Prepaid Funeral Plans vs Life Insurance Policy: Which Is Better?

Written by Kim Wilhelm

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Last Updated 01 Mar 2024

No one likes to think about their own mortality, but with funeral costs escalating, we all have to start preparing for the inevitable. If we don't, our families and friends will have to deal with the burden that funeral and burial costs can place on their shoulders.


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There are numerous companies that offer plans and policies designed to cover your funeral expenses, including life insurance policies and pre-paid funeral plans. Before you decide which one is right for you, you have to know the pros and cons of each.

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Prepaid Funeral Plans

Planning for your funeral or cremation may not be the most exciting task, but it can bring immense peace of mind for both you and your family. A prepaid funeral plan gives you the ability to take control of your funeral arrangements, from burial or cremation to choosing the look and location you desire. By paying for these arrangements over time in manageable installments, you can make sure that your final wishes are carried out without burdening your family with the financial and logistical challenges that often accompany these difficult decisions.

Choosing a prepaid funeral plan gives you the flexibility to personalize your funeral or memorial service. You can select the service, specify the location, choose the music, food, the hearse, the location and more. This comprehensive approach ensures that your funeral reflects your unique life and personality, allowing your loved ones to celebrate your memory in a meaningful way. By relieving your family of the responsibility of planning and paying for your funeral, you provide them with a precious gift—space to grieve and remember without additional financial stress.

Pros of Prepaid Funeral Plans

Reduce your family's burden.

One of the biggest advantages of prepaid funeral plans is that they relieve your family of the responsibility of making funeral arrangements and worrying about the associated costs. By planning and paying for your funeral in advance, you make sure that your loved ones can focus on grieving and healing rather than dealing with logistical and financial challenges.

Honor your personal decisions.

Prepaid funeral plans allow you to make choices about your final arrangements and see that your wishes are respected. You can select the type of service, choose a cemetery, decide between burial or cremation, and specify other details that reflect your personal preferences. This level of control brings peace of mind and eliminates uncertainty for both you and your family.

Secure an affordable price.

By prepaying for your funeral, you can secure today's prices and protect yourself against inflating costs in the future. Funeral expenses have been increasing, and by paying in advance, you can potentially save money compared to paying for the same services at a later date. Many funeral homes also offer discounted packages for prepaid plans, making them a more affordable option.

Choose your funeral home.

If you have a trusted funeral home that you prefer to work with, a prepaid funeral plan ensures your family uses that specific provider. By selecting a funeral home in advance, you can have peace of mind knowing that your family will receive services from a trusted source. This option is especially valuable if you have a longstanding relationship with a particular funeral home.

Cons of Prepaid Funeral Plans

Possible scams

Unfortunately, funeral scams involving prepaid funeral packages do exist. It's crucial to be aware of potential fraud and educate yourself about your state's laws regarding funeral fraud and prepayment. Always read the fine print and fully understand how your money will be used before entering into a prepaid funeral plan.

You can't move your plan.

Prepaid funeral plans are typically non-transferable to other funeral service providers. If you move to a different location or your chosen funeral home goes out of business, you may not be able to transfer your plan. This lack of flexibility can be a disadvantage if your circumstances change.

There can be unexpected costs

While prepaid funeral plans cover certain services, additional fees may still apply after your passing. Your family may be responsible for extra payments or planning fees that were not included in the prepaid plan. To avoid surprises, carefully review the terms and conditions of any funeral payment package before committing to it.

Prepayment doesn't cover all costs.

Prepaying for funeral arrangements doesn't necessarily cover all end-of-life expenses. Additional costs, such as medical expenses, cemetery fees, and third-party services, may not be included in the prepaid plan. Unless specific funds are allocated for these expenses, they will need to be covered by your estate or your loved ones.

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Understanding Final Expense Life Insurance

Funeral insurance, also known as burial insurance or final expense insurance, is an alternative option for those who may not be inclined to plan the details of their funeral or cremation. With funeral insurance, you can ensure that your family won't be burdened with the costs of your funeral by purchasing a policy that specifically covers final expenses.

It's a form of life insurance, but it isn't the same as traditional life insurance. Life insurance policies are designed to replace lost income and provide financial support to your beneficiaries after your passing. 

Burial insurance works similarly to regular life insurance policies, where you pay monthly premiums, and upon your passing, your chosen beneficiary receives a payout designated for funeral expenses. The advantage of burial insurance is that it does not require a medical exam. Applicants are often insured after answering just a few health questions. This accessibility makes burial insurance a practical choice for individuals who may have difficulty obtaining traditional life insurance due to health conditions.

The Pros of Final Expense Insurance

Affordable premiums

Final expense life insurance policies typically come with affordable monthly premiums, making them accessible for many individuals. The cost of the policy depends on factors such as coverage amount, gender, and health.

Lifetime coverage

Final expense life insurance is a form of permanent life insurance, meaning it provides coverage for your entire lifetime. The policy does not terminate due to age, ensuring that your beneficiaries will receive the death benefit whenever you pass away.

No medical exam

A big advantage of final expense insurance is that it does not require a medical exam as part of the application process. Applicants only need to answer a few health questions, making it easier to qualify for coverage, especially for individuals with pre-existing health conditions.

No waiting period options

Some final expense insurance companies offer plans with no waiting periods. If approved, you are fully covered from the day you make your first payment. Immediate coverage can provide peace of mind knowing that your policy is in effect without any waiting period, although you still need to qualify based on health questions.

No health questions plans available

Some final expense insurance plans are available without requiring applicants to answer any health questions. These plans, often referred to as guaranteed issue life insurance, guarantee approval of the plan regardless of previous health issues. However, they usually come with a two-year waiting period, and if you pass away during that time, the insurance provider may only refund your premiums plus 10%. Keep in mind, guaranteed issue plans are also more expensive due to increased risk by providing approval with no health questions.

Lenient underwriting

Final expense insurance policies are designed to accept applicants with pre-existing medical conditions. Individuals with health conditions such as diabetes or high blood pressure can still qualify for coverage, making it accessible for many seniors. Funeral insurance plans are available for individuals of different ages. Some policies can be purchased for children as young as 6 months old, while others can be obtained by seniors up to the age of 89 (however most insurance companies stop issuing new policies at age 85). This wide age range ensures that individuals at various life stages can secure coverage.

Fast claims payments

Final expense insurance companies understand the time-sensitive nature of funeral expenses and aim to pay out death benefits quickly. In most cases, claims are processed and paid within 24-48 hours of approval, ensuring that funds are available promptly to cover funeral costs.

The money can be used for anything.

The death benefit provided by final expense insurance is a cash payout, and there are no restrictions on how the funds can be used. Your beneficiaries can use the money to cover funeral expenses, medical bills, credit cards, or any other financial needs. Any unused funds stay with your family, and a funeral home does not receive any excess funds.

The Cons of Final Expense Insurance

Limited coverage amounts

Final expense insurance policies often have maximum death benefit limits, typically around $25,000 to $50,000. If you require a higher amount of coverage, such as $100,000 or more, final expense insurance may not be suitable, and alternative life insurance options may be necessary.

Misleading marketing

The final expense insurance market is filled with misleading marketing tactics that can create unrealistic price expectations for consumers. Ads with low starting premiums or claims of government-regulated programs can be deceptive and lead to misunderstandings about the actual cost of coverage.

Waiting period provisions

Some final expense insurance policies include waiting periods, especially for guaranteed issue plans. Dishonest agents may fail to inform policyholders about these waiting periods or use misleading explanations, leading to confusion and unexpected limitations on coverage.

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Conclusion

Final expense insurance offers numerous advantages that make it a compelling choice for individuals seeking to protect their loved ones from the financial burden of funeral expenses. Unlike prepaid funeral plans, final expense insurance provides flexibility, affordability, and lifelong coverage, ensuring that your family is adequately supported when the time comes.

With affordable premiums, fixed rates, and no medical exams required, final expense insurance is accessible to a wide range of individuals, including those with pre-existing health conditions. The ability to choose small coverage amounts specifically tailored to funeral costs and the option to name any beneficiary you desire provides the flexibility and control needed to meet your unique needs and preferences.

Rather than being restricted to a specific funeral home or facing the risk of funeral scams, final expense insurance gives you the freedom to choose how your funds are used and who receives them.

If you want to know more, reach out to Final Expense Direct. Our experienced team can guide you through the process, answer any questions you may have, and help you secure the right coverage to protect your loved ones. Call Final Expense Direct today at 1-800-217-0014 to take the first step towards securing your peace of mind and ensuring a dignified farewell for yourself while safeguarding your family's financial well-being.

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