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How Life Insurance Covers Funeral Costs (2)

How Life Insurance Covers Funeral Costs (2)

Does Life Insurance Cover Funerals?

In the simplest possible terms, a life insurance policy provides a death benefit to beneficiaries. In general, they can use this money in any way they need to use it. However, there is a common type of senior life policy that is called a burial or funeral policy. It is most intended to help cover final expenses like funerals, burials, and other end of life costs.

What Are Funeral Policies?

Most of the time these policies are pretty small compared to other types of life policies. The face values usually range from a couple of thousand dollars to about twenty-five thousand dollars. The bulk of the proceeds from them is intended to help the policy beneficiaries with some expenses that are associated with the time when a loved one passes away.

Life insurers develop these policies so they are within the budget of many middle income families. They are also usually simple to apply for. And of course, they have been developed so that many older people can get accepted.

Some are even guaranteed issue, and these means they must accept all applicants in the right age bracket. However, those will probably not have an immediate death benefit. They use a graded death benefit instead of health questions. This means that the full amount of the face value will not be paid if the insured person passes away before a waiting period expires.

Graded Death Benefits

For example, a policy could have a waiting period of 36 months (3 years) before the full benefit is paid. After that time, the beneficiaries will get the entire amount of money. If the insured person passes away before the waiting period ends, they may get some percentage of the death benefit, or they may only get the premiums refunded. This is just an example, and you would have to look at specific policies for the exact details.

Immediate Death Benefits

Other policies will require an applicant to answer some health questions. If the applicant is in fairly good health they will, probably qualify for an immediate death benefit. This means their beneficiaries will collect the entire amount without having to wait for a time period to pass. These are called simplified issue policies.

How Does The Policy Pay For Funerals?

Let us say that Mr. Jones purchased a $25,000 funeral life policy for himself. He made his two daughters the beneficiaries of the policy so they each got half. These two daughters were also responsible for making his funeral arrangements. When the time came, the daughters found that the funeral expenses would add up to about $10,000. This included the funeral, burial, and some other expenses.

The women agreed to chip in $5,000 of the proceeds to cover all of the expenses. After the expenses were paid, they got to keep the rest of the money to use in any way they pleased. This worked out well for them because they did not have to worry about paying for the funeral from their own savings, and they got to keep some money that their father left them!

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