making plans for once they are gone, but doing so greatly helps your loved ones plan and pay for your final expenses. You, then, will not receive the payout during your lifetime—you are instead building a fund to give to a beneficiary to use in the way you had intended. Certain policies allow you to build cash value to access throughout your lifetime, but burial insurance solely focuses on the death benefit.
  • The amount of coverage you purchase will be reflected in the amount you pay month-to-month. All life insurance policies have a required monthly premium payment that you must keep up with in order to maintain your coverage, either until the term ends (only applies to term life insurance) or until you (the policyholder) pass away. Your premiums with burial insurance will never increase during the duration of the policy.

How Much Is the Burial Insurance Payout?

The exact payout, or death benefit, of burial insurance, is up to you and the insurance company. Some groups offer as much as $50,000, while others no more than $10,000. The average payout for burial insurance, however, is between $2,000 and $25,000. 

Besides the agreement between you and the insurance company, there are a few other factors that will determine your burial insurance death benefit:

  • Type of plan:
    • Simplified issue: Simplified issue burial insurance requires an incredibly simple medical underwriting form to determine eligibility, the cost of the policy, and payout. You are asked a simple “yes” and “no” questions regarding your health and, if you pass (which is significantly easier to do than with other life insurance policies), you will receive a slightly higher death benefit than you would with a guaranteed issue policy.
    • Guaranteed issue: This type of policy, on the other hand, skips the underwriting process altogether, accepting you and determining your death benefit without any knowledge of your health background. The insurance company, then, takes an assumed risk and offers an average slightly lower premium than with simplified issue. It still provides a substantial payout to those who would otherwise have no access to life insurance, such as those with preexisting conditions.
  • Age: The older you are when you sign up for a burial insurance policy, the more your death benefit will be lowered. Once signed up with a plan, your payments and policy amount will not change.
  • Tobacco usage: If you are a smoker, there’s a large likelihood that insurance companies will offer a lower death benefit due to the assumption that it decreases your health, thus raising your risk to insure.

Why Burial Policy Payouts Are Useful

Burial insurance payouts are significantly smaller than whole or term life. On average, these plans’ payouts will range from $100,000, even up to $1 million, but typically only up to $500,000. Compared to the max burial insurance payout of $50,000, you may be confused as to why it is so much lower.

A burial policy is “insurance for the uninsurable.” There are many, many people, specifically seniors, who are ineligible for such a substantial whole or term life policy. And, for those with considerably poor health, a terminal illness, or preexisting conditions, those policies are typically inaccessible.

Burial insurance is necessary to cover many expenses that would otherwise be left unchecked and unpaid. With burial insurance, you can cover your funeral and other costs so that you and your loved ones don’t have to worry. 

Paying for Your Funeral with a Burial Policy

The most common use of the burial insurance death benefit is for the policyholder’s funeral. Why is that? Funerals can cost anywhere between $2,000 up to $10,000 depending on your chosen arrangements and needs. That is a huge expense that not many people are willing or able to pay on such short notice.

Burial insurance takes care of this burden. You can plan your funeral in advance and account for your exact expenses when setting a death benefit with your insurance company.

Overlooked Uses of Burial Insurance Benefits

Funeral coverage is a very well-known use of burial insurance benefits. What many people don’t realize, however, is that there may be room in your policy for other small final expenses as well.

The uses of your burial insurance benefit are, of course, limited to the amount of coverage you purchase. For some people, this means the funeral and only the funeral. This is perfectly normal and a fantastic and necessary use. 

Say your burial policy payout is $15,000, but your funeral only costs $6,000. What can you do with the remaining $9,000? The answer, of course, varies depending on you and your family’s needs. Here are a few good options for you to consider:

  • Estate taxes: This expense is certainly not fun or rewarding but often necessary. If you are planning to transfer property, you may have to pay a 17% or even up to 40% tax on it, something that can fully or partially be covered with the remainder of your burial insurance benefit. This may also include probate and legal fees, depending on your situation.
  • You can also use the remainder of the death benefit to cover any small overhanging medical bills. Many burial insurance policyholders have a history of health issues. If so, you may use your benefit to cover as much of your medical expenses as possible.
  • You can also use it to pay off small remaining debts.
  • Or, if you have some extra wiggle room in your death benefit and cannot think of a final expense you need to cover, you may leave it to the beneficiary to use as they see fit.

We Can Help Find a Policy That Benefits You the Most

When considering your burial insurance options, you want a policy that benefits you the most. This requires careful planning and in-depth explanations that you cannot get on your own or with other agencies. That’s why Senior Life Services is dedicated to giving the full truth, delivering quality, transparent customer care. To get started, give us a call at 800-548-3249.


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