Funeral Insurance

Have you ever imagined what your funeral would be like, what kind of service there would be, or even what kind of coffin you would prefer?

There are plenty of reasons to pre-plan and, if possible, pre-pay your final arrangements long before the need arises. A product called "pre-need" insurance, also known as burial or funeral insurance, is intended for just that purpose.

Unlike some other types of insurance, this is less of a "what if" financial strategy and more a "when." With this coverage, you can arrange details of your funeral, including products and services, and pay for them in advance.

Funeral costs are on the rise

Funeral pre-arrangement is nothing new, and funeral costs are high these days. According to the American Association of Retired Persons (AARP), funerals and burials are among the most expensive purchases older Americans make. The average cost of a traditional funeral is $4,600. Add another $1,000 for flowers, obituary notices, acknowledgment cards, burial liners or vaults, and special transportation. None of that includes the burial, which can cost an additional $2,400.

With funeral prices continuing their upward trend, a $10,000 burial policy purchased today might not cover the costs of your funeral when the time comes. Paying for your funeral might require beneficiaries to dip into funds from a life insurance policy or another source.

Individual tastes determine coverage options

Funeral pre-planning is a highly personal decision, so there's no "typical" insurance plan. Rather, you choose the products and services 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:

  • 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 burial plot

Because these policies are individualized, there's nothing that you can't include in them, unless you have a policy that is capped at a specific dollar amount. For example, some policies won't cover more than $25,000 of funeral expenses.

Deciding how to pay your premiums

In most cases, you must purchase a burial policy in one lump-sum payment. Some policies let you pay your premiums over three, five or 10 years. Payment plans also depend on what options you include in the policy.

If you buy a single-premium policy (and pay one lump sum at the time of application) you immediately have coverage for the full death benefit. People who have a serious health problem may receive a policy with a "graded death benefit," which means the coverage amount increases over time. For example, for a three-payment policy, the death benefit might be 50 percent of the face amount in the first year and 100 percent thereafter. For longer pay plans, say five or 10 years, the death benefit is 30 percent of the face amount in the first year, 70 percent in the second year, and 100 percent thereafter.

If you are over 70 and shopping for a funeral policy, companies might offer you only the single-premium option. That’s because the chances are greater you won’t live long enough to pay premiums spread out over several years. Most pre-need companies will let you buy time-pay plans up to age 70 or 75.

Uncovering the dirt on burial policies

Caution is also needed before you buy a funeral policy. After all, you'll be spending several thousand dollars.

New Jersey was so concerned about potential abuses in the burgeoning burial insurance industry that it adopted the Preneed Act, which provides comprehensive consumer rights for pre-paying funeral expenses. For example, the Act requires checks to purchase burial insurance be made payable only to the insurance company, not to the funeral home. "Funeral directors frequently earn a commission from the sales of such policies," the Act says. "This fact should be disclosed to the consumer." In addition, the Act stipulates money paid to funeral directors for pre-need funerals "belongs to the consumer and must be made available to the consumer upon request at any time."

Florida has also had its share of troubles with some pre-need funeral insurance providers. When Florida U-S Senator Bill Nelson was that state’s insurance commissioner, he sought to ban the sale of new burial insurance policies. Nelson says he took the action after some policyholders, particularly the elderly, paid far more in premiums than they'd ever get back in death benefits.

Tips for those considering “pre-need” insurance:

  • Find out your state's laws on pre-need insurance.
  • Before buying a burial policy, discuss your options with your family and lawyer to make sure it’s consistent with your will and estate planning.
  • Verify the license of the agent, funeral director, or insurance 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.
  • Find out if your funeral director provides price guarantees. If not, the money you pay today for a might not cover the costs of your funeral.
  • 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. This is important, especially if you move after buying the “pre-need” plan.
  • Check and confirm all of the arrangements, services and products sold as part of the “pre-need” plan, and make sure those details are spelled out in writing.
  • 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.