Planning your final days and how your loved ones will handle your remains after your passing is something that calls for a level head. You not only need to choose the best products to cover the final burial, funeral, and/or cremation expenses, but you also need to make sure that the selected insurance policy offers the best benefits.
But which product should you buy? Do you need the final expense or the pre-need insurance cover, and what is the difference between these two insurance products?
Knowing the difference between these two insurance products is necessary because growing older means seeing and feeling time pass by much faster, which also means that you may start rushing things, and in the process, end up with the wrong product.
Before we look at the differences between these insurance products, it’s important to note that a study published in 2005 titled the “Age Effects in Perception of Time” it was shown that the perception of time indeed speeds up past 40 years.
This swift passage of time will also make you feel a lot less prepared financially for the end, which makes the provision of funeral expenses funds feel very much like a financial priority. The result is up to 30% of adults spending their money on covering their funeral expenses.
In the search for the best burial insurance products, you will come across two main options, the pre-need and the final expense insurance. To avoid choosing the wrong product, this article focuses on the differences between these two products and how each of the products works.
But before we look at the details of each product and how they differ from each other, let’s first take a look at funeral pre-planning and what it entails.
What is funeral pre-planning?
Funeral homes offer pre-planning services that allow you to easily make arrangements for all or some of your funeral expenses, down to the details. The director of the funeral home gives you the full pricelist of the goods and services required by the FTC under the Funeral Rule.
Funeral preplanning is crucial as it relieves your loved ones (family and friends) from the stresses and the high levels of uncertainty that result from the burial and the funeral arrangements. Pre-planning is also important because it will help in resolving any arguments among your loved ones, specifically over what you’d want them to do when you pass away. The funeral pre-planning will also ensure your perfect send-off as per your terms.
The other notable feature about funeral pre-planning is that you could elect to make a pre-payment for your preferred send-end, and the best part is that the funeral home directors from reputable companies will give you a price guarantee. The importance of the price guarantee is that you get to lock into today’s prices, which is why the option could be the best for you.
Note, however, that if you choose not to prepay your funeral services’ and if the prices aren’t fixed/ locked in, your family may be forced to pay a little extra after your demise to make up for the differences in cost.
But that is not all you need to know – there is also the fact that some of the guaranteed prices may not be locked, for example, the prices for the grave services and the flowers.
Once you settle on the pre-planned service that works best for you, you could choose to pay the full cost of the final expenses, or you could make partial payments. Installments payment is the other option you could choose. Generally, depending on the option you choose, the prepayment arrangements are necessary for not only making sure that your last wishes are carried out it also lifts significant burdens from your family members.
The last thing to keep in mind about the prepayments is the guarantee on the prepayment and the state laws that govern the operations of the funeral home when it comes to the prepayment options and life insurance policies.
Wondering what the funeral preplanning has to do with pre-need and the final expense insurance policies? Well, these two are the most common ways of funding your pre-paid funeral. In addition to prepaying for the funeral, the final expense and the pre-need insurance policies are the best ways of making sure that your last wishes are honored and your loved ones unburdened while they grieve.
What Is a Pre-Need Insurance Plan?
The Pre-Need insurance plan refers to a modest life insurance products designed to only cover the cost of burial expenses, including the burial and funeral service and even cremation.
This is an important insurance policy because the cost of funerals and burials adds up very fast and could be upwards of $10,000. So, to ensure that you can cover these costs easily, you’d want to have the pre-need life insurance death benefits cover to cover the burial costs and help your family cover any other costs.
The important thing to note is that the pre-need plans, unlike the other final expense insurance plans, are devised to work directly with the funeral home. This insurance allows for the payment of caskets, the funeral services, cemetery, and the burial costs, as well as all other costs that are covered by the burial insurance policies.
The other difference between this insurance cover and the burial insurance or other final expense insurance covers is that the beneficiary of the pre-need insurance policy is the selected funeral home and not an individual beneficiary. What this means is that the funeral home will receive the insurance payout directly then use the money to pay for the funeral services and products.
The upside of this insurance option is that unlike the typical insurance policies taken for end of life use, including burial and funeral services and paid to the family, the pre-need insurance payable to the funeral home saves the family the additional pain and burden around the funeral arrangements. Since it can be difficult for families to make the tough choices about funeral homes and services and also to negotiate with different funeral directors, then agree on what to do and the service to pick, having a pre-need insurance cover makes things easier on the family.
This insurance policy often also takes the guesswork out of what the deceased would have wanted because the pre-arranged funeral is exactly what the deceased wanted to be done. As mentioned above, having pre-arranged funeral plans means that you work with the funeral home and the funeral home director prior to your passing. You get to make the tough decisions on what’s to be done, the services you’d like, and you also make sure that these services are paid for.
Essentially, all this is made possible by the pre-need insurance policy, which covers the funeral homes and the funeral service costs, meaning that your family won’t have much to handle.
But is it ideal? Should you opt for the pre-need insurance policy over the final expenses insurance? Is the pre-need life insurance worth it?
Well, the truth is that most people often opt for the term life insurance products when they think of having a plan to either leave behind their legacy or just to make sure that their loved ones aren’t burdened by the potentially high funeral costs, including medical expenses that could be outstanding, as well as the payment of all other debts.
These term policies are often quite affordable, and they also offer substantially high death benefits that not only cover the funeral and burial expenses, but also, the family will have some cash leftover, and they get to choose how best to use the money.
Unfortunately, not everyone qualifies for the term insurance policies. If you are older or not the healthiest applicant in the room, you won’t qualify for the best of term insurance rates. In such cases, you’d be better off with alternatives like the final expenses or even the pre-need insurance options because you can qualify when older or with health issues.
So, if your age and health cannot allow you to sign up and enjoy the most competitive rates on the term insurance covers, you may want to opt for the inexpensive final expense or pre-need insurance covers.
What’s the Difference Between Pre-Need Insurance and Final Expense Insurance?
As mentioned above, there are a number of differences between the final expense and the pre-need insurance policies. Though these insurance products are often mentioned along the same lines, and they both help in covering your final expenses, you need to think about these products carefully before you choose one over the other.
However, the main differences between these two products are that while the pre-need insurance payout is made to the funeral home directly and the payout is often the pre-determined amount discussed with the funeral home, the final expense insurance works a little differently, and instead of the payout being made to the funeral home, it’s made out to a beneficiary. With the final expenses insurance, the beneficiary and, by extension, the family receives the death benefits, and they can use the money to pay for the death benefits, and the remainder can be used in any other way that company deems fit. At the same time, the company also has the option to not use the money to pay for the funeral/burial expenses.
The only similarity between these two companies is that there is the possibility of the insurance money being used to pay up the funeral home costs, even using the final expense policy. In such cases, there is something called the assignment, in which your loved ones would receive any of the death benefits that remain after the funeral home’s costs have been covered.
Comparing Pre-Need Insurance and Final Expense Insurance
What is the Final Expense Life Insurance?
To give you a better idea of what the final expense insurance policy, it’s important to note that the final expense insurance policy, also known as the burial insurance policy refers to a type of permanent life insurance that’s designed to ensure the coverage of the funeral expenses. This death benefit is ideal for use in payment of your final medical bills and all other expenses, like cremation and burial, as well as the cost of the casket and the urns, among other costs.
As a permanent life insurance product, this insurance product will never expire, and it will also be in force for as long as you’ve paid your insurance premiums. So, should you choose to buy burial insurance, this policy would remain in effect for the rest of your life, and the named beneficiaries would receive your death benefits for as long as the premiums are paid.
There are two main types of permanent final expense insurance policies, the guaranteed issue, and the simplified issue life insurance policies. These policies aren’t termed policies, and the maximum coverage offered for these two types of policies is $25,000 and $50,000; for high-risk and moderate-risk applicants, respectively.
Types of coverage – The pre-need insurance policy, on the other hand, isn’t broken down into several other types of insurance covers, and as a standalone pre-planned insurance cover, it’s often easier to choose.
Beneficiaries options – Note that the final expense insurance policy comes with two options, the options to assign a trusted individual as a beneficiary, or you could appoint the funeral home as the beneficiary of your final expenses insurance policy. You could also use the final expenses insurance cover to spell out your preferred final wishes.
Assigning a beneficiary as the person to handle the insurance payout doesn’t always mean that they will use the money for your funeral or burial expenses because the named beneficiary isn’t legally required to use the money for the funeral expenses. If you still choose the final expenses insurance cover over the pre-need cover or the option to name the funeral home as the beneficiary, you may want to name the person you know would be impacted positively financially. This could be your spouse, adult child, or a reliable family member, never a minor.
Opting to name the funeral home as the beneficiary, on the other hand, is called an assignment, which means that the proceeds of the insurance will be paid to the funeral home directly, and the extra costs used can be given to the family (the family is listed as a secondary beneficiary).
Terms of the policy – The other difference between these two types of insurance products is that with the final expense insurance product, the insurer will have an established list of terms for the policyholders, but the terms and the benefits of the pre-need insurance cover will vary depending on the details of the policyholder as well as the funeral home.
Benefits and coverage – The benefits of the final expense insurance option are portable, and they are not tied to any specific funeral homes. The Pre-need insurance options, on the other hand, are non-guaranteed, and the beneficiaries may have to make up the cash differences. Also, there is a cost for the guaranteed services to be covered by the funeral home, but they are flexible with the final expenses insurance, and they can be used to cover the non-specific final arrangements costs.
Advantages of Pre-Need Plans and Final Expense Insurance
Pre-Need Plans Expense Insurance – Advantages
- You can buy the pre-need insurance policy from the funeral home’s director directly and not from an insurance agent.
- The policy’s payment is paid in lumpsum or spread over time.
- Family is saved the trouble of dealing with the insurance companies and funeral homes after your demise.
Final Expense Insurance-Pros
- It’s relatively affordable, especially if you don’t require much in insurance coverage. While it doesn’t cover as much as the term policy, the coverage is often enough to cover the burial costs, along with all additional needs.
- The insurance policy would cover the cost of all the end of life expenses. Some of the costs covered include college tuition, mortgage, and all other everyday living expenses, plus funeral expenses.
- You can elect to have a loved one or the funeral home be the beneficiary.
- Your loved ones still get part of your insurance money from the final expense insurance after the funeral home’s costs are covered.
Disadvantages of Pre-Need Plans and Final Expense Insurance
Pre-Need Expense Insurance – Cons
- The terms are very limited.
- It may or may not build its cash value.
- You can’t change the terms of the funeral plan once you’ve signed off.
- The use of the funds is limited.
- Your family doesn’t receive any pay-outs.
- Additional costs have to be paid by the family out of pocket.
Final Expense Insurance – Cons
- The average final expenses insurance coverage is a little on the higher side.
- The coverage is significantly low at $5,000 and $40,000
- Your beneficiaries could choose not to use the payout to honor your wishes.
Are Pre-Need Plans Worth It?
Depending on your preferences, getting things in order early on, specifically with the funeral home of your choice, might be a great option, especially if you don’t want to burden your family. However, the insurance payout to the funeral home only covers the guaranteed items, meaning that if your payout is too little and insufficient to cover the costs, your loved ones may be forced to cover the balance out of pocket.
With these in mind, you may want to opt for the final expenses insurance policy if you are worried about the funeral having more control over the process.
Overall, the pre-need and the final expense insurance covers are great products for anyone making plans for how they’d like to be cared for upon their demise. Just know that with the pre-need option, the funeral home gets the payout, while with the final expense, your named beneficiaries receive the insurance benefits.