Tips For Deciding Between Pre-Need and Final Expense Insurance

None of us enjoy contemplating what kind of coffin we should be buried in, much less our ideal burial place or what our funeral should consist of, but pre-planning for these realities makes it easier on our loved ones when we pass. According to the Federal Trade Commission (FTC), a traditional funeral complete with casket and vault costs around $6,000. Add in flowers, obituary placements and limousine services, and the total cost can run in excess of $10,000. And remember, unplanned funeral arrangements mean that both the arrangements and their cost must be addressed within 24 hours of someone's passing.

Most funeral homes make the pre-planning process easy by allowing people to plan for even the smallest details of the funeral process. As required by the FTC, funeral directors provide a price list for supplies and services. For those who pre-pay, funeral homes often offer price guarantees, which allows you to pay for tomorrow's funeral at today's prices with a few exceptions, such as the cost of flowers and grave services.

Excepting cash, there are three easy ways to pay for pre-arranged funerals: final expense insurance, pre-need insurance and pre-need trusts.

Final expense insurance, also referred to as funeral insurance, is a low-level life insurance policy purchased from an insurance company. As with any life insurance policy, the insured names a beneficiary; only in this case the money is used for funeral expenses. Final expense policies are either term life insurance or permanent life insurance, the first of which offers coverage for a specific period of time, while the later offers coverage for life. Term policies and permanent policies are further subdivided into "simplified issue" and "guaranteed issue" policies, neither of which requires a medical exam. However, in the case of simplified issue policies, for which applicants are asked health related questions, people with serious health problems may receive a policy that includes a "graded death benefit", which means that the premiums gradually increase and the policy's full value kicks in only after a certain period of time.

Pre-need insurance is life insurance intended for people who have made specific funeral arrangements and wish to insure that they are carried out. Funeral directors who are licensed as insurance agents sell pre-need policies, receiving commissions in the process. The funeral home is the policy's beneficiary and the funeral director handles the policy claim, making it easier on the family in mourning.

Lastly, a pre-need trust is money placed in a trust fund that is dispersed to the funeral director upon your passing. A pre-need trust is premium free, but making the trust either revocable or irrevocable can bring financial ramifications. Unlike irrevocable trusts, the money in revocable trusts can be withdrawn at any time, which can count against those who you are trying to qualify for need-based social services.