Funeral Insurance: Guide for Canadians

What is funeral insurance?

Funeral insurance is a type of life insurance policy that helps your loved ones when it comes to covering your funeral expenses. It's a permanent kind of coverage, so it sticks around as long as you do (as long as you keep up with the monthly premiums) and pays out a lump sum when the policy holder passes away.

Usually, funeral insurance is not meant for folks raising families that need coverage for big financial obligations like mortgages, childcare, tuition and income replacement during their working years.

This is because funeral insurance is focused on one thing: making sure your final expenses are taken care of.

What is funeral insurance used for?

Funeral insurance is used to save your loved ones from the stress of footing the bill for your final farewell. It's like a safety net specifically designed to cover those final expenses that come with such a difficult time.

The big drawback? Funeral insurance premiums are much more costly than traditional life insurance policies, for less of a payout.

Example

Let's say your premiums are $50 per month, and the payout is $10,000 (typical funeral insurance coverage). You'll pay more for your policy than the payout if you live more than 16 years.

• » $50 per month = $600 per year
• » $10,000/$600 = 16.7 years

You should only buy funeral insurance as a final resort because, while it doesn't require a medical exam, it has lower-than-average payout amounts with costly premiums.

Funeral or burial insurance may be a viable choice if you:

• have already been denied traditional coverage (term life insurance or whole life insurance);
• have poor health, for example: cancer, heart disease, chronic illness;
• are over 70 years old;
• unfortunately, expect to pass within a short time frame.

Otherwise, it makes sense to try term life insurance or whole life insurance first. If you're approved, you'll likely save money and get your beneficiaries a bigger lump sum payout.

Funeral insurance vs life insurance

Let's get into a breakdown of the differences between funeral insurance and life insurance:

Funeral insurance:

• Covers specific end-of-life expenses like funeral costs and other final arrangements.
• Takes care of things like caskets, services, and burial/cremation costs.
• Relieves your loved ones from the financial burden of your farewell.

Life insurance:

• Provides broader financial protection for your loved ones.
• Payout can be used for anything your family needs, like your mortgage or childcare.
• Designed for dependents and significant financial responsibilities (couples, families).

Funeral insurance is all about easing the financial burden of just your funeral expenses, while life insurance has a broader scope, protecting your family in various ways.

Can life insurance cover your funeral expenses?

Life insurance can cover your funeral expenses and anything else your family needs if you pass away. Why? The death benefit amount for traditional life insurance is much higher than funeral insurance.

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Most life insurance companies offer policies with a death benefit of up to $5M (but there are companies that offer even more). The average cost of a funeral sits at around $10,000.

That leaves your loved ones with a large amount of money to handle such a difficult time, using the remainder of the tax free payout to do things like:

• Pay off the mortgage
• Set up a tuition fund
• Take time off work
• Save for retirement

See how affordable term life coverage can be in a few clicks. Max out your family's payout with budget-friendly premiums.

What does funeral insurance cover?

Funeral insurance has some specific uses, helping your family cover end-of-life related costs, like:

• The funeral cost
• Burial, embalming or cremation costs
• Memorial or graveside services
• Funeral director fees
• Miscellaneous expenses such as flowers, tributes, transportation, etc.

Pros and cons of funeral insurance

Funeral insurance advantages

• Easy qualification: Most funeral insurance plans don't require a medical exam, some of which don't need you to fill out a medical questionnaire, making applications simple. This is especially useful for the elderly and those with severe illnesses.
• Instant coverage: Some companies will grant you insurance coverage instantly upon application. (Caution: most policies have a 2-year waiting period. If you pass before the 2-year mark, your loved ones don't get a payout, but they'll get your premiums back)

Funeral insurance disadvantages

• High premiums: Because the insurance company won't have your full health history, they'll charge you more to account for the "risk" of covering you.
• Coverage caps: Traditional insurance coverage amounts are generally higher. Some companies offer up to $10M, whereas the coverage amount is limited to $50,000 at most when you buy funeral insurance.

[fs-toc-omit]The 2 main types of funeral insurance in Canada

[fs-toc-h2]Types of funeral insurance

1. Simplified issue life insurance

‍A straightforward kind of coverage that skips the medical exams. You'll need to answer health-related questions to determine eligibility. If you have very serious pre-existing conditions or need higher coverage, other options may be better.

Simplified issue life insurance best suited for:

• Someone willing to pay much more in insurance premiums to forgo a medical test
• Someone recently declined by a traditional life insurance provider

2. Guaranteed issue life insurance

‍A type of coverage that is designed to approve almost everyone that applies. Guaranteed issue is for those with health issues that make it challenging to qualify for other types of life insurance and have been denied both traditional and simplified issue coverage.

There are no medical exams or health questions for guaranteed issue policies.

Guaranteed issue life insurance is best suited for:

• Someone with an active terminal illness
• Someone with a severe, complex medical history

[fs-toc-omit]How much does funeral insurance cost in Canada?

[fs-toc-h2]Funeral insurance cost

Broadly, funeral insurance can cost more than 3x term insurance for a death benefit that's 4x less in coverage.

What is the typical funeral insurance payout amount?

The typical funeral insurance payout amount ranges from $5,000 to $50,000. However, that maximum death benefit is rarely offered. You'll generally see funeral insurance policies capped at $25,000.

Does the Canadian Government help with funeral costs?

The Government of Canada doesn't offer a one-size-fits-all solution for funeral costs. But there are a couple of options to explore:

1. Canada Pension Plan

You're eligible for a death benefit of $2,500 if you contributed to the Canada Pension Plan (CPP) for at least: "one-third of the calendar years in their contributory period for the base CPP, but no less than 3 calendar years, or 10 calendar years" says the Government of Canada.

This may also be available provincially, but please verify with your local government's documentation.

2. Veterans' benefits

If you've previously served in the Canadian military, there are final expense insurance options available to assist with funeral expenses, burial costs and a military gravestone.

This benefit is offered through the Last Post Fund.

3. Indigenous services

Indigenous communities often have their own unique programs to help with funeral costs. The Estate services for First Nations division of the Government of Canada offer support for the funeral if the Indigenous family cannot afford it.

The coverage and eligibility for the Government of Canada's funeral coverage can vary, so it's essential to do your research.

[fs-toc-omit]Best life insurance companies for funeral insurance

[fs-toc-h2]Best companies for funeral insurance

Here's a look at the top three funeral insurance companies in Canada. We'll be looking at providers of guaranteed acceptance life insurance policies, which is a type of funeral insurance policy.

Canada Protection Plan Guaranteed Acceptance Life

About the policy:

• Coverage amounts up to $50,000.
• Beneficiaries get a refund on premiums plus three per cent interest if you pass within two years.

Best suited for: Seniors and people with pre-existing conditions. Some of the best prices for guaranteed life in Canada.

Empire Life Guaranteed Life Protect

About the policy:

• You can borrow cash from your policy after the fifth year.
• Smokers get a better rate than they would elsewhere on the market.

Best suited for: Smokers and those that wish to borrow against their life insurance.

UV Insurance Simplified Issue Life Insurance

About the policy:

• Many optional riders you can add to the policy (accidental death, critical illness, child rider, etc.).
• More strict coverage limits than competitors, especially for the "express issue" option.‍

Best suited for: Someone that wants a lot of add-ons for their policy.

» Read our comprehensive review of the best no medical life insurance companies in Canada.

[fs-toc-omit]Next steps: Funeral insurance in Canada

1. Apply for a traditional insurance policy first, like term life insurance, to maximize your coverage while paying some of the lowest premiums on the market. This blog on the best life insurance Canada has to offer is a good place to start.
2. If you're denied a term life insurance policy after applying with a few companies, go for simplified issue life insurance coverage.
3. As a last resort, apply for a guaranteed acceptance policy so your family can cover funeral expenses providing them a peace of mind for costs related to the funeral service.

[fs-toc-omit]FAQ: Final expense insurance for funeral coverage

What are end of life expenses?

End of life expenses are the costs associated with a person's final arrangements and passing. These expenses include funeral service or memorial services, burial expenses, cremation costs or burial costs, transportation of the body, caskets or urns, cemetery plots, headstones and any administrative fees.

End-of-life expenses can vary widely depending on preferences, cultural traditions and location. Understanding these costs can help you plan ahead and consider options like life insurance to ease the financial burden on loved ones and give them a peace of mind.

Do you need to do a medical exam for funeral insurance plans?

You generally do not need to do a medical exam to qualify for funeral insurance plans. In fact, there are some funeral insurance plans that don't even require a medical questionnaire (guaranteed acceptance insurance). That said, different insurance companies may have different policies on the matter.

Before purchasing funeral insurance, you can check in with an advisor to make sure you understand the medical requirements for your policy. Most of these coverage options are considered permanent life insurance, but there are term options as well.

Is a final expense insurance policy the same as a funeral insurance policy?

Final expense insurance and funeral insurance aim to cover end-of-life costs. But final expense insurance is a broader term for policies that cover final expenses beyond the funeral, like medical bills. Funeral insurance focuses on funeral-related expenses like caskets, services and burial costs/cremation costs.

Sometimes life insurance companies use these terms interchangeably, as with the terms "burial insurance policy" and "funeral expense insurance", too. To ensure you've got the insurance coverage you need, check your policy's payout terms before signing on.

What type of funeral insurance is halal?

When it comes to funeral insurance permissible in Islam, the kind that's generally accepted is known as "Takaful." This is a form of Sharia-compliant insurance that complies with Islamic principles, emphasizing mutual support and community assistance.

To break this down: In Takaful insurance, instead of paying premiums like traditional insurance, participants contribute to a shared fund. If someone from this group incurs expenses (like funeral costs), these are covered from this communal pool. Any leftover funds after meeting all claims and costs are then given back to the participants.

However, it's important to remember that interpretations of insurance can vary among different scholars and communities in Islam. So, if you're uncertain, it's always a good idea to seek advice from someone knowledgeable in your community or religious authority.