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 preneed 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. For 2021, the average cost of a funeral with cremation is around $6,971.1 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 $7,800.1

In fact, more Americans are choosing cremation over a traditional casket burial—the 2021 cremation rate was projected to be 57.5%.1 If you plan ahead and compare your available options, you can still make the right 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. 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
  • 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  usually has a face value of $2,000 to $50,000
  • May have medical or age limits
  • You or broker 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.

  • Make a plan for the future.
    Let’s face it: Everyone will have to acknowledge the fact that life ends. By purchasing a burial insurance plan, you may 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 help 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 type 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 preneed insurance policy may only cover a percentage of the burial costs. If you have chosen the level insurance policy, rates start out less expensive 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 can spare 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 may 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.
  • 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 should 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 a national median cost as of 2021.2 For specific prices, contact the businesses.
Service National Median Cost
Service fee $2,300
Preparation of the body $275
Embalming $775
Viewing and ceremony $965
Printed materials (basic memorial package) $183
Transportation services (hearse) $325
Wood Burial Casket $3,000
Transfer of remains to funeral home $350
Vault $1,572
Total $9,745
  1. What happens if the funeral home or memorial service I choose closes or is sold? In many cases, you will be able to get a 100% 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.3 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 is designed to pay 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 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.
Benefit 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 Varies by provider, age, sex, health, and coverage amount.
Benefit Amount Stays the same once plan is paid for Tax-free savings up to the face amount of the policy
Balance May Be Borrowed Against No Yes

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.

Important Facts About Final Expense Policies

  • Policy cost may vary depending on your provider and 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.

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.

Find a Preneed Insurance Policy

Whichever policy you choose, be sure to research several companies, since some may offer more competitive features and rates. HealthMarkets can help. Contact a licensed insurance agent today to discuss your options by calling (800) 917-4169 or search for a licensed agent in your area today.

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References

1. “Statistics.” NFDA.org. December 2021. Retrieved from https://nfda.org/news/statistics | 2. “2021 NFDA General Price List Study Shows Funeral Costs Not Rising as Fast as Rate of Inflation.” NFDA. November 2021. Retrieved from https://nfda.org/news/media-center/nfda-news-releases/id/6182/2021-nfda-general-price-list-study-shows-funeral-costs-not-rising-as-fast-as-rate-of-inflation | 3. “If You Are The Survivor.” SSA. Retrieved from https://www.ssa.gov/benefits/survivors/ifyou.html Accessed January 4, 2022.

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