Today’s funeral costs can vary greatly depending on your preferences. The price of a casket alone can range from $2,000 to nearly $10,000 for a model made of mahogany or copper. If you’re concerned about how your family would be able to cover funeral expenses in the event of your death, preneed life insurance may be worth considering. Keep reading to learn more about what this specialty insurance covers and what alternatives are available.
What Is a Preneed Life Insurance Policy?
Preneed insurance is a specialized life insurance policy that covers only the costs associated with your funeral and burial services, which are planned in advance by you at the time the plan is purchased. These policies typically pay out directly to the funeral home you choose and cover only the services and products you’ve selected. Most plans, which can be purchased for yourself or a loved one, are obtained directly from a funeral home or mortuary.
What Does Preneed Life Insurance Cover?
Preneed life insurance policies cover many of the expenses associated with funerals and burials. Coverage may include, but is not limited to, the following services and merchandise:
- Burial plots
- Urns or caskets
- Religious services
- Published obituaries
- Floral arrangements
How Does a Preneed Life Insurance Policy Work?
Preneed life insurance involves preplanning. When you purchase a policy, you’ll need to choose the specifics of your funeral, such as whether you want a burial or cremation, what type of services you’ll have and any other special wishes to be accommodated. After you’ve outlined what you want, including details such as flowers and transportation, the funeral director will add up the costs, which determines the price of your plan. Depending on where you purchase your policy, you may be able to pay the total amount through manageable monthly installments instead of paying the entire sum up front.
After your death, the funeral home uses the money you’ve paid into your plan to carry out your funeral according to your wishes. Your loved ones do not need to make choices because they’ve already been made by you.
What Are Guaranteed and Non-Guaranteed Services?
If you’re planning on purchasing a preneed life insurance policy, you'll need to understand the difference between guaranteed and non-guaranteed services. Because you’re essentially purchasing merchandise and services prior to the need for them, the related costs can go up significantly prior to your death. Guaranteed services take this cost inflation into account, which means that your policy will cover those services even if the price you paid is less than the cost at the time of your death. For non-guaranteed services, your loved ones are responsible for paying any amount over what was accounted for in the policy.
Most preneed policies account for the increase of costs for service and merchandise in the plan’s premiums so everything is guaranteed. However, you should always check with your chosen provider to find out which services and merchandise are guaranteed.
What Are the Benefits of a Preneed Policy?
In addition to the obvious benefit of covering the cost of final expenses so your family doesn’t have to, preneed policies also provide the peace of mind of knowing that your funeral will be carried out according to your wishes and preferences. Preneed policies also save your family from having to make difficult choices about services and merchandise while they’re grieving.
What Are the Drawbacks of a Preneed Policy?
Preneed policies can be costly, and unlike traditional life insurance plans, their value doesn’t increase over the duration of the policy. Worse, predatory businesses may take advantage of vulnerable consumers seeking preneed policies. Plus, because the benefits are tied to a single funeral home, if the business closes, your policy may be lost.
What Is the Difference Between Preneed and Traditional Life Insurance?
Although preneed insurance is classified as life insurance, it offers different benefits than traditional life insurance policies. Traditional life insurance pays out a monetary death benefit to a designated beneficiary, who can typically use that money at their own discretion. A preneed policy pays out the benefit directly to a funeral home or mortuary, and the proceeds are used to carry out funeral and burial services, as designed by you.
What Is the Difference Between Preneed Insurance and Final Expense Insurance?
Although preneed insurance and final expense policies are both designed to cover the costs associated with funerals and burials, they are unique types of policies. Here are several of the ways in which preneed and final expense insurance differ:
- Preneed insurance is typically purchased directly from a funeral home or mortuary. Final expense insurance is sold through many major insurance carriers.
- With preneed insurance, your chosen funeral home is the beneficiary. With final expense insurance, you choose a beneficiary.
- Preneed insurance is tied to a single funeral home while final expense insurance is portable.
- The benefits from preneed insurance are used to pay for preselected merchandise and services. Payouts from final expense insurance are often used to pay for funeral arrangements but may also be used to cover other expenses such as medical bills.
Are There Alternatives to Preneed and Final Expense Insurance?
Preneed life and final expense insurance policies aren’t the only options available if you want to make sure your family has enough money to pay for your funeral. Several popular alternatives may be worth considering:
- Preneed funeral trusts let you set aside money to pay for final expenses. This type of trust earns interest on your money and can be used at any funeral home, cemetery or mortuary. Trusts may also let you set terms about how the money should be spent.
- Basic savings accounts are another way to put aside money for final expenses. Instead of paying premiums to a funeral home, you can put money into a personal account where it can collect interest and is still available to use for unexpected expenses.
If you aren’t sure which option is the best one for you and your family, it may be worth consulting an estate lawyer or a financial planner who can help you navigate available options. It may also be helpful to sit down with family members and loved ones to discuss your last wishes so they’re not left with uncertainty in the event of your death.