You may have seen ads on TV and elsewhere for guaranteed life insurance, which is also known as funeral insurance. This type of insurance is specifically designed to provide coverage for funeral or burial expenses.
Such a policy may seem alluring, given the typical funeral and burial in the United States now costs $7,000 to $10,000, and so represents an expense that many families may be hard-pressed to cover. Also, unlike most other life-insurance options, funeral insurance has no health requirements for eligibility; even those with terminal illnesses can qualify for this coverage so long as they can continue making payments on the premium.
However, don’t sign up for a guaranteed life insurance policy before you consider its significant drawbacks.
The premiums are very high. Compared with most other forms of life insurance, guaranteed-life policies tend to have much higher premiums. When issuing a funeral-insurance policy, companies take on a higher risk by insuring people with a shorter life expectancy; the premiums are priced to reflect the likelihood that policyholders may pay in for fewer years than with a typical life-insurance policy.
As with other forms of life insurance, premiums are calculated depending on the age and gender of the potential insured, so the older you are when buying funeral insurance, the more expensive the premiums become. The cost of premiums is usually represented by “units” that correspond to a certain level of coverage. For example, each unit may represent $1,000 of coverage and cost $10 per month per unit for a 65-year old man. As a result, for such a person, a funeral insurance policy with a death benefit of $10,000 would cost $100 per month. That may be considerably higher than the average cost of a term life-insurance policy with a higher level of coverage.