Funeral insurance is insurance intended to cover the cost of funeral expenses. It usually has a low face value, normally less than $10,000. The value of the policy is determined by the anticipated total funeral expenses at the time of death, although some final expenses, such as cemetery property, can be prepaid and would not need to included in the policy.
Some insurance agents base a policy on average expenses. Others, especially those representing funeral homes, will list funeral details, casket choice, cemetery expenses, etc. and give a more accurate face value.
Some sellers apply the proceeds of the policy to the final expense. Others guarantee that the price of the funeral will not exceed the insurance benefit. Guaranteed policies may cost more, so you should compare the cost and the benefits carefully. In addition, you should get detailed documentation of what is included in the guarantee and what is not.
Some funeral policies increase in value over the years while some do not. This is an important feature of the policy, and you would usually find that a policy which increases is more likely to allow for inflation.
In Washington State, by regulation, insurance companies are not allowed to collect more in premiums than the face value of the funeral insurance policy. This has resulted in some complicated insurance provisions, especially in the early years of the policy. While they are based on sound business practice they can be confusing, so be sure you understand them.
As with all business transactions, you need to know who is selling the insurance. Is the agent affiliated with an insurance company, or are they affiliated with a trusted funeral home or cemetery? When you purchase funeral insurance you are beginning a relationship which will last for many years, so it pays to be cautious and thorough.