Pre-need Insurance: Pros and Cons

It may surprise you that many Americans don’t have the savings to pay the costs associated with their impending death. That’s why insurance exists.

If you have a group life insurance policy from work, it can pay for your funeral —  eventually. The money from a life insurance policy usually doesn’t become available until the state issues an official death certificate for the policyholder. Then, it can take several weeks (or months) to process the claim.  

The Importance of Funeral Insurance

Some families who rely on life insurance to cover funeral expenses have to rush to cover costs right after somebody dies. They might use credit cards, personal savings, or borrow from friends and family. But the products and services of a funeral home or cemetery may cost $8,000, or more. Could your credit line handle such a charge? 

Also, funeral homes and cemeteries need payment upfront to bury or cremate your loved one. Many funeral homes can obtain payment through an assignment of the funds — coming from a life insurance policy death benefit.

Some carriers offer accelerated payment of death benefits, cut from months or weeks to days. However, this is through employer group life insurance. If you don’t have these benefits, you still have some options.

Funeral Insurance Options

There are two kinds of funeral insurance: pre-need funeral insurance — issued through a funeral home, and final expense insurance — offered by independent agents. The better option for you depends on your situation. Let’s look at the pros and cons of pre-need insurance.

What Is Pre-Need Insurance?

Pre-need plans help you make sure your funeral gets paid for. Some are insurance policies while others are contracts with funeral homes that utilize a trust for funds. 

If the plan is (through) insurance, it’s typically sold by a funeral director — who is also licensed to sell insurance. With pre-need insurance, you make the funeral home the beneficiary, so that when death occurs, you’re tied to that home for their services.

Related Post: Should I Prepay My Funeral?

Pros

Most Policies Are Mobile

If you move, you can take the money and apply it at a different funeral home. Just confirm that this is an option.

Availability

Did you know? Pre-need funeral insurance is available to anybody — in ANY medical condition.

Locked-In Rates

Funeral homes and cemeteries will offer a price lock-in — at current rates — so the expenses are covered. Even if the insured passes away several years later.

Just a Phone Call Away

As soon as the policy is paid up, it only takes a phone call from the family to have everything carried out — the way the decedent had intended.

Assured Protection

Sometimes funeral homes are bought by another company or they may go bankrupt. If this happens, the insurance policy will still protect your money. 

Excess Funds Are Tax-Free

Once the funeral expenses are paid, any leftover “excess” funds get returned to the family. Tax-free!

Related Post: Final Expense Insurance vs. Pre-Need Insurance

Cons

You May Have to Pay Cemetery Costs

On the other hand, funeral home policies typically don’t cover cemetery expenses. You’ll likely need additional funds or a separate cemetery burial insurance policy.

Moving Could Lead to Increased Rates

Let’s say you move and apply the policy funds at another funeral home. In this case, you pay the current rates at the new home — which may be higher than when you bought the policy. Unfortunately the price lock-in benefit doesn’t apply. 

Pay All the Premiums, Or Else

You can make payments over time, but you must pay ALL the premiums. Otherwise, the benefits and funds are lost.

Non-Covered Expenses Rise with Time

Pre-need insurance might not cover all the costs when the policy owner dies. For example, obituaries and motorcycle escorts are costs that the funeral home cannot control. And these expenses increase with time. 

Consider all of these pros and cons before you choose pre-need funeral insurance. If you have questions, or you’d like more info about final expense insurance, call us at 1-877-674-0236!