The Savvy Guide to Buying Burial Insurance Excerpt

Pre-Need vs Burial Insurance Plans

There are many different options available for ensuring funeral payment when you or a loved one passes on, and it can be very overwhelming and stressful to decide what works for you. You’ve probably heard of pre-need insurance plans but aren’t exactly sure how they differ from burial insurance or final expense policies. Preneed, also called prepaid, plans are vastly different, and only advisable in certain situations.

In this article, we’re going to discuss the advantages and disadvantages of prepaid insurance plans to help you decide if this method is best for your personal and financial needs.

What Exactly is a Prepaid Plan and What’s Involved?

Prepaid plans are another way of ensuring your family is not burdened financially with final expenses after you pass on. Unlike burial insurance, prepaid plans do not have to be through an insurance company – usually you deal directly with a burial home or cemetery of your choosing. You and the funeral director create a contract with set arrangements, including flowers, music, casket, cemetery plot, embalming, transportation fees, gravesite, opening the ground, and all other burial services (cremation, etc.) to already be arranged before you or your family member passes on. The amount paid can either be in a lump sum or monthly payments. Depending on the plan you choose, monthly payments can range from $50 – $150.

So, When Is This Sort of Burial Expense Arrangement Advisable?

There are certain circumstances or situations in which this process can be best for you and your family. One advantage is the arrangements themselves will already all be taken care of when you pass away. This saves your family the emotional stress or burden of having to make all the arrangements themselves, which sometimes can be overwhelming and confusing. If you take care of everything with the funeral home or cemetery of your choosing beforehand, your family can mourn without further emotional distress.

These plans are also advertised to have your or your loved one remembered in exactly the fashion they choose. This is true – by making the arrangements yourself, you get to choose the plan or the details of how you want to be remembered in exactly the way you would like. This can also relieve your family of the emotional stress of having to choose details or services that they think you would like. If you are buried, they would have to pick the arrangements they think is best, or if you decide to be cremated, to choose where you would like your ashes placed, if you wanted them placed anywhere at all. Some people decide to keep the ashes of a loved one in their home, so it is as if they are still there with them. If you do not stipulate what precisely you would like beforehand, they would have to decide for themselves. This can be unnecessary stress, especially if the death was unexpected or accidental.

Prepaid can also be a good plan for you if there is a funeral home you are already familiar with and trust that costs will not increase, and they will honor the arrangement made. If you or your family member likes a particular place and has already decided what they want, this can be an easier offer than trying to find the right burial insurance policy. Payments could be taken care of immediately if the funds are available, and if not, it could be deducted monthly like a car or mortgage payment. There is no need to option different companies and find an agent as is required with final expense policies.

Prepaying your funeral can allow you to protect your Medicaid. If you know for sure you’ll need Medicaid, you can get a Medicaid-exempt trust. Money in an irrevocable trust is excluded from your assets when you receive social security and/or Medicaid benefits. If you place your money in a revocable trust, it can be taken by Medicaid if your finances are otherwise drained.

However, if there is not a specific company, you’re familiar with and know very well, there are many possible cons/dangers with pre-need plans that are usually not considered.

Funeral homes change owners, sometimes unexpectedly. You could feel safe with one owner, but if unforeseen circumstances occur, there’s no way to guarantee how a new owner will handle your arrangements and possible monthly payments. Expenses could be added, or they could find faults in your contract asking for more money. This is not to say something like this will happen, but it is a possibility to acknowledge.

There is also a chance that funeral directors could declare bankruptcy. Instances like these are hardly foreseeable – there is no way to know if upon dying, costs will not increase, or if your payments can be refunded. There is no air-tight guarantee, so potentially you or your family could be out a large sum of money with no chance of getting it back. Again, this is not to say this will happen, but it is important to consider. Buying any sort of insurance or entering intoany legal contract, particularly ones involving as much money as funeral expenses tend to be, should be met with much forethought and analysis. These companies are out to make a profit – so it pays to consider all alternatives and circumstances. 

Another disadvantage to prepaid funeral plans is once you’ve decided, you can’t change your mind. Say you or a loved one decides to be buried elsewhere – your money won’t be returned from the company you’ve already committed to. This is true with any insurance policy as well, but prepaid plans are more finite. You have committed to a particular funeral home and a particular arrangement of burial; therefore, it is your final decision. No going back whatsoever. So if you’re unsure, or feel you might change your mind, please consider this factor. It can potentially be a very expensive decision.

Furthermore, there are no death benefits to leave behind for beneficiaries with prepaid plans. Should there be unexpected additional expenses, there isn’t any extra money to draw from unless the family is in a financial position to take care of it. Since there is no way to forecast how much these costs could add up to, this leads to possible debt. Also, if you pass away before the plan is paid off, the remaining amount owed needs to be paid by the family. They can rearrange a new plan with the funeral director, so it doesn’t need to be paid in full immediately, but if you don’t want to possibly burden your family, this may not be the option for you.

Taking care of your final arrangements before you pass on is never a joyful activity, but it is necessary to ensure your family is taken care of and has the least amount of emotional and financial stress to handle after you pass on. Prepaid can be the right choice for you if you know there is a certain cemetery or funeral home you want to work with or if you already have the preparations you want for your burial or cremation in mind. Truthfully, however, only if you have the amount of money to pay outright is this an option you should consider. Burial insurance policies through an insurance company could possibly leave your family with a financial legacy or take care of other unexpected expenses. You always want to heavily weigh your options when making a choice.