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Funeral insurance (also known as burial insurance, final expense insurance, or pre-need insurance) is often used to pay for final funeral arrangements related to the policy owner’s funeral or memorial service. The main motivation for using this type of insurance is to ensure that funeral expenses (see how much the average funeral costs in your state) do not fall on family and friends or to alleviate the burden of paying for funeral expenses out of the estate.
How Does It Work?
A final expense insurance policy works much like a term life insurance or a permanent insurance policy. The most common policy type allows you to decide on the amount of money you would like your beneficiaries to receive when you pass, and then you pay regular premium payments to keep the policy active (see alternative policy types below). Many funeral insurance policies do not require a medical exam; however, many policies have a 12-month accident-only period in which the beneficiary would not be able to make a claim if the policyholder was to die of natural causes. Another thing to keep in mind is that many policies only cover an individual until a certain age, with one hundred (100) years being the most common age.
When looking into a funeral insurance policy, make sure to pay attention to the type of policy. Some policies are single-premium policies that allow immediate coverage but require you to pay a lump sum upfront (also read below regarding scams). Others are similar to a simple term policy, and you pay a monthly premium that entitles you to the coverage amount the whole time. Finally, graded death benefit policies will increase the coverage over time as you pay premiums.
You may be able to assign the payout to the funeral home itself. However, keep in mind that you will need to reassign the payout if there are any changes to your funeral plans in the future. You should always make your family aware of this arrangement as well as make sure the funeral home accepts funeral insurance payouts.
How Much Does it Cost?
Funeral insurance can be fairly expensive when compared to other insurance products, with the usual premium payments being between $15 and $80 per month and an average payout of about $10,000. Because funeral insurance is usually marketed and sold to seniors, the premiums will reflect the relative risk of that group and will generally be higher than buying life insurance at a younger age.
Where Can I Buy Funeral Insurance?
There are several places you can buy insurance. Options include contacting a funeral insurance specialist (such as Lincoln Heritage Life Insurance), your insurance agent, or trying one of the major insurance companies to ask if they offer funeral insurance.
Pre-Paid Funeral Plans
Another option that may be available to you is a pre-paid funeral plan. Funeral homes often offer a funeral plan option which allows you or a family member to pay for funeral services with monthly installments, either before or after the funeral. Prepaying for your funeral with this method can help take the stress off of family later but is risky for several reasons. First, if you change your mind, depending on the agreement, you may not be able to back out. Second, if the funeral home closes it may be difficult for you to get your money back. Generally, prepaid funeral plans are not recommended.
Funeral insurance sales seem to attract more scams than other insurance products. Please be careful signing up for any funeral insurance plan, especially if you or your loved one have been contacted directly. Be especially careful if the plan calls for an upfront lump-sum payment. Another practice that is not quite a scam, but is dishonest, is the practice of using mailers or when a company portrays itself as working with the government to offer a product and solicits your personal information. They will then sell your information to third parties. These third parties may then contact you to sell you funeral insurance or simply be black market identity thieves.
It’s always a good idea to have someone else review any offer or sales information you receive for a second opinion.
What About Traditional Life Insurance?
The difference between pre-need insurance and life insurance is that life insurance proceeds are paid out to your beneficiaries in cash with no strings attached, while funeral insurance would have to cover your funeral and cannot be used for other purposes. Life insurance coverage can be easier to purchase, due to their simply being more life insurance companies to choose from and a generally more competitive marketplace. Life insurance is also more flexible, as the money can go to heirs or any other beneficiary. Often it is not necessary to have burial insurance if you already have a life insurance policy in place. For life insurance, we recommend Policygenius, they give you quotes from the country’s leading life insurance companies so you can compare and pick the policy that works best for you and your family.
Depending on your individual circumstances funeral insurance can be a good choice to help cover funeral expenses, leaving you and your loved ones with the peace of mind that the funeral expenses are already taken care of.
However, funeral insurance can be costly, which makes life-insurance another viable option. What’s important is to make sure your end of life expenses and funeral costs can be paid without the financial burden being shifted to your family and to accomplish the goals of your estate plan. It is always best to speak with an estate attorney before making any decisions, as they should be able to give advice on different strategies and insurance products that will help you.
The information provided does not, and is not intended to, constitute legal, accounting or tax advice; instead, all information, content, and materials available on this site are for general informational purposes only.