Do I need Pre-Need Insurance or a Final Expense Insurance Policy?

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One thing we know for sure is that it costs money to be brought into this world and to be buried.  Many people know that they need to to address how to pay for final expenses, but may be unsure of what types of plans are available.

Funerals are not cheap and tend to cost $10,000 or more.  Factor in other end-of-life expenses, and you may be $15,000 to $25,000 to make sure all final debts, and medical expenses, are taken care of.

In this article, we are going to explore and compare two of the most popular policies people tend to use to cover all the various final expenses.

Pre-Need Insurance

Pre-need insurance is a policy that you would arrange between you, and the funeral home of your choice.  The policy would be taken out directly with a funeral home.  During this process, you are going to lock in the price of all the services a funeral would provide.  This includes the funeral service, casket, cemetery plot, and any other arrangement you’d like to address.

With these policies, at the time of your death, the funeral home will receive the amount of the policy.  Generally, you’ll make monthly or annual premium payments for a set number of years.  

One of the main advantages of these types of policies is your family won’t have to come up with any money out of their pockets.  Everything will be pre-arranged ahead of time.  Also, your family wouldn’t have to deal with having to pick out the funeral home, caskets, and plots, and decide on the various services.  That would all be done ahead of time.  

Now there are a few negatives, about these types of policies.  The first negative is that the policy is not portable.  Meaning if you decided to move, a new funeral home would not be able to accept it.  The funeral home would not refund the money either.  You would need to try and make arrangements to have your body transported back to the original funeral home, which could cost thousands of dollars.  Or you could start a new plan, with a new funeral home.

Another flaw with these pre-paid policies is that if you die before it’s paid up, your family would have to come up with the difference.  Example:  You have a $15,000 pre-paid policy but pass away 2 years into the policy.  The policy may only have accumulated a few thousand dollars.  These plans are not immediate death benefit policies, like burial insurance policies.  

One last warning with pre-paid policies is the risk that the funeral home may go out of business.  If this were the case, your policy would no longer be in force.  The money you put into the policy, would not be refunded.  If thinking a policy like this is in your best interest, you will definitely want to do your ‘homework’ on the funeral home you choose.

Final Expense Insurance

A final expense insurance policy is another popular choice, for people who want to address funeral costs, and even address other expenses.  Unlike a pre-need policy, your policy will be between you, and an insurance company of your choice.  Final expense insurance is a term given to smaller amounts of whole life insurance.

At the time of your death, the amount of the policy is paid to the named beneficiary.  The death benefit is paid in a lump sum, tax-free benefit.  The beneficiary would then have the ability to use the funds, however they need to.  There are no restrictions on how the benefit can be used.

This type of flexibility with a final expense insurance policy may be advantageous to you and your family.  Pre-need policies will only address funeral costs.  Where a final expense insurance policy can cover all types of expenses.  Medical bills, cell phone bills, cable bills, mortgage/rent, or any other type of debt obligation a person has.

Since final expense insurance is a whole life insurance policy, it’s possible for a person to qualify for a policy, that pays an immediate death benefit.  Simply means that once a policy is in force, at the time of death the full amount of the policy is paid to the beneficiary.  A person would also have options as to how long they’d want to pay into the policy.  10-year and 20-year premium payment plans are usually the most popular plans people go with.

Another positive factor with final expense insurance is the policies follow you, where you live.  There are no restrictions if you were to move.  They are portable.  You’d simply want to update your information with the insurance carrier.

While there are a lot of positives with these policies, there are some negatives.  The first is that your premium payments are determined by your overall health.  Various insurance companies are going to ask health questions.  How you answer those questions, will determine your final rates.  The worse your health history, the higher your rates.  Not everyone will qualify for the lowest rates.

Another possible negative aspect is these policies are paid out to a beneficiary.  The beneficiary is under NO obligation to use the benefit, to take care of funeral costs.  So please make sure you elect a beneficiary, who is going to honor your wishes.  If this is a concern, some insurance companies will allow you to assign the policy to a funeral home.  Simply means that at the time of death, the insurance company pays the funeral home directly.  Any money left over would then be paid to your beneficiary, by the funeral home.

Everyone has different needs and wishes.  Don’t feel like you have to make this decision alone.  It’s probably a wise decision to reach out to an insurance professional and have them help you decide what plan, is best for you.

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