Funeral Insurance Explained

Funeral insurance is marketed as a way to pre-pay your funeral expenses in order to “save your loved ones” from the cost of your funeral. From a money perspective, buying funeral insurance makes no sense. If you are concerned about your funeral expenses, you are far better off if you simply set aside your own money to provide for your funeral expenses.

There is no doubt that funerals are becoming more and more expensive. What makes it worse is that your family members will not want to “go cheap” on your funeral if that plan is left to them. Funeral directors and funeral homes are more than willing to encourage your loved ones to go all out and give you a send off to be proud of. Given that a funeral is going to cost upwards of $6000, people are easily convinced that they should buy insurance to provide for that cost.

If you take the “premiums” that you are going to pay, and instead you invest them in even the most simple savings account or investment, you will have far more than the cost of your funeral in far less time. This is a concept called self-insurance, because you are setting aside the cost of your funeral and providing for the necessary services yourself.

If you think about why we have insurance, you will understand why so-called “funeral insurance” makes no sense. We create insurance systems in order to spread the risk of unlikely but costly events. We buy car insurance so that every policy holder shares a fraction of the risk that somebody will crash their car, and in return we never have to bear the burden of the total cost of the car accident ourselves. But what is the likelihood of needing to plan for your funeral? It is 100% guaranteed that every one of us will have expenses. Why would we want to spread the risk when the risk is 100% certain to occur?

Only two people come out ahead when you buy funeral insurance: the agent who suckered you into buying it and the funeral directors who will sell you and your family the products after your death. Set aside just a fraction of the funeral insurance premiums that you are about to pay and save the money in a simple investment. You’ll have more than enough to pay for your own funeral in just a matter of months.