Funeral Insurance vs Life Insurance: What's the Difference?

Funeral insurance is a type of life insurance. It is a small whole life policy, usually $5,000 to $25,000, meant to pay for a funeral and final bills, and it is sold with few or no health questions. Ordinary life insurance covers larger amounts, such as debts and lost income, and usually involves more underwriting. The trade-off is price. Funeral cover costs more per dollar, and neither type is guaranteed to pay by the day of the funeral.

Is funeral insurance a type of life insurance?

Yes. Washington's insurance regulator describes funeral insurance as life insurance you buy to pay for your funeral or cremation when you die, with death benefits typically from $5,000 to $25,000. NerdWallet says burial insurance, sometimes called funeral insurance, is a life insurance policy, and that these policies are usually $1,000 to $50,000.

You will see several names for much the same thing: funeral insurance, burial insurance and final expense insurance. They usually mean a small whole life policy that pays a named beneficiary. The one real exception is pre-need funeral insurance, covered below.

How do funeral insurance and life insurance compare?

The Texas Department of Insurance advises sizing ordinary life insurance by thinking about your debts, the income your family must replace, and the bills they will face. Funeral insurance is sized to the cost of a funeral instead. The National Funeral Directors Association (NFDA) found a national median of $8,300 for a funeral with viewing and burial in 2023, and $6,280 for a funeral with viewing and cremation, before cemetery costs.

Which costs more?

Funeral insurance costs more for each dollar of cover. Washington's regulator lists higher premiums and lower benefits among its drawbacks, and notes there are no discounts for good health.

NerdWallet gives an example from the brokerage Choice Mutual. A healthy 50-year-old woman might pay about $360 a year for $10,000 of guaranteed issue cover. The same woman would pay about $7,782 a year for a $500,000 whole life policy. That is more than 20 times the premium for 50 times the cover. Per $1,000 of benefit, it works out to about $36 a year against about $15.56 a year. Term life, which expires, is cheaper still for the same amount.

The total you pay matters as well as the monthly price. Washington warns that what you pay in premiums may cost more than your funeral, and the Funeral Consumers Alliance cautions that you will usually pay as much as the policy pays out, or more. Our guide to how much funeral insurance you need shows how to work out an amount, and the calculator below gives a quick estimate.

How fast does each pay?

Both are life insurance, so the same rules apply. Insurers pay after they receive proof of death and verify the beneficiary. The Texas Department of Insurance says a company must pay within two months after that, and may take longer if the death falls in the policy's two-year contestable period. Washington requires interest on a death benefit from the date of death and an extra 3 percent if the claim isn't settled within 90 days of proof of death. Other states have their own rules.

That means funeral insurance isn't instant cash for the funeral home. Many funeral homes ask for payment at or before the service. Some accept an assignment of benefits, which directs part of the proceeds to them, so ask early. Our guides to funeral insurance payout time and assignment of benefits explain how that works.

Can life insurance you already have pay for a funeral?

Yes. A death benefit goes to the person you named, who can spend it as they choose, and NerdWallet lists funeral costs, medical bills and probate costs as common uses. The question is whether the policy will still be in force when you die. Check three things:

• Does a term policy end first? The Texas Department of Insurance says a term policy ends at the end of its term, and that most companies sell term only up to age 70 or 80. A funeral is a cost almost everyone leaves behind, so a policy that can end before you do is a poor match for it. Many term policies can be converted to permanent cover, but converting raises the premium, and Texas says conversion is usually allowed only until about age 65.
• Does group cover stop when you leave a job? Texas says coverage through an employer typically ends when you leave. Ask whether it can be converted.
• Is the amount enough? A basic group policy often equals one or two times your annual salary, and that may be more than a funeral needs or far less than your other plans require.

Our guide to using life insurance to pay for a funeral goes through the claim process, and whole life vs term for a funeral compares the two main kinds.

How is pre-need funeral insurance different?

Pre-need funeral insurance pays the funeral provider you picked. Washington's insurance regulator says it can protect you from inflation by setting your funeral and burial costs at today's prices. NerdWallet adds that terms vary: some plans have fixed prices, and with others services may not be guaranteed, so your family could pay extra if costs rise.

It is also less flexible. The money is tied to a funeral provider, where standard funeral insurance pays your family, who can spend it as needed. The Texas Department of Insurance warns that prepaid funeral insurance can be expensive compared with other life insurance, that the premiums might total more than the policy pays, and that many policies won't pay the full cost if you die before paying a required amount. Our guide to prepaid plans compared with funeral insurance covers the details.

What about taxes and benefits?

• Taxes. Life insurance proceeds paid because of the death of the insured person generally aren't taxable, according to IRS Publication 525. Interest the insurer adds may be taxable.
• Medicaid. The Texas Department of Insurance says a policy's cash value is considered an asset when deciding Medicaid eligibility. Our guide to Medicaid and funeral assistance has more.
• Social Security. It won't cover the gap. The lump-sum death payment is $255, set in federal regulations, and it goes to an eligible spouse or child. See the Social Security death benefit.

Which fits which situation?

This is general information, not advice. These are common patterns.

• A small whole life policy, such as funeral insurance, tends to fit people who want a payout that is certain, who can't easily save a lump sum, or whose health makes larger cover hard to get.
• Ordinary life insurance tends to fit people with dependents or debts to protect. If you already have enough of it that will last, it can cover a funeral too.
• Savings or a payable-on-death account can work instead. There is no insurer's margin on the money, and you keep it if it isn't needed. The Funeral Consumers Alliance says a payable-on-death account releases the money to your named beneficiary soon after death, without the delay of probate.

If you are weighing the two types, ask for quotes on both, and compare the total premiums you would pay with the benefit your family would receive. The best age to buy funeral insurance and our overview of how funeral insurance works cover timing and the main policy types.

What to do next

1. List the life insurance and group cover you already have, with the end date and beneficiary for each.
2. Price the funeral you want from a General Price List, and add cemetery costs.
3. Get a quote for funeral insurance and, if you can qualify, for ordinary life insurance.
4. Name a beneficiary and a backup, and tell them what the money is for.