Final expense insurance explained: burial coverage basics

Final expense insurance, also called burial insurance, is a small whole life insurance policy designed to pay funeral, burial or cremation costs and other end-of-life bills, so your family does not have to cover them from their own pockets. The death benefit is paid to the beneficiary you name, and they can use it for anything. The national median cost of a funeral with viewing and burial was $8,300 in the National Funeral Directors Association's 2023 study, before cemetery charges (NFDA 2023 General Price List Study, content.nfda.org/news/media-center/nfda-news-releases/id/8134/2023-nfda-general-price-list-study-shows-inflation-increasing-faster-than-the-cost-of-a-funeral). Social Security adds only a one-time $255 payment for a qualifying surviving spouse or child (Social Security Administration). Policies usually ask a few health questions instead of requiring a medical exam, and premiums are usually level for life. Whether you qualify, and for what amount, depends on the insurer's underwriting.

What a funeral actually costs

The most widely quoted national figures come from the National Funeral Directors Association (NFDA). Its 2023 Member General Price List Study, released December 8, 2023, put the national median cost of an adult funeral with viewing and burial at $8,300, up from $7,848 two years earlier, and the median cost of a funeral with viewing and cremation at $6,280, up from $5,810 (NFDA 2023 General Price List Study, content.nfda.org/news/media-center/nfda-news-releases/id/8134/2023-nfda-general-price-list-study-shows-inflation-increasing-faster-than-the-cost-of-a-funeral). These are the most recent medians NFDA has published in a news release, so treat them as a 2023 starting point rather than a 2026 price.

Read those numbers carefully, because they leave things out. NFDA's burial figure totals the basic services fee, transfer of remains, embalming and other preparation, a metal casket, use of facilities and staff for the viewing and ceremony, a hearse, a service car or van, and a basic printed memorial package. It does not include interment in a cemetery, a monument or grave marker, or cash advance items such as flowers or an obituary (NFDA 2023 General Price List Study, content.nfda.org/news/media-center/nfda-news-releases/id/8134/2023-nfda-general-price-list-study-shows-inflation-increasing-faster-than-the-cost-of-a-funeral). For a burial, the cemetery side (a plot, opening and closing the grave, a vault or liner if the cemetery requires one, and a marker) is billed separately and can be a large share of the total. Ask the cemetery for its own price list.

The cremation figure includes a viewing and ceremony, the cremation fee, an alternative cremation container and an urn. A direct cremation with no viewing costs less, and a memorial service can be held later wherever the family chooses. Colorado prices vary by provider, so the only reliable way to know local costs is to ask for each funeral home's itemized price list, which Colorado law requires them to give you (see below).

Your rights when you shop for a funeral

Two sets of rules protect you when you or your family buy funeral goods and services, and knowing them helps you size a policy realistically.

The Federal Trade Commission's Funeral Rule lets you buy only the arrangements you want instead of a package. A funeral home must give you price information over the phone if you ask, must give you a General Price List to keep, and must show casket prices before you see the caskets. It cannot refuse to handle a casket or urn you bought elsewhere or charge a fee for doing so. A home that offers cremation must tell you alternative containers are available, and no state law requires routine embalming for every death. You are entitled to a written statement of what you chose, with prices, before you pay (Federal Trade Commission, consumer.ftc.gov/articles/ftc-funeral-rule).

Colorado adds its own rule. Before you select funeral or cremation services, a Colorado funeral establishment must give you an itemized list of the prices of all available merchandise and individual services (section 12-135-107(2), C.R.S., as described by the Colorado Office of Funeral and Mortuary Science Services, dpo.colorado.gov/MortuaryScience/FAQ). The same office explains that embalming is not required in Colorado if burial or cremation happens within 24 hours of death; after 24 hours, embalming or refrigeration is required (dpo.colorado.gov/MortuaryScience/FAQ). Colorado's list of regulated occupations also includes natural reductionists, a reminder that families here have more than two choices for final disposition.

What Social Security does and does not pay

Social Security pays a one-time lump-sum death payment of $255 to a surviving spouse who was living with the person who died, or in some cases to a spouse or child who was receiving benefits on that person's record (Social Security Administration). The amount has not changed in decades and is not tied to funeral costs. Monthly survivor benefits may also be available to a widow or widower, which helps with ongoing bills, but they do not arrive in time to pay a funeral home that wants payment when arrangements are made.

Medicare does not pay funeral costs, and neither does a Medicare Supplement or Medicare Advantage plan. That gap is the reason final expense insurance exists.

How final expense policies are underwritten

The underwriting type matters more than almost any other feature. A level policy pays its full face amount even if the insured dies of an illness in the first month after the policy takes effect. A graded or modified policy pays a reduced amount, often a return of premiums plus a percentage, if death from illness happens during the early years the policy lists. A no-health-questions policy accepts nearly everyone within its age range, but the waiting period is the trade for skipping the health questions.

Insurers set their own issue ages, minimum and maximum face amounts and health questions, so these vary from one company to the next. The policy and its outline of coverage state them exactly. Answer the health questions truthfully and completely: a misstatement on the application can lead to a claim being contested, so ask how long the contestability period in the policy lasts.

Whole life, cash value and level premiums

Most final expense policies are whole life insurance. The Colorado Division of Insurance explains that whole life policies have a savings component called cash value that builds over time, that the premium is fixed and will not increase as long as premiums are paid as agreed, and that whole life costs more than term insurance for the same death benefit because of that lifetime design (Colorado Division of Insurance, doi.colorado.gov/insurance-products/life-insurance-annuities).

For a final expense buyer, the lifetime design is the point. Term insurance often ends before it is needed, at an age when buying new coverage is harder. A small whole life policy stays in force as long as premiums are paid, and the modest cash value can sometimes be borrowed against, although an unpaid loan reduces what your beneficiary receives.

Final expense, pre-need contracts and savings compared

In Colorado, a pre-need funeral contract is any written contract for future funeral services for a named beneficiary, and the Colorado Division of Insurance has jurisdiction over these contracts. Article 15 of Title 10 of the Colorado Revised Statutes sets the licensing requirements for pre-need contract sellers and the contract requirements between seller and buyer (Colorado Division of Insurance, doi.colorado.gov/insurance-products/other-products/pre-need-funeral-contracts).

The Division's tips for consumers are specific: verify that the seller is licensed as a pre-need contract seller, know that cash paid for a pre-need contract should be placed in trust and ask the funeral director for the trustee's name, ask for a receipt for any money paid, and ask what happens if you cancel or if the company goes out of business. A licensed seller can also sell pre-need contracts funded by a life insurance policy (doi.colorado.gov/insurance-products/other-products/pre-need-funeral-contracts).

A worked example: sizing a benefit

Hypothetical Colorado household, not a real client. A 70-year-old widow in Brighton wants a traditional funeral with viewing and burial next to her late husband, in a plot the couple already owns. She wants her two children to pay nothing out of pocket. Here is how to turn that wish into a benefit amount using the cited national figures as a starting point, then replacing them with local prices.

Step one, the funeral itself: the NFDA national median for a funeral with viewing and burial is $8,300 (NFDA 2023 General Price List Study, content.nfda.org/news/media-center/nfda-news-releases/id/8134/2023-nfda-general-price-list-study-shows-inflation-increasing-faster-than-the-cost-of-a-funeral). Step two, the items that median excludes: because she already owns the plot, the cemetery charges left are opening and closing the grave, any required vault or liner and a marker. She asks the cemetery for its price list rather than guessing. Step three, cash advance items such as flowers and an obituary, plus a small cushion for travel by out-of-town family. Step four, final bills: a last utility bill, a final medical bill, a credit card balance. Step five, subtract what is already available: savings she has set aside, and the $255 Social Security payment, which goes only to a qualifying spouse or child and in her case may not be payable at all since she is the surviving spouse (Social Security Administration).

How pricing works

Premiums depend mainly on your age when you apply, the death benefit amount, tobacco use, your answers to the health questions and the underwriting type. Applying younger and in better health generally means a lower premium for the same benefit. The guide does not list prices because they depend on those answers and change by insurer; Lisa compares current options with you.

Two ways to look at the trade: a larger face amount covers more of the bill but raises the premium for life; a smaller one costs less but may leave a gap. A useful test is whether the premium still fits your budget if your income drops, for example after a spouse dies and one Social Security check stops. A policy that lapses for missed premiums can leave your family with nothing, which is worse than a smaller policy that stays in force.

What Lisa checks for you

• Your goal in plain terms: burial or cremation, a service or not, a plot already owned or not, and who you want to protect from the bill.
• Whether you can qualify for a level, full-benefit policy before looking at graded or no-health-questions options.
• Any existing life insurance, employer coverage that may end at retirement and any pre-need contract you already have, so coverage is not doubled up or left with gaps.
• Whether the premium fits your budget on one income, not just on two.
• That the beneficiary and a contingent beneficiary are named correctly, and that the person carrying out your wishes knows the policy exists.
• If you are replacing an older policy, what you would give up: a new policy can restart a waiting period or a contestability period.

Questions to ask before you buy

• Is this a level, graded or no-health-questions policy, and how long is any reduced-benefit period?
• What exactly does the policy pay if death from illness happens during that period?
• Is the premium level for life, and can the insurer ever change it?
• Does the policy build cash value, and how do loans affect the death benefit?
• Are there riders, such as accidental death or an accelerated benefit for terminal illness, and what do they cost?
• How long does the insurer usually take to pay a claim once paperwork is complete, and what paperwork will my beneficiary need?
• For a pre-need contract: is the seller licensed with the Colorado Division of Insurance, who is the trustee, and what happens if I cancel or the funeral home closes?

Practical steps that help your family

• Write down your wishes: burial, cremation or another lawful option, service preferences and where documents are kept.
• Collect itemized price lists from two or three funeral homes and the cemetery, and keep them with your policy.
• Name a beneficiary you trust to carry out those wishes, plus a contingent beneficiary.
• Tell your beneficiary the policy exists and where to find it.
• Review beneficiaries after any marriage, divorce or death in the family.
• If you think a parent had a policy or annuity you cannot find, the Colorado Division of Insurance points families to the NAIC Life Insurance Policy Locator. Participating insurers compare requests with their records and have 90 days to research them; in the locator's first year it led to $5,676,199 being returned to Colorado beneficiaries (Colorado Division of Insurance, doi.colorado.gov/insurance-products/life-insurance-annuities/life-insurance-policy-locator).

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The bottom line

Final expense insurance is a simple promise: a set amount of money, paid to the person you choose, when your family needs it most. Start from real prices (a 2023 national median of $8,300 for a funeral with viewing and burial, before cemetery costs), ask for itemized price lists, then apply for a level, full-benefit policy if you can qualify. To talk it through, send Lisa a message or call (303) 887-8584.