Planning your funeral ahead of time may feel overwhelming, but it can also give you peace of mind. With preneed funeral insurance, you can make your funeral arrangements and cover the expenses so your family is free to grieve with one less responsibility to face.
What is preneed funeral insurance?
Preneed insurance is designed to pay the expenses of your funeral arrangements when you die, taking the burden off your family. You arrange everything with a specific funeral home, and the funeral home becomes the beneficiary of the policy.
How does preneed funeral insurance work?
When you purchase your preneed policy, you determine how much of your funeral you want to arrange ahead of time. Some people choose to only buy the cemetery plot, while others plan everything from the funeral products to the ceremony details. Once your arrangements are set, you can pay for the policy with one lump sum or arrange a 3-, 5- or 10-year payment plan.
What to look out for
Knowing your funeral arrangements are settled may give you peace of mind, but before you sign the policy, make sure you know what you’re getting into.
Guaranteed service or unguaranteed. If your policy doesn’t specify that your service is guaranteed, your family will have to pay for any difference between the cost of your policy and what the funeral home charges at the time of your death.
Out-of-business contingency. You should research the stability of the funeral home you choose. And if the worst happens, you need to know that your policy will still be honored if the funeral home is sold or goes out of business.
State regulations. Make sure you understand the laws in your state that govern the sale of preneed funeral insurance and that your policy meets those laws.
Transfer out of state. If you decide to move to be closer to family, ensure you can transfer your policy to your new city or state.
Preneed funeral insurance vs. final expense insurance.
Preneed funeral insurance is purchased from a funeral home, whereas final expense insurance is purchased from an insurance company. A final expense policy is more flexible and works more like a life insurance policy, with the money reserved for your funeral expenses. You choose the beneficiaries, and the money can be used for anything from funeral expenses to medical expenses, as determined by the beneficiary. But it’s only in force as long as you pay premiums.
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How much much does preneed funeral insurance cost?
The amount of your preneed policy depends on what arrangements you make. The average policy costs between $10,000 and $15,000, and cap at $25,000. The table below includes average funeral expenses as compiled by the National Funeral Directors Association in 2017. Your individual expenses may vary.
Funeral home service fee
Transportation to the funeral home
Preparing remains for viewing
Facilities and staff for viewing
Facilities and staff for funeral service
Memorial printing, such as funeral programs
$250-400, depending on where you live
Pros and cons of preneed funeral insurance
Guaranteed service. If your preneed plan comes with a guaranteed service. Even if the cost of those services go up, your family is not responsible for the difference.
Arrangements finalized. You take the burden off your family by preplanning everything ahead of time and paying for it, giving them more freedom to mourn.
No refunds. Unlike saving on your own for funeral expenses, a preneed policy doesn’t require the discipline it takes to keep your hands off your savings, because preneed policies are rarely refundable.
No refunds.If you have an emergency, the money you put into a preneed policy is out of reach.
No interest gained.The money you spend on a preneed policy is making money, but not for you. All of the interest you could make on the money is lost to you the day you start paying into the policy.
No chance to shop around.Because you made your preneed arrangements with a specific funeral home, you have no way of knowing if you got the most for your money. By the time you need these services, you could be overpaying compared to possible savings if your family had been able to shop around for another funeral home.
Should I get preneed funeral insurance?
Whether you want a preneed policy depends on your priorities and financial status. If it’s important to you to have all of your funeral expenses arranged prior to your death, but don’t trust yourself to put aside the money in an account you can access, a preneed policy safeguards your money and your wishes.
But if you think you might need that money for another reason in case of an emergency, or if you want to use it to build more wealth to leave behind for your loved ones, you might be more comfortable investing it in another way and instead setting up a more basic funeral savings fund.
Alternatives to preneed funeral insurance
If you decide that preneed insurance isn’t for you, there are several ways to make sure your loved ones aren’t left without money to take care of your funeral expenses, while also providing them with more choice in how they spend the money.
Term life insurance. A term life insurance policy provides coverage for a set number of years, or “term.” If you outlive that term, your coverage expires and your beneficiaries don’t get any money. But if you die while the policy is still active, your beneficiaries get a guaranteed death benefit in the form of a one-time lump sum.
Whole life insurance. This policy provides coverage for your entire life as long as you pay your premium.Whole life insurance is usually more expensive, but the policy also earns cash value that you can withdraw on during your lifetime.
Variable life insurance. Offering the greatest risks with potentially the greatest rewards,variable life insurance allows you to select a portfolio of stocks, bonds and mutual funds to invest the cash value portion of your policy.
Universal life insurance. This policy ties the interest of the cash value of your permanent life insurance policy to the market rate of a stock index, such as the S&P 500. With universal life, you can adjust the amount and frequency of your premium payments, as well as the amount of your death benefit.
Simplified life insurance. If you need immediate life insurance without a medical exam,simplified-issue life insurance offers permanent and term policies with limited coverage and high premiums.
Guaranteed-issue life insurance.This policy is mostly issued to cover end-of-life expenses. Guaranteed life requires no medical exam or health questionnaire, but it’s expensive and the coverage is capped at $5,000 to $50,000.
Compare life insurance companies that offer burial insurance
Buying a preneed funeral insurance policy can give you peace of mind of knowing that you’ve taken the burden of funeral arrangements from your loved ones, while also keeping control over how you want to be memorialized. But there are other ways to accomplish both of those goals while still using that money to earn interest and grow your wealth. Whichever you choose, it’s important to make sure you get the best possible policy for you by comparing carriers and policies before you buy.
Frequently asked questions about preneed funeral insurance.
That information should be included in your policy. If it’s not, ask the company to insert it before you sign.
Typically, no. Part of the risk of buying a preneed policy is that you are locking in your options. This can save you money if funeral expenses inflate, but there is no return of money if the expenses are less than what you paid. If this is a concern for you, you can negotiate the flexibility of your policy before you agree.
They are both set up with a specific funeral home and have similar risks. The difference is that a funeral trust account accrues interest, usually to account for any inflation on the funeral arrangements you specified in your contract. You can also specify what happens to any money that’s left over.
Heather Petty is a personal finance writer at Finder specializing in home loans, banking and insurance. After falling victim to a disreputable mortgage broker when buying her first home, she’s on a mission to help readers avoid similar experiences when managing their own finances. A self-proclaimed word nerd, her writing has been featured on MSN, Credit.com and MediaFeed.org, among others. Heather previously worked as a technical writer and editor for the casino systems industry and is an internationally published young adult mystery author. She holds a bachelor’s degree in English with a minor in journalism from the University of Nevada, Reno.
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