Flowers on a tombstone

Most of us will have to plan—and perhaps pay for—a funeral once, possibly a few times, in our lives. The associated costs don’t begin and end with the service, and many people are unaware of how expensive laying a loved one to rest can be. When you plan ahead to cover these costs with burial, final expense, or preened insurance, you reduce the risk of leaving family members financially unprepared. We’ve developed this guide to help you navigate your options.

The price of funerals has increased significantly over the years, according to the National Funeral Directors Association. Today, the average cost of a funeral is $8,000 to $10,000. These costs may vary depending on which type of preparation you prefer. For an adult funeral with a viewing and burial, you can expect to pay more than $7,000. If you choose cremation, the cost will be more than $6,000.

In fact, more Americans are choosing cremation over a traditional casket burial—exactly 41 percent of Americans had by 2010, according to the PBS film Homegoings. About one-third of those surveyed said cost was an influential factor in their decision. Affordability is an important consideration when planning for final expenses. However, if you plan ahead and compare your available options, you can still make the best choice for yourself or a loved one.

Comparing and Contrasting Burial, Final Expense, and Preneed Insurance

There are 3 types of burial insurance to choose from. Burial insurance is typically offered through an employer, although it may also be offered directly by a funeral home. It can also go by other names, such as preneed insurance and final expense insurance. Keep in mind, a burial insurance policy is not the same as a life insurance policy. The biggest difference between burial insurance and life insurance is cash value, which means the money you pay into the burial insurance policy is meant only for funeral expenses. Life insurance policies typically let you cash out or borrow against the policy.

When preparing for a loved one’s funeral, it is easy to become confused while researching the types of funeral insurance. Not all insurance companies will offer all of the policies, so it is important to become familiar with each type and what it has to offer. Use the table below to compare each type of policy.

Burial Preneed Final Expense
  • Includes a death benefit that can range from $5,000 to $25,000
  • Covers one person or sometimes an entire family
  • Premiums are payable weekly or monthly (usually a small amount)
  • May be sold by a funeral home, but typically sold by brokers and insurance companies
  • The beneficiary can be whomever the policyholder chooses
  • Sometimes known as burial insurance
  • Covers funeral costs
  • Purchased directly from the funeral home, which becomes the beneficiary
  • Covers the cost of a funeral at a predetermined price; the price will vary based on the services chosen
  • Policy has a face value of $5,000 to $30,000
  • May have medical or age limits
  • Purchased directly through an insurance company
  • You name the beneficiary

Money Isn’t Everything

Funeral costs and lingering debts can cause stress for your family, so you should consider other benefits when choosing a burial insurance policy. Perhaps one of the biggest is how your death will affect your loved ones.

  • Give yourself peace of mind. Let’s face it: Everyone will have to acknowledge the fact that life ends. By purchasing a burial insurance plan, you no longer have to worry about how your family will pay for your funeral. Enjoy the time you have with family and friends without the added stress of “What if…?”
  • Allow family members to accept their loss. Having a financial arrangement before you die is one way to ensure that your family will have the time and space to grieve, instead of worrying about funeral arrangements and finances. Handing over responsibilities to a funeral home before your death will allow family members to focus on being together.

Depending on which level of insurance you are eligible for, beneficiaries may not be able to claim benefits right away. Only your chosen beneficiary can file a claim for your final expense benefits. If you have a graded, modified, or guaranteed insurance policy, you will be unable to claim benefits until 2 years after your initial contract. If you have a nonaccidental death before the 2-year waiting period is up, then the final expense insurance policy may only cover a percentage of the burial costs. If you have chosen the level insurance policy, rates start out cheaper and benefits will be available immediately after death. Regardless of when benefits become available, the beneficiary may keep whatever monies remain after accounting for all funeral costs.

Facts to Keep in Mind: Preneed Insurance

  • Purchasing a preneed insurance policy ensures that prices for arrangements are locked in. Although prices may rise over time due to inflation, the exact services you requested will remain in place.
  • You will be able to pick out the services you want. You can shop around at funeral homes, research online, and ask funeral directors as many questions as you want.
  • Plans can be purchased at any given point during your lifetime. This is a big benefit because burial and final expense policies sometimes can be purchased only when you reach a certain age or meet certain health requirements.
  • Payments can be made in monthly installments or in a lump sum. Installments can benefit retirees or those on a fixed income.
  • Prepaying for your funeral spares family members from any financial stress, since all funds and arrangements have been taken care of.
  • Family funds can be used to organize time away to grieve and recover.
  • A predetermined plan is set in place, which may minimize family conflict. Family members who feel a stronger attachment toward you may wish to have certain arrangements. But if you are able to handpick your own services, they will be put at ease.
  • Keep in mind that the money from a preneed plan goes directly to the funeral home.
  • Once purchased, benefits may not be transferrable, specifically those benefits that were arranged through a funeral home. For example, if you find you are moving to another state, the funeral home may not be able to uphold your contract.
  • Research various companies before choosing your provider to decrease the risk of getting involved with a fraudulent company. For instance, in 2013, a company called National Prearranged Services Inc. scammed customers out of more than $450 million by selling fake insurance policies.
  • Funeral homes are not allowed to spend any of the money you have deposited in the account for your policy. It is against state law for funeral homes to do so. Purchasing a policy with a reputable funeral home will guarantee that your money is safe.

Things to Know if You Choose a Preneed Insurance Plan

  1. What are the options for my funeral with a preneed insurance policy? You will be able to choose whichever method you prefer. Of course, it is always good to ensure that the business you choose provides your first choice of burial. Your choices may include a traditional funeral with a viewing, an additional memorial service, or cremation.
  2. How do I find a trustworthy preneed plan through a funeral home or memorial service? Be sure to research all your options. Consult with friends and family members, if necessary. It is never a bad idea to read reviews of businesses written by others online who have used their services. Check reviews on Google, Facebook, Yelp, and other social media platforms to see the opinions of others. You can also visit local funeral homes to meet with staff members. Additionally, you can contact the Better Business Bureau to check the business’ rating.
  3. Once I have purchased my plan, who has the power to make changes? No one but you can make changes. You have the option of contacting an attorney to help with paperwork, which can guarantee that no changes will be made. You may give permission to your next of kin to make any changes they see fit.
  4. What happens if the funeral home I chose charges more than I paid after I die? Due to inflation and price variability, extra charges may accrue if you fail to pay in full or allow enough time for interest to be earned on the account. If there is not enough money in your account, your family would be responsible for any additional charges.
  5. Can I make changes to my plans? Yes, after purchasing your chosen policy, you reserve the right to make any changes you feel necessary. Keep in mind that the funeral home or memorial service also has the right to alter prices due to changes.
  6. What happens if I change my mind about my preneed insurance and want to cancel my contract? Contact the funeral home or memorial service business with which you contracted. Most states require these businesses to allow customers to cancel their contract within 30 days of signing.
  7. How much should I expect to pay for a preneed insurance policy? The amount you put into your final expenses will vary depending on the services you select from the funeral home or memorial service. Below is a table of services traditionally offered, with an estimated cost. For specific prices, contact the businesses.
Service Estimated Price
Services offered by funeral home staff $650
Preparation of the body $385
Embalming $690
Viewing and ceremony $900
Cemetery and graveside $600
Transportation services (to funeral home, funeral site, etc.) $600
Casket $3,500
Monument/memorial/tombstone $1,000
Burial/urn vault $2,500
Miscellaneous (floral arrangements, photos, etc.) $500
Total $11,325
  1. What happens if the funeral home or memorial service I choose closes or is sold? In most cases, you will be able to get a 100 percent refund on your preneed policy. Unfortunately, there may be cases where there is no way to get your money back, particularly if the business fails.
  2. What are my options for funding a preneed policy? There are 2 ways to fund your preneed policy:(1) Establish a funeral trust. A funeral trust allows you to deposit money into a safeguarded account (either with a funeral home or bank), and you earn interest on the account. If there is any money left in the account after your death, monies will be disbursed to your estate. Sometimes, nursing homes may require you to set up a funeral trust before you can be admitted. A funeral trust can be funded with cash, bonds, or an existing life insurance policy. There are 2 types of trusts: irrevocable and revocable. An irrevocable trust is not allowed to be dissolved until the agreed-upon terms have been met. This type of trust is locked in once signed. A revocable trust can be dissolved by the person who created it if they change their mind at any time.(2) Purchase a policy from a funeral home at a preset price. This type of policy does not accrue interest. All money paid into the policy goes toward your funeral.

Facts to Keep in Mind: Final Expense Insurance

Since Social Security will only pay up to $255 to qualified beneficiaries to cover funeral and burial costs, a good option for many seniors is a final expense insurance policy. Final expense insurance is differentiated from preneed insurance in that you pay for your costs over time in the form of a premium. A final expense plan is similar to a life insurance policy. There is no direct contract with a funeral home or memorial service. The beneficiary you choose will be able to use the policy to cover your final expenses, including your funeral, medical bills, and personal debt.

  • A final expense plan pays for all costs associated with your death. The money is paid over time in the form of a premium, beginning when you sign up for your policy. The amount you pay each month will depend on your health at the time.
  • You can buy either a term or a whole life policy. A term policy will cover you only during a set period of time, and your beneficiaries will receive a payout upon your death. You can continue the policy if it runs out before your death, but the cost may increase. A whole life policy covers you for your entire life, and it will accrue interest over time in a similar fashion to a 401k or 403b.
  • The beneficiary of the policy can be whomever you choose, which is one advantage that a final expense insurance policy has over a preneed policy. Being able to choose your beneficiary is a huge advantage since you can choose someone you trust to carry out your plans after death.
  • No medical exam is necessary to sign up for a final expense policy, but you have to swear that you are in good health.
  • Policies are effective soon after purchase, typically within 24 to 48 hours.

Things to Know if You Choose a Final Expense Insurance Plan

  1. How do I know if I’m eligible for coverage? You are eligible for coverage if you are at least 50 years old, though keep in mind that the type of policy you can buy may depend on your health at the time. Some insurance companies will insure you only up to a certain age, which could be anywhere from 85 to 100. But once you have purchased a policy, it is locked in.
  2. Will the cost of my premium be based on my age? The older you are, the bigger the risk the insurance company assumes it is taking by insuring you.
  3. Are there discounts available for veterans? While not all companies offer premium discounts for veterans, the U.S. Department of Veterans Affairs will pay for portions of your burial and funeral expenses either with or without hospitalization by the VA. The amount the VA will pay will vary based on whether your death is service-related.
  4. Can I purchase my final expense policy and life insurance policy together? You can buy both from the same insurance company, but remember that these 2 policies are separate, so you will have to pay 2 premiums. The coverage available on final expense policies is often only a small amount of what your family may need after your death and often only covers funeral and burial expenses. A life insurance policy is available for those who wish to provide their families with extra support after their death.
  5. Who is my beneficiary? Choosing a beneficiary for your final expense policy can sometimes be a tough decision, particularly for those who have no close relatives. Family is the primary choice for most people. Many will choose their spouse or partner, but you can also choose one of your children or a sibling. A legal guardian can also be named a beneficiary if the child you choose is under age 18. It is also possible to choose more than one beneficiary, and you can designate what percentage each will receive.
  6. How do I know how much final expense insurance to purchase? Be sure to buy enough to cover all your final expenses—not just burial costs. This is crucial if you have debts. For example, if your funeral is going to cost $10,000 and you have debts of $5,000, you may want to purchase a $20,000 policy for extra expenses, should they arise. There are many tools online where you can get quotes for burial insurance; you will need to submit personal information to do so.
Benefit Burial/Prepaid/Preneed Insurance Final Expense Insurance
Expenses Covered Burial or funeral costs only Variety of final expenses
Beneficiary Funeral home Your choice
Specific Arrangements Locked in when you choose Remain flexible, although you give instructions
Cost Varies by provider and selection; solely covers funeral/burial costs Policy of $10,000 costs about $2 per day
Benefit Amount Stays the same once plan is paid for Tax-free savings up to $35,000 built up over time
Balance May Be Borrowed Against No Yes

How Does Final Expense Insurance Work?

Planning for a Cemetery Plot or Burial

We’ve talked a lot about funeral costs but haven’t delved into the issues surrounding burial. Unless you’ll be cremated, this is definitely a topic you’ll want to address in your arrangements. Here’s what you should know.

  • Check your state laws. Only cemeteries that sell funeral services fall under the FTC Funeral Rules. Some states have burial-specific regulations, but most do not. Research your state’s laws, and know your options before you begin shopping.
  • Consider all costs. You’ll need to cover more than the burial plot alone. Look out for fees associated with the grave liner, perpetual care, groundskeeping and maintenance, or endowment care. Mausoleum or columbarium burial is likely to include opening and closing charges or maintenance fees. Ask for estimates of these charges in writing as an itemized list to inform your choices.
  • Know the regulations. Not all burial locations allow every type of monument or memorial. Some have rules against flowers or other items laid on graves. Be sure the place you choose accommodates your preferences.
  • Choose your location carefully. If you decide to go with a preneed insurance plan that locks you into a location, instead of final expense insurance, be sure you’re set on your location before you make your choice. It can be difficult to sell unwanted burial plots. As with other final expenses, a final expense insurance plan will provide the most flexibility.

There are several types of final expense policies—level, graded, modified, and guaranteed issue. The type you can buy will depend on your health at the time.

A level policy requires the applicant to be in excellent health, which means you have not had any recent significant health issues. Your benefits will be available immediately after death. This type of policy will have the lowest premium.

A graded insurance plan can be purchased if the applicant has minor health conditions, which can include diabetes or a history of heart attack or internal cancer. There may be a waiting period for beneficiaries to receive funds, and the cost may be higher than a level policy.

Modified policies are available for applicants who have or had serious health conditions, including Alzheimer’s disease, AIDS, and HIV. The premium for these policies will be higher than for level and graded policies. There may also be a waiting period for beneficiaries.

Finally, the most expensive of the 4 types of plans is the guaranteed issue policy. Just as the name says, it is guaranteed. There are no health requirements for this type of policy; therefore, the premiums can be quite costly. A waiting period is enforced, and if death occurs before the period is over, the entire benefit may not be accessible.

Some insurance companies also offer optional coverage such as accidental death benefits or child insurance. Accidental death benefits can be used to pay medical costs and subsidize lost wages.

Depending on which level of insurance you are eligible for, beneficiaries may not be able to claim benefits right away. Only your chosen beneficiary can file a claim for your final expense benefits. If you have a graded, modified, or guaranteed insurance policy, you will be unable to claim benefits until 2 years after your initial contract. If you have a nonaccidental death before the 2-year waiting period is up, then the final expense insurance may only cover a percentage of the burial costs. If you have chosen the level insurance policy, rates start out cheaper and benefits will be available immediately after death. Regardless of when benefits become available, the beneficiary may keep whatever monies remain after accounting for all funeral costs.

Important Facts About Final Expense Policies

  • Policies can be purchased for as little as $10 a month, though the cost may vary depending on your provider and current health. For example, if you are a smoker or have pre-existing health conditions, you can expect to pay more.
  • Once purchased, your premium will never change and is payable until you reach age 100.
  • You can choose to pay in monthly or yearly installments.
  • Earn cash value over time on some policies, which will increase the value overall.
  • Policies can be issued to those age 50 and older.
  • Final expense policies never expire. As long as premiums are paid in full when due, the policy will remain in force.
  • You can choose your beneficiary.

Purchasing a burial insurance plan is one of the best things you can do to protect yourself and your loved ones. A preneed insurance policy is a good option for those who want to handpick all of their preferred services. You can lock in a price before your death, which ensures that your wishes can be carried out in full. However, the best financial guarantee will come from a final expense policy. While you may not be able to select exactly what services you would like, you can leave your requests in a will.

Whichever policy you choose, be sure to research several companies, since some may offer more competitive features and rates. You don’t have to do this alone. Contact a licensed HealthMarkets insurance agent today to discuss your options by calling (800) 917-4169 or searching for an agent in your area.

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References

https://www.benefits.va.gov/compensation/claims-special-burial.asp | http://budgeting.thenest.com/final-expense-insurance-24388.html | https://www.calcxml.com/calculators/ins03 | https://www.consumer.ftc.gov/articles/0304-buying-cemetery-site | http://www.cfb.ca.gov/consumer/pre_need.shtml | https://www.dhp.virginia.gov/funeral/docs/Consumer_FAQ_Preneed.pdf | http://elderlyfinanceplan.com/pre-need-funeral-insurance/ | https://www.fool.com/investing/general/2015/07/16/term-vs-whole-life-insurance-which-is-best-for-you.aspx | https://funerals.org/consumercemeteryguide/ | https://www.health.ny.gov/publications/0703/ | http://www.iii.org/article/what-%C2%93burial-insurance%C2%94 | https://www.longtermcarelink.net/article-2009-9-24.htm | http://www.pbs.org/pov/homegoings/economics-of-the-funeral-industry/ | https://www.psychologytoday.com/blog/the-web-violence/201501/making-space-grieving | http://www.stltoday.com/news/local/crime-and-courts/funeral-scam-figures-get-prison-sentences-in-st-louis-federal/article_68f2e563-bd91-55a4-a2e7-d202ac157df8.html

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