How To Pre-Pay For Funeral Arrangements With Funeral Insurance
Benefits for this type of insurance include getting the funeral you want, taking pressure off your family, and saving money in the long run.
The average cost of a funeral is between $7,000-$10,000, usually more depending on where you live, and burial might not be included since cemeteries can be a whole different set of costs. To offset this hefty price tag, you might want to look into pre-paying or purchasing funeral insurance, which can help address these three major concerns:
- Financial prudence: Make sure money is properly set aside and take advantage of today's funeral cost rates to pay for tomorrow's funeral.
- Unburden your family: Both monetarily and also regarding all the difficult decisions they would need to make during an extremely stressful time.
- Make sure your dream funeral becomes a reality: Perhaps “dream” is a bit of a stretch, but this is a solid way to ensure all the things you want become a reality.
To help you wrap your head around ways to pay, let’s focus on the following three options:
- Pre-need Insurance
- Final Expense Insurance
The goal for all of these is to have as much as possible taken care of so your family can focus on grieving, and not planning a funeral while mourning or going into debt. But first, why even bother getting funeral insurance?
If you have savings in the bank or Life Insurance, why can’t your family just take a piece of that and use it for your funeral? They could, but this presupposes your family would have access to your bank account or received the money from the policy in time for the funeral, and that they’ll be making reasonable funeral decisions in a time of grief.
It also assumes that your family members are all financially responsible, and won’t use the money to buy a boat in lieu of giving you the proper funeral you deserve.
This is why you might want to create an ironclad plan, leaving less room (or temptation) to stray from the path you set. The same way a person can create a Trust for their children or grandchildren’s college education, which can only be spent on tuition, you’re doing this for your funeral. (Foreshadowing Note: This comes back into play later in this article...stay tuned!) You’re also eliminating the confusion that often comes with planning a funeral, as well as providing a thoughtful gesture from the great beyond.
A Quick Lesson In Funeral-Speak Before We Begin: Pre-need Vs. At-need
Pre-need is when you create a plan and payment method for your funeral while you’re still alive.
At-need is when your family plans and pays for your funeral because you’re already gone.
Now that we got that out of the way, let’s dive in...
The purpose of this type of insurance is to set aside the funds that will always be there.
The first step is choosing a funeral home and planning out the specific details of your funeral. Everything from the type of service, the products you’ll need, burial options if applicable, and anything else you want [Learn More: How To Pre-Plan Your Funeral].
The funeral director prices it out and the policy is created to cover those specific expenses. No more, no less. You’ll also want to make sure as many of those prices are guaranteed, which means they won’t change. So if your casket is $2,000 today, and it’s $3,000 by the time you die, your family won’t have to pay the difference.
When death occurs, the insurance company pays the funeral home directly. Even though the agent who sold you the policy works at or for a funeral home, there’s an insurance company behind the whole process so there’s oversight if something doesn’t go as planned. The three big advantages to pre-need insurance:
- You can guarantee the money gets spent on the funeral you want.
- Your family doesn't have to make any decisions.
- The funeral home takes care of all the administrative logistics.
One possible downside is that your funeral arrangements are set in stone. If your family disagrees with what you choose, or wants something else, they can’t have it unless they pay for it themselves. This is why it’s important to let them know this is exactly what you’ve already planned. There’s still a possibility they might have to pay something because another misconception is that everything is guaranteed.
The guarantee only covers items in the contract the funeral home actually provides. This could include body removal and transportation (possibly even flying from one location to another if you die out of the state or country), embalming, casket, outer burial container, a viewing or wake, and services or amenities offered by the funeral director.
Then there are non-guaranteed items, which are things outside of the funeral home’s control. This could include death notice and obituary placement, the open and closing of the grave, and flowers. You can estimate a budget for these things in the contract, but your family will have to pay the difference. For example, if you budget $1,200 for the grave opening and closing, and by the time you pass the cost is $1,350, your family is responsible for the $150 difference.
This can be upsetting when a family thinks everything is covered, but the prices shouldn’t be too far off. If you feel like you’re being asked to pay more than you should, get in touch with the insurance company and find out why and how you can dispute the charges.
Lighting Round Funeral Insurance FAQs You May Have
What if you want to use a different funeral home?
If you move to a different state, or you don’t want to use that specific funeral home anymore, you can take your policy elsewhere. You own the policy and, in most cases, you can find another funeral home to honor the basic pricing. From there the insurance company will allow you to transfer and assign the new funeral home the policy.
What if the funeral home goes out of business or refuses to honor the agreement? Since funerals can be time sensitive, what should a family do?
If a funeral home is sold, the policy can be reassigned to the new owner. If a funeral home goes out of business, the policy holder needs to have the policy reassigned to another funeral home. If you prepay a specific funeral home directly and they went out of business, that money is almost certainly gone. Since your money is with an insurance company, it’s still there and ready to be reassigned.
Is it common to pay all at once for the policy or can a buyer pay over time?
If you have the money already set aside then paying upfront is the norm, which is also more financially prudent for people who don’t want to be burdened with premiums associated with paying it off over time.
For people who choose to pay for the policy over time – either because they don’t have the money on hand now, or believe it’s better to pay a little over time than one lump sum – they can select a term, which is typically over 3, 5, or 10 years. Be warned: The longer you choose to pay for it, the more it’ll cost because it becomes the highest amount of total premium. For example, if you bought a $10,000 policy today, and paid it out over 10 years, it could end up costing around $18,000.
What if you don't want the policy anymore? Can you cancel it and get your money back?
You can’t if it’s irrevocably assigned, which means it’s no longer a personal asset and is protected against taxes, lawsuits, and won’t count against public assistance such as Medicaid. A revocable assignment can be rescinded at any time, but it’s not as valuable because it’s still an asset you control. If you get sued, or have aggressive debt collectors on your tail, you can be forced to cash it in.
By having it be irrevocably assigned it can also be protection against yourself. If a person begins to lose their facilities, or become the target of elder abuse, an irrevocable assignment, either in an insurance policy or Trust, means the money is there for good. This prevents a person in haste trying to get the money back, or an unscrupulous person in their family trying to take advantage (“I need $5,000 right now and I know you put more than that towards your funeral, why not give me some now and I’ll pay it back when I can…”)
Does a typical policy include burial costs as well or is that something the purchaser or family has to work out separately with the cemetery?
In many states funeral homes and cemeteries can’t be owned by the same business. This falls under the non-guaranteed portion of a policy. You can name a cemetery, get the average price of the plot, the opening and closing, and any other fees, and make an allowance. You can also pre-purchase a cemetery plot separately. If you do buy a plot, make sure your family and the funeral home you’re planning with knows all the details.
Is funeral insurance still worthwhile if I plan on being cremated?
Just because someone doesn’t want to go in the ground doesn’t mean they don’t want their life celebrated with a service or some other form of memorial. The cremation or burial is just a means of disposition; the important thing is how your family and friends get to say goodbye.
The only reason it wouldn’t make sense to not consider buying funeral insurance is if you opt for a direct cremation with no service or memorial, or if your body will be donated. If that’s the case, then funeral insurance isn’t necessary since you’re not having a funeral.
Final Expense Insurance
This policy, which can also be referred to as “burial insurance,” is more like a general Life Insurance policy. The payout from the policy is given to the person you name as the beneficiary and can be used for anything, but it should be used on funeral expenses or other things to help wind down your estate (like medical bills or outstanding debts).
You’ve probably seen commercials about this when watching late night TV -- at least we have, especially during Murder, She Wrote marathons -- mainly because it’s for people who can no longer qualify for regular Life Insurance. You shouldn’t take this as a slight. As we age, or deal with complicated medical issues, we’re often priced out of the regular insurance market. So think of this as a way to leave your family some extra cash to deal with the things they probably won’t want to pay for on their own.
There are some differences when compared to pre-need:
- Your family isn’t required to spend it on a funeral, so we’re back to them possibly buying a boat and shipping you off to Potter’s field.
- Your family has to make all the stressful decisions and arrangements with the funeral home of their choice; If it exceeds the final expense benefit amount they’ll have to make up the difference.
- You need to read the fine print on the policy before purchasing to make sure your family will be paid promptly. Funerals are often time sensitive and if your family has to jump through a lot of hoops they may have to pay out of pocket until the money is available. (Note: Pre-need often prides itself on paying immediately, sometimes on the same day.)
Other Ways To Pre-Pay For Funeral Arrangements
Earlier in this article we wrote:
“The same way a person can create a Trust for their children or grandchildren’s college education, which can only be spent on tuition, you’re doing this for your funeral.”
Welcome to the world of Trusts. A Trust is basically a fancy (and sometimes complicated) bank account you set up to protect money and assets. It’s often used to avoid probate and estate taxes, or qualify for benefits you might not receive if you have too much in the bank, but it can also safeguard these assets so they’re only used for specific purposes -- like tuition, charitable endeavors, and even paying for your funeral. The following articles can help you understand how you can pay for your funeral with a Trust:
This is when you name a funeral home as the beneficiary, so when you die they get access to the funds to pay for the funeral.
Also known as a Payable On Death (POD) account, this is paperwork you fill out at your bank where you name a beneficiary that will receive the funds from your accounts after you die without having to go through the courts. You can make it clear to the beneficiary that the funds should be used to pay for funeral expenses, however, you gotta have faith that they’ll do what you want since the money is now theirs to do with as they please.
Aside from Trusts, there are also other methods to fund a funeral, such as using Medicaid. If you want to explore this route, it’s best to talk with your local Medicaid office to find out if you can do this in your state and what you need to qualify.
While we’ve done our best to simplify the concept of a Trust, it can get quite complex, which is why you should always create one with a financial professional or an estate attorney that specializes in this field.
Bonus Advice From The FTC
The Federal Trade Commission created a booklet called “Shopping for Funeral Services,” which offers helpful insight into pre-need arrangements. Most notably, the questions you should ask the funeral home if you’re paying a funeral home directly and not purchasing funeral insurance. Here they are:
- What are you paying for? Are you buying only merchandise, like a casket and vault, or are you purchasing funeral services as well?
- What happens to the money you paid? States have different requirements for handling funds paid in advance for funeral services.
- What happens to the interest income on money you pay?
- Are you protected if the firm you dealt with goes out of business?
- Can you cancel the contract and get a full refund if you change your mind about the items you bought or the arrangements you made?
- What happens if you move or die while away from home?
You should ask an insurance agent these questions too, just to make sure everything is on the level. You should also bring another member of your family with you so they can help with any questions you may have. Speaking of family...
Communicating With Your Family
If you are purchasing an insurance policy to pay for your funeral, be sure to tell your family about the arrangements you've made. Let them know the name of the funeral home, the funeral director you've worked with, and be sure they know where you keep the paperwork for the policy (along with any receipts) and the agreement with the funeral home. By communicating with your family you can make sure all your thoughtful planning, and any money you already spent, doesn’t go to waste.
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