Final Expense insurance provides a death benefit, just like term life insurance, but it also offers the ability to accumulate cash value. This cash value accumulates tax-deferred, meaning that you pay no current income taxes on the cash value growth. Unlike term insurance, which provides coverage for only a specified period, burial insurance policies provide you with coverage until you die, or (usually) until you reach the age of 100, whichever comes first.

Since burial and funeral expenses are usually much lower than paying off a mortgage (as with term life insurance) or providing a supplemental income to the survivor(s), the face amount on burial insurance is accordingly much lower. Typical face amounts for burial insurance policies usually range from $5,000 to $50,000.

Burial insurance policies pay a fixed annual premium

With burial insurance policies, you typically pay a fixed premium. A portion of the premium pays for the insurance coverage, another portion is directed toward the cash value, and a small percentage of your premium typically goes toward administrative expenses. The insurance portion of the policy guarantees that your beneficiaries get a fixed benefit after you die, while the cash value portion grows tax-deferred.

When the policy has reached a certain level of cash value, you may take out a policy loan. If you choose to stop paying the premiums on your burial insurance policy, you can use the cash value to buy a smaller paid-up policy that will sustain itself without requiring you to pay additional premiums.

There are different types of burial insurance policies, including:

• Single premium — These policies have just one lump sum premium paid when the policy is taken out.

• Limited Pay — Premiums are paid over a specified period of time. For example, if you plan on making payments just until you retire, you might take out a limited pay policy in order to build up enough cash value to make the plan self-sustaining or to enable you to take out a loan.

• Life Pay — Premiums are paid during the life of the insured.

Advantages of Burial Insurance

Burial premiums typically start out with substantially higher premiums than other forms of insurance because of the cash value features that are included. One important advantage of burial premiums is that they are fixed, which means they remain unchanged even if your health deteriorates. With a term life insurance policy, you run the risk that your health may deteriorate just when you need to renew your policy. Because health reviews are often required for renewing term policies, rates can increase substantially.

Keep in mind that during the first years of a burial insurance policy most of the premiums go toward covering sales commissions, underwriting and administrative expenses. Over time, this changes, and more of your premium is directed toward cash value. In order to get the most from a burial insurance policy, most experts recommend that you hold it for at least ten years.

Burial insurance may make sense for you if you:

1. want to ensure that you have a life insurance policy in place for your entire lifetime.

2. can comfortably afford the premiums.

3. can take advantage of the tax-deferred cash accumulation feature.

4. do not want to submit to a medical exam.