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Understanding Funeral Insurance in Canada

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    Many of us want to give our loved ones peace of mind after we’re gone, which often means protecting them from having to pay costs associated with our passing, such as funeral fees, burial costs, lawyers, and more. 

    One of the primary reasons for end-of-life financial planning is managing costs before and after you pass. And that’s where funeral planning and funeral insurance can help.

    In this article, we’ll look at the differences between funeral insurance and general life insurance, the average funeral costs in Canada, and the peace of mind that comes with making an estate plan and being prepared.

    What is Funeral Insurance?

    Funeral insurance, also called burial insurance, final expense insurance, or end-of-life insurance, is a type of permanent life insurance product. 

    In a traditional permanent life insurance policy, your family would receive an income replacement when you pass away which they can use as they wish. With funeral insurance, your family or the beneficiary of your insurance instead gets a lump sum payment specifically to cover your end-of-life expenses such as funeral services and burial costs. 

    Life insurance vs funeral insurance

    Since funeral insurance is a type of life insurance, both offer a death benefit, which is a payout that occurs when the insured person passes away. So what’s the difference between getting a full coverage life insurance plan and getting funeral policy coverage?

    Here’s a breakdown based on a list of considerations: 

    Purpose

    • Funeral Insurance: Specifically designed to cover funeral expenses, including burial or cremation costs.
    • Life Insurance: Offers comprehensive coverage for a wide range of financial needs, including funeral expenses, income replacement, debt payoff, education funding, and more.

    Premiums

    • Funeral Insurance: Since the payouts for funeral insurance typically cover specific, smaller benefit amounts designed to address funeral and burial expenses, they are often fixed premiums that are more affordable than permanent life insurance.
    • Life Insurance: Premiums can vary widely based on the type of policy (term life, whole life, universal life, etc.), coverage amount, the term of the policy, the applicant's age, health, and lifestyle, but generally, life insurance premiums are higher compared to funeral insurance.

    Duration

    • Funeral Insurance: Typically provides coverage for the policyholder's lifetime.
    • Life Insurance: Can offer lifetime coverage, as long as premiums are paid.

    Flexibility

    • Funeral Insurance: Limited flexibility, as it focuses on covering funeral-related expenses.
    • Life Insurance: Highly flexible, allowing beneficiaries to use the death benefit for various financial needs, providing a broader safety net.

    Payouts

    • Funeral Insurance: Quick processing of claims so your loved ones get financial assistance to cover funeral expenses.
    • Life Insurance: Can provide a lump sum payment to beneficiaries, offering flexibility in managing the funds for different purposes.

    The Importance of Funeral Insurance in Estate Planning

    When you’re estate planning in Canada, funeral insurance can actually work as a shortcut for paying for funeral and burial costs, because beneficiaries can quickly get the payout for the insurance claim within a week or two. 

    But how can funeral insurance help if you’ve already written a will? Well, whether you’ve written a handwritten will, traditional will, online will, or digital will, funeral insurance helps you decide who covers your funeral fees – you or your estate.

    For example, let’s say you have a will and inside it, you’ve named an executor, designated beneficiaries, and documented your funeral and burial wishes. In the event of your passing, your funeral and burial fees would usually be covered by your estate. But that means these fees will eat into assets which would have otherwise gone to your beneficiaries. 

    If you have funeral insurance and a will, you preemptively cover your own end-of-life fees now so that the assets left in your estate later can go to your beneficiaries directly rather than being used to cover your funeral costs.  

    But you don’t have to make this decision alone. Talking with loved ones about your or their estate plan can be really helpful, so here are some tips for speaking to your family about estate planning.

    Average Funeral Costs in Canada

    Funeral costs in Canada can range widely depending on where it takes place and what services you want. The price range is very broad, with the lower end being around $1,000 and the higher end being closer to $20,000. 

    The climate also plays a factor in costs for funeral and burial wishes. Cold or frozen ground is much more difficult to break through and may need different machinery, which could cost more. 

    Other factors that influence the cost of your funeral or burial service include:

    • Caskets
    • Embalming
    • Funeral and reception service (may include the fee of reserving a place of worship for the service based on your beliefs)
    • Burial or cremation
    • Urns or headstones

    Choosing the Right Funeral Insurance Policy

    There are many things to consider if you’re trying to find the right funeral insurance policy to suit your needs. 

    1. Coverage Limits and Costs: Consider the costs associated with funeral services in your area and make sure that the policy you choose provides enough coverage as you prepare for funeral expenses. 
    2. Policy Types: Funeral insurance comes in various forms, including term life insurance, whole life insurance, and burial insurance. There may also be options for family coverage as well. Choose a policy that aligns with your preferences and financial situation. 
    3. Exclusions and Limitations: Certain pre-existing conditions or circumstances may also affect coverage options, so carefully review the exclusions and limitations of each policy.
    4. Underwriting Process: Underwriting is the process of evaluating risks in insurance and setting a price based on these risks. Some policies may require a medical exam, while others may offer more simplified underwriting. Pick a process that suits your health status and personal preferences.

    All in all, it’s best to choose a funeral insurance policy that compliments your personal situation, your estate plan, and your end-of-life wishes

    How much does it cost to have a funeral in Canada?

    Funerals in Canada can cost anywhere from $1,000 to $20,000, sometimes even more. But there are multiple factors that contribute to costs, including location, types of services, funeral homes, and how quickly you need the funeral services. 

    Who is legally responsible for funeral costs in Canada?

    The executor of a person’s estate is responsible for covering funeral and burial costs with assets from the estate. Insurance payouts for funeral insurance can also cover these costs, whether the deceased had a will or not.

    What happens if you can't afford a funeral in Canada?

    As long as the deceased contributed to the Canada Pension Plan (CPP) for at least three years, their executor can apply for a CPP death benefit, which is a one-time payment of $2,500 to help with funeral costs. However, the executor must apply for the benefit within 60 days of the deceased’s date of death.

    Integrating Funeral Insurance with Online Wills

    There’s comfort in knowing your loved ones are covered in the future. That’s why making your will, creating your estate plan, and looking into more ways to help look after your family after you pass away can be so important. 

    Funeral insurance is just one way to do this, but if you haven’t already, a solid estate plan always starts with a legal will, which you can do easily with Willful

    Start your will for free today →

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