What is Funeral Insurance?

Funeral insurance, which is often referred to as "pre-need" insurance, is life insurance that you buy specifically to pay for your final expenses, such as the funeral service, caskets, flowers, etc. Usually, the funeral home is listed as the beneficiary of the funeral insurance policy up to a certain amount through a trust, with any balance going to another named beneficiary.

Unlike some other types of insurance, a funeral insurance policy is less a "what if" financial strategy and more a question of "when." With funeral insurance, you can plan many details of your funeral, including the products and services that it will entail, and pay for them in advance.

Funeral prearrangement is nothing new. According to the National Funeral Directors Association (NFDA), consumer interest in preplanning funerals has been steadily rising for the past 30 years. Due to the cost of funerals, funeral insurance has become increasingly popular in recent years.

According to the American Association of Retired Persons (AARP), funerals and burials are among the most expensive purchases older Americans make. The average cost for an adult funeral ranges from $4,500 to $5,500. About one-third of that goes to the cost of the casket alone. What's more, an in-ground burial can add another $2,400 to the total.

Funeral preplanning is a highly personal decision, so there's no "typical" insurance plan. Rather, you choose the products and services that you prefer and an insurance agent or funeral director (in many instances, they are one and the same) writes a policy that covers these specifics.

Among the products and services you can prepurchase:
• A casket or urn
• Cremation
• Embalming (not legally required unless there will be a public viewing)
• Burial vault or grave liner
• Grave marker
• Hearse and other funeral vehicles
• Flowers
• Digging and filling the grave
• The plot

A checklist for buying funeral insurance
• Find out your state's laws on funeral insurance.
• Before buying a burial policy, discuss your options with your family and lawyer to make sure it is consistent with your will and estate planning.
• Determine how much of the plan value you will actually receive in death benefits.
• Verify the license of the agent, funeral director or company before doing business.
• Take advantage of any "free look" laws your state might have to review your policy before you are locked in.
• The Federal Trade Commission requires funeral homes to give you a written price list of available goods and services.
• Funeral directors may choose not to provide price guarantees, which means the money you pay today for a funeral might not actually be enough to cover the costs later since you haven't locked in the prices.
• Have a companion on hand to help you sort through the paperwork or to help you shop for a casket or other products.
• Do not accept any documents that have not been completely filled in and signed in your presence.
• Make sure the funeral arrangements can be moved to any funeral home at any time
• Find out if your state requires that the money you pay to funeral directors for preneed funerals be made available to you upon request at any time.
• The location of the grave site should be spelled out by section, row and plot number.
• The policy should specify what type of outer burial container you have purchased (e.g., grave liner vs. a vault, and what it's made of).
• The policy should specify what kind of marker you have purchased, including size, material, and style, preferably with a sketch.
• Find out if opening, closing and marker-installation costs are included (the costs of digging and filling a grave aren't generally included in the cost of the plot).
• Find out if there are extra fees if you buy a marker from a monument dealer instead of the cemetery. And what about buying a casket from your own supplier?
• Find out what happens if the cemetery ownership changes hands.
• Know what recourse you have if the cemetery runs out of money and defaults on your arrangement.
• Ask what happens if your chosen cemetery runs out of burial space.
• Survey your desired cemetery to see how well the upkeep is, particularly after a snowstorm.
• Look at the contingencies if the items you have selected will no longer available at the time of the funeral.
• Make sure you receive your funeral policy in a timely manner.
• Make sure you receive at least one statement each year detailing the status of your account.
• Know what happens if you decide to cancel your policy. You may be refunded for products and services, but be stuck with the plot.

Many states have given consumers added protection by creating laws that give them additional rights when it comes to pre-paying for funeral expenses. Some states ban the sale of some types of funeral insurance policies, because many policyholders paid more in premiums than they got back in their death benefit. Other states created protections which prohibit checks to purchase funeral insurance to be made out to the funeral home—they must be made out to the life insurance company. Some states specify that payments made ahead of time for pre-need contracts are placed into a fund which becomes your property and must be available to you at any time. Your state Department of Insurance is the best resource for local laws.

08 Dec 2009

By Funeral Home Resource Team