Life Insurance And Funeral Insurance are great insurance policies for someone who wants to secure the future of his or her loved ones. But people often get confused between Life Insurance and Funeral Insurance. And it is normal for anyone to get confused. This is because Life Insurance and Funeral Insurance are closely related yet widely differ from each other. It becomes even more difficult for people not belonging to the finance background to differentiate between them.
We will try to break down all the jargon related to Life Insurance and Funeral insurance. Also, we will explain the nitty-gritty, so that you get the exact idea of these two types of insurances. Moreover, you will be able to differentiate between them.
What Is Life Insurance?
In simple terms, Life Insurance is a contract with an insurance company. According to the contract, if the insured person dies, the insurance company pays an amount of money to the loved ones or beneficiaries of the insured person. This amount of money paid to the family members is sometimes known as the Death benefit. It depends upon the type of insurance chosen, the term of insurance and the number of premium payments done by the insured person.
The motive of life insurance is to provide financial safety to your loved ones or family members if something were to happen to you. One important thing to note here is that the death benefits from life insurance are usually income tax-free. Typically, A person can choose life insurance depending upon his or her financial conditions and needs.
Types of Life Insurance
Depending upon the type of cover the insurance policy offers, life insurance can be of the following types:
1. Term Life Insurance– It is the most common type of insurance opted for. Typically, the term life insurance is commonly known as ‘Life Insurance’ only. Under this insurance, your loved ones or beneficiaries get a payment after your demise. Moreover, it also provides a lump sum payment if you get a terminal illness which may lead to your death within a specified period. This period of time usually ranges from 12 to 24 months.
2. Trauma Insurance– This insurance provides payment when you suffer from medical trauma, so that, you can pay for the substantial medical expenses. The list of traumas covered will differ from policy to policy. The most common type of traumas covered is cancer and heart attack.
3. Total and Permanent Disability Cover- This insurance provides payment whenever you become permanently disabled to the extent that you will not be able to work again
Life Insurance helps you to cater to the future financial needs of your family members, so that, they are not dependent on anyone.
What is Funeral Insurance?
Nowadays, an average funeral may cost more than $10,000. Funeral Insurance policy provides the payment for covering the expenses of your funeral, so that, your family does not feel any financial burden. The insured person can pay the premium payment to the insurance provider company, so that, they can cover the funeral costs.
Depending upon the terms and conditions of the policy, you can have fix payments or variable payments. Just like Life Insurance, a person can choose funeral insurance depending upon his or her financial conditions and needs.
Types of Funeral Insurance
Depending upon the type of cover the insurance policy offers, Funeral insurance can be of the following types:
1. Pre-need Insurance: An authorized agent helps you to purchase this type of insurance. The authorized agent associated with the funeral home. In this type of insurance, you choose the funeral home to be your beneficiary. After that, you accordingly plan out the expenses. Then you pay the premium amount according to the terms of the policy.
2. Final expense Insurance: You can purchase this type of insurance from an insurance company. It offers lifetime benefits. However, it has a lower premium. After your demise, your beneficiaries get the money. They arrange your funeral according to what they feel is right.
Now that you know the underlying meaning of Life and Funeral Insurance, here are some of the significant differences between the two:
1. The purpose of Life Insurance is to provide financial security to the insured person’s family after his or her demise. Whereas, the purpose of Funeral Insurance is to cover the expenses of the funeral solely.
2. It is somehow difficult for people with health issues to get life insurance. You require a medical examination to get life insurance. Whereas, people with health issues can easily get Funeral Insurance. The medical examination is usually not needed for Funeral Insurance.
3. Since the Funeral insurance covers only the funeral costs, the amount of money and benefits for payout is less as compared to the payout by Life Insurance. Thus, the cost/premium payments of Funeral Insurance are less as compared to Life Insurance.
4. The premium paid for Funeral Insurance can be sometimes expensive as compared to life insurance. This is because you may live longer than you expected and may pay more premium amounts than expected.
5. Life Insurance can cover expenses related to illness and accidents. Whereas, Funeral Insurance only covers the costs of the funeral.
The significant difference between the two insurances depends upon what you want to cover with that insurance. A person can opt for funeral insurance if he or she has the sole purpose of covering his or her funeral costs. On the other hand, a Life Insurance provides a Lump sum amount to the beneficiaries, if the insured person dies.
Picking out the right insurance depends solely upon the person who wants to get insured. It also depends upon the person’s financial conditions and what he or she wants to cover under the insurance policy. It is always advisable to do your research before choosing the insurance policy for you. If you are still facing issues in selecting the right insurance for you, you can always consult an insurance advisor.
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