What is the Difference Between Life Insurance & a Burial Policy?
Life insurance is a financial product that allows you to insure your financial obligations in the event of your death. While all life insurance policies can pay for burial expenses, if it is the desire of the beneficiary, a "burial policy" is a type of life insurance meant specifically for costs associated with a funeral and mortuary fees. These are normally permanent life insurance policies that are purchased by senior citizens.
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Types
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Term life insurance provides life insurance death benefit protection with contracts that generally do not exceed 30 years. Within the term life category, straight whole life insurance offers fixed, guaranteed death benefits. Universal life insurance has flexible premium payments and death benefits.
Within these two types of policies, there are many different kinds of life insurance. For example, participating whole life insurance pays dividends to the life insurance policy. Interest sensitive whole life pays interest based on current interest rates. Variable life is a type of whole life insurance that pays interest based on mutual funds in the policy. Fixed universal life insurance pays a fixed rate of return, while offering the ability to adjust the death benefit and premium payments as the policyholder sees fit. Variable universal life insurance allows the policyholder to invest the premiums into mutual funds. Indexed universal life allows policyholders to invest premiums into an index crediting strategy where the life insurer pays interest to the policy based only on the upward movement of a stock or bond market index. Burial insurance, technically, may be any one of these types of policies, but is usually a straight, fixed interest, whole life policy.
Function
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Burial insurance and other types of life insurance premiums are paid to an insurance company that invests those premiums to provide death benefits to the policyholder. With whole life and universal life insurance, the insurance company credits the policy with interest based on the investment strategy outlined in the policy. For example, a fixed whole life policy invests in bonds, some stock and mortgage investments. The insurer places the premium into these investments and then credits the policy with interest based on how they perform.
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Significance
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Life insurance provides a death benefit for your family. The general intent of a life insurance policy is to replace income from the individual who dies. This is the most common intent for purchasing life insurance by people who have a spouse and children. The intent of burial insurance is to provide money for a funeral and mortuary costs. This eliminates the need for additional savings to be set aside to pay for burial expenses.
Benefits
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Burial policies provide relatively low-cost life insurance because the face amount, or death benefit, of insurance is small. Life insurance, in general, can have a small or large face value. Income replacement policies are more expensive and ensure that the family is made whole financially for a certain period of time.
Considerations
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Consider the purpose of buying life insurance. If you need money to cover funeral costs only, a small permanent life insurance policy can be purchased with the intent of it being burial insurance. If you need income replacement during your working years, you'll be purchasing enough death benefit to cover all of your financial obligations, including your burial.
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