Difference between term life insurance and funeral insurance
When looking for a good insurer, it is especially important that you, as a potential policyholder, know the difference between different forms of insurance. Funeral insurance and term life insurance are two that often cause quite a bit of confusion as there are overlapping features.
Still, the differences between the two are significant, which means it's best to inform yourself well in advance. What exactly are these differences, and in what situations is it best to take out life insurance or funeral insurance?
When do you take out life insurance?
When is it best to take out life insurance? To answer this question, we need to look at the main features of term life insurance . This insurance means that next of kin will receive a sum of money after your death that they can use for various things.
The main differences between term life insurance and funeral insurance
Here is a clear overview of the main differences between term life insurance and funeral insurance.
Life insurance
- Term life insurance has a limited duration
First, the term or validity period of a term life insurance policy is limited. Specifically, this means that the policyholder's next of kin will only be paid the insured amount if that policyholder dies before the deadline on the contract.
Thus, when taking out such insurance, it is important to pay adequate attention to the term. Note here that a longer term also entails higher monthly costs, as the risk to the insurer is higher in such a case.
- The payout from a term life insurance policy can be used in several ways
Thereby, the death insurance benefit may be used by the survivors in different ways. Which ways those are actually depends primarily on what is stated in the insurance contract.
Typically, this involves paying off a mortgage, but it can also include financing an educational program or other items. Again, this is information that is usually clearly defined in the insurance contract to avoid misunderstandings and misuse.
Funeral insurance
- Funeral insurance stays valid for a long time
Unlike term life insurance, funeral insurance often stays in force for a long time. This means that the deceased policyholder's next of kin will always receive benefits, regardless of when the former dies.
The advantage of this, of course, is that as a policyholder, you don't have to worry about money problems within your family to finance the funeral. After all, your family has the necessary financial support anyway.
- Funeral insurance payout is only for the funeral itself
One limitation with funeral insurance is that the benefit your loved ones receive may only be used to pay for the funeral itself. So your family may not use the money for other things, such as paying off a mortgage.
Therefore, instead of a sum of money, funeral insurance often includes a package of services and products related to the funeral. These may include financing and arranging the ceremony, coffin, decorations and more.
When do you take out funeral insurance?
The name basically says it all: funeral insurance is an insurance policy whose payout is specifically intended to pay for the deceased's funeral. So this option is particularly interesting if you want to give your next of kin a financial cushion when arranging the funeral.
So funeral insurance is a little more limited than term life insurance in terms of application, but is the best option if next of kin want to be able to arrange a nice, well-cared-for funeral without getting a financial bruise as a result.