Funeral Insurance Plan Types:
Final Expense, Burial, and Preneed
Understanding the differences between funeral insurance options can be a real challenge, but don’t panic—we’re here to help you parse it out.
The terms “burial insurance” and “preneed insurance” are often used interchangeably and generally refer to plans meant to cover costs specifically associated with burial and a funeral service. This type of coverage may also be called a prepaid funeral plan. The beneficiary in these policies is usually the funeral home, which means it will receive any benefit payment.
Final expense insurance is a different plan type, although some companies will use the term “burial insurance” to refer to final expense. How does final expense insurance work? Like burial/preneed, final expense does cover burial and funeral costs, but it is a more extensive and flexible form of life insurance than preneed or other prepaid plans. These overlapping definitions can be confusing, especially when you start to research online, but understanding the pros and cons of each and what questions to ask will help you make the right choice for you and your loved ones.
What You Should Know About Burial (Preneed) and Prepaid Funerals
You can plan your own funeral service, leaving no doubt for your loved ones that it’s what you would have wanted.
It is possible to pay up front without using a payment plan.
There are many expenses that may not be covered. For this reason, you’ll need to carefully review any preneed contracts before agreeing to them. You might even want to consider hiring a lawyer to help you. This list of provisions that any ethical preneed contract should include will help you spot suspicious omissions.
It’s not unheard of for funeral homes to mishandle or mismanage the money you pay them for your preneed plan. With that in mind, be sure you trust the company before purchasing a preneed policy.
Due to market fluctuations, the goods and services you select for your prepaid plan may not be available at the time of your death.
Similarly, the cost of products and services you select when you purchase your plan may not be set in stone, so it’s important to be clear on whether prices are guaranteed—and if they aren’t, who will be responsible for paying the difference.
Your loved ones may be responsible for paying taxes on income or interest that accrues on the invested funds.
Because burial and preneed insurance policies are contracts with specific funeral homes, you may be limited to the geographical boundaries of that company’s service area.
If your plans change or you move away from the area where you bought your burial or preneed policy, you may not be covered. Choosing final expense insurance instead will give you and your loved ones more flexibility and guaranteed coverage.
The Federal Trade Commission’s Funeral Rule entitles you to several rights and disclosures, including an itemized list of expenses. However, you should be aware that some aspects of prepaid contracts fall within the jurisdiction of the state, and the rule does not apply to these parts. Protections vary from state to state.
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