pre-need insurance helps cover your funeral costs

What Is Pre-Need Insurance?

Pre-need insurance helps to cover your funeral and burial costs after the policyholder has passed away. It may not be a very fun policy to consider, but it’s incredibly useful and beneficial.

How Does Pre-Need Insurance Work?

Preneed insurance is an agreement between you and the funeral home for the things you want for your funeral, everything from the casket to flowers. In general, it is meant to relieve the financial and preparation burden of a funeral service from your loved ones.

The National Funeral Directors Association estimates that the cost of a funeral with cremation is about $6,000. For a funeral with a burial, it is about $8,500. This does not include things like burial plots, upgraded urns or caskets, published obituaries, headstones, etc. The total for a funeral can easily approach $10,000 or more.

When purchasing a pre-need plan, you will have the choice between monthly payment installments called premiums, or a flat, one-time fee, depending on the insurance company. Regardless of your chosen payment method, the funds will be used to fulfill the costs of the funeral elements you have already chosen.

What Are the Benefits of a Pre-Need Plan?

Whether or not you want a prepaid burial plan is completely up to you. There are, however, a few things to consider before deciding if this plan is right for you. We have already introduced many of the benefits of a pre-need plan, that is, the relief it gives your loved ones after the policy holder’s death.

There are many other benefits as well. For instance, with a pre-need plan, you get to “call the shots” so-to-speak — you can guarantee that you will have the funeral and burial you want, even after you are gone. More specifically, by selecting your funeral arrangements, your family will not have to choose arrangements or negotiate costs later.

Also, the cost of the policy holder’s funeral and burial is typically locked in place by a pre-need plan. If your chosen arrangements have increased in price, your family will not have to make up the difference.

On the other hand, if prices have gone down, you’re locked in at the original price. In most cases, however, this security provides a strong peace of mind for both the policyholder and their loved ones. It is also helpful because, if something you have chosen is no longer available, it will be substituted with one of similar quality and value without any work on the part of either the policyholder or their loved ones.

If your family decides or is forced to change or cancel the plan’s arrangement, under a pre-need plan, there is something referred to as a “free look” period. Many states allow buyers to cancel pre-need insurance and receive a full refund within a certain timeframe that may vary state-to-state.

While this may not apply to all plans, some pre-need policies are Medicaid-exempt. This means that the money put towards your pre-need plan does not count toward your assets for Medicaid eligibility. Because Medicaid is based largely on financial need, this is greatly beneficial to those who want insurance but do not want it to possibly detract from their benefits.

Do You Want a Pre-Need Plan?

With so many benefits, you must consider both the pros and cons of pre-need plans to determine if you want and/or need one. One of the negatives is that there is not much flexibility. Because the payout goes directly to the funeral home, your family won’t have the flexibility of using the money for other bills as they would with other insurance plans. It is also difficult to make any changes in arrangements or payments.

If the policyholder changes residency with a pre-need plan, there is no guarantee that the plan will be able to be transferred along with you. If you move to another state or choose another funeral home, you may lose your policy. Also, any changes to the arrangements made after your death may cancel your policy.

Your health could affect your pre-need plan. If you have a serious medical condition that is considered life-threatening, it may affect your eligibility. And, if you pass away sooner than expected, your policy may have graded death benefits, and your beneficiaries may not receive the full death benefit.

And, with a pre-need policy, your death benefit may not be guaranteed. If a pre-need policy isn’t paid in full by the time of death, depending on your state and insurance company, you may not receive the payout.

Pre-Need vs. Final Expense

Now that you know all about pre-need plans, you may be wondering how it compares to its counterpart, final expense plans. Here is a summarized list of the notable features of a pre-need plan:

  • Pre-Need plans are purchased and put towards a chosen funeral home
  • The agreed-upon cost does not change — it’s guaranteed
  • The insured and funeral home decide the details of the plan

Final expense plans, while similar to pre-need plans, function a bit differently. Unlike pre-need plans, the funds put towards your final expense plan can be used for many different needs beyond funeral services. Final expense plans can be used to contribute to funeral expenses, mortgages, student loans, and much more. So, unlike pre-need plans, final expense plans are more flexible and geared towards the long-term.

Your choice between these two plans depends on your goals for the plan. If you are younger and are looking for a low-cost plan that can benefit you now, a final expense plan is a better option. However, if you are older and not concerned with setting aside funds for the future, a pre-need plan is a better option for you.

Searching for a Pre-Need Insurance Plan that Works for You?

A good pre-need insurance plan may seem hard to come by. How can you be sure you’re getting the best deal? That’s why we’re here to help — with Senior Life Services, you and your family will be in great hands. If you would like to speak with one of our insurance experts, contact us today.