Planning your own funeral enables you and your family to have peace of mind and lifts burdens your family would otherwise have to deal with. At the time of your death, your family may not know your exact wishes, which would add to their emotional stress. Funerals are also generally expensive and can range from $7,000 to $10,000 for the main expenses alone. Having a financial plan such as pre-need insurances guarantees your wishes will be carried out in the exact manner you and the funeral director plan and lifts the financial burden from your loved ones.
What is Pre-Need Insurance?
Pre-Need insurance is an insurance policy where the benefits cover predetermined costs of funeral arrangements. This typically includes burial, cremation, funeral home services and merchandise, church services, and burial services. A pre-need insurance policy sets funds aside for these services, thus protecting your loved ones from financial burdens and protects your financial assets.
Why Choose Pre-Need Insurance?
Pre-need insurance is not required, but it is a smart choice. Your wishes will be carried out exactly as you want, leaving your loved ones free of any decision-making during a difficult time, as well as cutting their ties to any bills. Using other sources of funding, such as a savings account, trust fund, or final expense insurance does not have the advantages pre-need insurance offers. It is important to know how pre-need insurance overrides other means of payment:
Fully Insured: Your funeral expenses should be fully covered under the pre-need insurance plan if the prices have been locked in by the funeral director.
No Tax Liability: Unlike life insurance, pre-need insurance is not taxable. This protects your family from having to deal with insurance taxes after your death.
Immediate Payment: At the time of your death, the benefits under your policy may be paid immediately to the funeral home.
Easy-Apply: To apply for benefits, you don’t have to be a certain age or have an immediate illness that would provoke you to want to plan your funeral. You can have this done at any age. There is limited to no underwriting required to apply for a pre-need life insurance policy. The decision is typically made within a few minutes.
What are the Types of Pre-Need Insurance and Payment Options?
Pre-need insurance contracts types include guaranteed, non-guaranteed, revocable, and irrevocable. Guaranteed and non-guaranteed and revocable/irrevocable are each its own. For example, you can choose to have a revocable contract that will be guaranteed or non-guaranteed, or you can choose an irrevocable contract that will be guaranteed or non-guaranteed.
Guaranteed: A guaranteed pre-need insurance contract establishes the prices up-front. The price you view for each service and product will be the same price at the time of your death, even if the prices happen to rise.
Non-Guaranteed: Non-guaranteed contracts cannot guarantee that the price of the item you choose will be the price at the time of your death. It is more hypothetically priced, with no aspects or prices for service being guaranteed. If you choose a revocable, non-guaranteed contract and want to cancel, you will be refunded 100 percent of what you paid.
Revocable: Revocable contracts can be canceled. If you sign a revocable and guaranteed pre-need insurance plan, you will be refunded approximately 90 percent of what you paid.
Irrevocable: Irrevocable contracts can be cancelled within the first seven-day period. After this, if you determine you want to cancel an irrevocable contract, you will not receive a refund of any payments. You may, however, direct the funds to another funeral home.
During the first seven days after signing a pre-need insurance contract, any of the services can be cancelled—even if it is an irrevocable contract. It is important to understand these contract types and the state rules regarding each before heading into any funeral home, as the rules vary from state to state. However, your funeral director will assist you in determining what contract is right for you.
Payment is usually decided between you and the funeral director. You can either pay upfront or choose a payment plan. Each state is different regarding how they go about payment plans.
What are the Differences between Pre-Need Plans and Final Expense Plans?
Pre-need plans and final expense plans are similar in terms of need, but are separate types of plans. While a pre-need plan is typically purchased directly from a funeral home or funeral director, a final expense plan is not, and covers estimated funeral costs. Final expense plans do not deal with “specific” plans, like pre-need plans do. Knowing the advantages and disadvantages of each will help you to make a knowledgeable decision.
Pre-Need Plan Advantages: Pre-need plans provide a guaranteed price for a very specific set of services and products. If you pay in advance for these services and products, the price is locked in.
Pre-Need Plan Disadvantages: The pre-need plan is for a specific funeral home, which becomes your beneficiary. Changing your wishes may be harder without financial penalty. If you wish to change an aspect of your funeral, the price-guarantee you chose cannot be guaranteed.
Final Expense Advantages: These plans are flexible and are payable to any beneficiary of your choosing. At your time of need, you can choose any funeral director at hand.
Final Expense Disadvantages: Final expense plans carry no price guarantee for any services—only “estimated” prices. If you need to estimate your funeral costs or choose to add something without having pre-planning, the cost can exceed the final expense plan limit and become your family’s responsibility.
Typically, pre-need insurance plans include a funeral director to assist you with all of your needs while pre-planning. You will be able to choose your type of service and all specifics to go with it, including your casket or urn. If you choose to be buried, you will be able to choose the plot ahead of time. You will also be able to choose prayers, readings, special songs, hymns, and accompany any religious tradition and/or heritage tradition.
Updated: March 28, 2014