Does pre-paying for your funeral protect your loved ones?

How to Help Protect Your Loved Ones from Funeral Costs

Given how expensive funerals can be, people often want to spare their loved ones the financial burden of having to pay for a funeral. Some people also want to have a plan in place before their death, to spare their loved ones the emotional pressure of having to plan a funeral in the midst of grieving.

Different types of products can help alleviate these emotional and financial burdens, but which is best? The two most common are pre-need plans (sometimes called pre-paid plans) and whole life insurance (sometimes called final expense insurance). Both can offer protection at a good value, given the right circumstances. But it’s important to understand how each option works to help ensure you don’t leave your family with any unnecessary burden.

Pre-need plans: How they work

A pre-need plan is used to pay for the costs of funeral products and services that you select. This then allows you to make payments over time, so your family will not have to worry about covering the cost. When you purchase a pre-need plan, you will work with a specific funeral home to determine what type of service you want, whether it be a traditional funeral or cremation, and what type of casket or cremation container you choose. In many — or most — cases, costs are agreed upon and then “frozen” when you purchase. These costs should not increase, and the money will go directly to the funeral home, so your loved ones do not have to pay for those costs. However, additional costs like flowers, police escorts, minister honorariums and cemetery charges are not always included in a pre-need plan. This can leave your family with extra costs they may not expect, and you or they would need to cover those in some other way.

Pre-need plans: What you should know

Pre-need plans can help make things easier on your loved ones — they don’t have to worry as much about paying for your funeral, and they don’t have to plan a funeral in an emotional and confusing time. With a pre-need plan, you work with a funeral director to design your funeral and memorial service — you choose the specifics you want and pay the cost ahead of time.

Perhaps the biggest drawback of pre-need plans is their inflexibility. The pre-need plan proceeds are paid directly to the funeral home, so the predetermined costs of the funeral are covered, but nothing else. If there is a need to change any of the pre-planned decisions, it is typically difficult or impossible, and refunds are rarely an option.

Most pre-need plans are nonrefundable and bound by a contract, so you typically can’t make any changes without risk of losing the policy and whatever payments you’ve made into it.

And if the funeral home you choose goes out of business, or changes ownership, the policy may become null and void.

Whole life insurance: How it works

Whole life insurance is a type of life insurance that can be used for the final expenses associated with death, including funeral costs, burial or cremation expenses, etc., but also to help cover things like medical costs, credit card debt and other expenses you may leave behind. Different from pre-need plans, whole life insurance allows you to name your beneficiary, who can use the death benefit however it’s needed — they aren’t technically or legally required to spend the benefit on funeral-related costs. With whole life insurance, you choose a beneficiary you trust, who can then use the death benefit money to help fulfill your funeral plan or cover any additional expenses you may leave behind.

Whole life insurance: What you should know

Whole life insurance is designed to last a lifetime. As long as you continue to pay the premiums, the policy will be in effect until you pass, and your beneficiary will receive the death benefit, which doesn’t reduce as you age or your health changes.

While some life insurance policies require a medical exam or health questions, whole life policies usually do not. Applicants typically only need to answer a few simple questions and meet age requirements. The maximum whole life policy is generally $25,000.

Almost everyone wants to spare their loved ones the burden of having to plan and pay for a funeral while dealing with the grief of loss. There are options available to do just that, and some research will help you decide if one of the options is right for you. It may just be the perfect gift to leave your loved ones.

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