According to a study by the National Funeral Directors Association in 2021, the average cost of an adult funeral is $7,848. Cremation costs $6970, saving only a few hundred dollars. So, how can you cover hefty burial expenses without breaking the bank? Let us introduce pre-need insurance.
What is pre-need funeral insurance?
Pre-need life insurance, also known as burial insurance, is a permanent life insurance contract with a funeral home of your choice. Your premiums fund the death benefit, which covers your funeral expenses. Unlike with final expense insurance where your death benefit goes to whoever you make the beneficiary of your policy (usually a family member or loved one), with a pre-need life insurance policy, the funeral home is your beneficiary. When you die, your funeral home will receive the insurance payout to cover the cost of your funeral arrangements.
What is covered by pre-need burial insurance?
With pre-need funeral insurance, your family won’t need to worry about selecting and paying for funeral and cremation items. If you purchase a pre-need burial insurance policy, you’ll work with the funeral home of your choice to prepare and pre-select aspects of your end-of-life needs, such as caskets and other essential services. By making these decisions in advance, your funeral homes can help adjust your pre-need life insurance plan to meet your specific needs.
The following are examples of pre-selected items and average associated costs:
- Metal caskets ($2,500)
- Cremation caskets ($1,300)
- Urn ($300)
- Cremation fee ($400)
- Basic services; body preparation and embalming ($1,000 to $3,000)
- Hearse and family service car ($150)
Benefits of Pre-Need Insurance
The most obvious benefit of pre-need insurance is the cost savings. Prices increase over time and inflation affects burial costs. Purchasing pre-need burial insurance allows you to plan ahead and lock in funeral expenses before they increase.
Another significant benefit of pre-need insurance is that it pre-plans your end-of-life services so your family doesn’t have to. In a time of mourning and loss, funeral planning can be challenging for loved ones. Pre-need funeral insurance ensures everything is planned and paid for – and will hopefully give your family a bit of relief in their time of mourning.
Lastly, pre-need funeral insurance does not require a medical exam. This is a great, cost-efficient option if you’re in poor health and cannot obtain other types of life insurance.
Final Expense Insurance vs. Pre-need Insurance
Final expense insurance and pre-need insurance are both designed to eliminate the financial burden of funeral expenses. Aside from this commonality, the two end-of-life insurance options are very different.
The most significant difference between the two is that final expense insurance does not allow policyholders to partner with a funeral home to arrange and pay for their funeral in advance. Instead, final expense insurance pays out a lump sum to the policyholder’s beneficiary to do with what they wish. The beneficiary can then use the death benefit to pay for end-of-life expenses, such as outstanding medical bills, other debts, and funeral costs. Other major differences include:
| Final Expense Insurance | Pre-need Insurance |
| Death benefit goes to your chosen beneficiary | Policy pays out to your chosen funeral home |
| Death benefit has no limitations for its use | Money is only for funeral costs |
| Family must plan and pay for the funeral | The funeral is pre-paid and pre-planned |
| Beneficiary can choose if / where to host funeral and burial | Policy is tied to a specific funeral home |
Who should get pre-need life insurance?
While pre-need funeral insurance is widely available, some people would find pre-need insurance more beneficial. The following are some scenarios to consider.
You only need enough to cover final expenses.
If you already have life insurance but you want the death benefit to solely go to your beneficiaries, you must have supplemental insurance (such as pre-need) to cover funeral and burial costs.
You have a terminal illness.
You may also need a pre-need policy if you don’t qualify for an affordable life insurance policy. Health issues, like a continuing heart condition or diabetic complications, can either disqualify you from a term policy or make other types of life insurance too expensive to afford.
Additionally, if you’ve been diagnosed with a terminal illness, you likely wouldn’t qualify for final expense insurance. In this case, pre-need insurance would be your best option to cover your funeral costs.
You’ve outlived your family.
If there is no next of kin to arrange your funeral (or they can’t afford it), the county or state will arrange a simple funeral or cremation. Most people would like a say in their casket, burial plot, and body preparation. In this instance, pre-need life insurance would ensure you get everything you want for your burial arrangements.
How to Buy Pre-Need Life Insurance
Funeral homes typically have an insurance partner you can work with to create a pre-need insurance policy that meets your needs. Many families have a preferred funeral home they’ve used for multiple generations, but if that’s not your situation, you may be able to work with a life insurance broker to find the right funeral home and policy for you. Here’s what to look for:
- Flexibility – Avoid getting stuck with a one-size-fits-all package. Instead, look for funeral homes that offer a variety of packages that include specific expenses for caskets, funeral services, cremation expenses, and cemetery costs.
- Age Requirements – Most pre-need policies require a minimum age of 35 and a maximum age of 80 or 90.
- Burial Inclusion – Assess whether the policy includes burial plot and cemetery costs. In some instances, it may be cheaper to purchase these separately.
- Death Benefit Options – Some pre-need policies offer the option to pay a death benefit to a beneficiary. These policies are more expensive, but they offer the family an additional financial cushion.
If you have any questions about pre-need insurance or are interested in final expense insurance, please give us a call today. One of Principled Life’s experienced life insurance advisors would be happy to walk you through the process, answer your questions, and help you find the life insurance that best meets your needs.
