Burial or Funeral Insurance & How does it works

The average cost of funerals

Funerals can cost more than many people think. The National Funeral Directors Association’s most recent estimate of the median cost of a funeral with cremation is about $6,000, and its median cost of a funeral with burial is about $8,500. Those numbers don’t consider things like burial plots, upgraded urns or caskets, published obituaries, headstones, or flowers. The total for a funeral can easily approach $10,000 or more, potentially leaving unprepared families with a huge financial burden.

Paying for a funeral

People pay for funeral expenses in different ways. Some might begin setting money aside regularly in a savings or low-risk investment account earmarked for this purpose. The problem with traditional saving is the tremendous amount of discipline required to consistently save and to leave the savings alone once it’s there.

Others who already have existing life insurance plans may choose to designate a certain amount of the death benefit toward funeral expenses. However, depending on your age, your life insurance may be a term policy that expires after a certain period of time. If you don’t have some form of permanent life insurance, you can easily find yourself unprepared if your existing insurance expires.

In your research, you may have encountered the terms “pre-need” (also called “prepaid”) funeral plans and “final expense insurance” policies. How do they work, and what are the differences between the two? Below are two basic explanations of the two.

Pre-need plans

A pre-need plan is purchased from a specific funeral home. To set it up, you choose the funeral home you want to work with and specify the arrangements you desire . The funeral home prices it out and you pay the cost ahead of time (either all at once or over time). Pre-need funeral insurance is guaranteed by the state.

Guaranteed services and non-guaranteed services

Should you be fortunate enough to live long after you set up your pre-need plan, the costs of your desired funeral may increase. Depending on whether these costs were guaranteed services or non-guaranteed services determines whether or not your family has to make up the difference.

For example, if a guaranteed service costs $2,000 now, but the cost rises to $3,000 by the time you die, your family does not have to make up the difference. The cost of guaranteed services will always be covered by the funeral home regardless of how much your plan is worth. Pre-need plans typically forecast this increase in costs and price their premiums accordingly.

Guaranteed services and non-guaranteed services

If a service is not guaranteed, your family may be responsible for the difference in cost. Check with the pre-need provider to see how their plan handles non-guaranteed services.

Final Expense

Final expense insurance, or burial insurance, is meant to cover the cost of funeral and burial services like the prepaid plans. However, unlike preneed or prepaid funeral packages, final expense insurance can also help cover outstanding debts, probate fees, and other remaining expenses. This type of life insurance also allows you to choose your beneficiary, unlike preneed plans.

While a preneed plan is usually payable to the funeral home, a final expense benefit goes straight to the beneficiary you choose– usually a trusted family member. Funeral insurance plans guarantee a fixed amount of insurance proceeds, and the policy is usually based on expected final expense costs.

Depending on your coverage needs, a final expense policy will cover until the whole life policy ends at age 100.

• This type of policy can increase in value over time. It works like a savings account, with the balance going up as you pay in.
• The price of your initial premium will be higher the older you are. But your premium’s amount will not go up as you age.
• Final expense insurance policies allow you to select a beneficiary, which means you can choose an agent who’s legally responsible for the allocation of benefits. Commonly, people choose a partner or relative to act as a beneficiary to ensure instructions are followed and funds are properly distributed.
• You won’t be required to take a medical exam to receive coverage, and your policy won’t be canceled due to changes in health. Final expense insurance is available to those in poor health with graded benefits, meaning only a portion of your policy will be available for the first few years of coverage.
• Additional benefits can be awarded in the case of an accidental death.
• Your entire policy does not have to be paid all at once. Term policy payments can be arranged to be paid monthly or yearly.
• Final expense insurance can cover a number of costs. This allows loved ones to use the benefits for the expenses they need to pay, as opposed to just covering burial costs. This coverage includes common final costs, such as medical bills, probate or legal fees, and other expenses other policy types don’t cover.
• The flexibility of final expense insurance also extends to your choice of service providers. This means you can allocate funds without being tied to a certain provider, geographic area, or plan. Final expense insurance leaves your options open, a great benefit given the length of time that may pass between choosing and using a policy.
• You can borrow against the tax-deferred dividend value of your final expense policy. This means that in addition to preparing for your family’s financial future, you’ll also have an accessible line of credit in case of emergency.
• Given its flexibility, final expense insurance mitigates some of the worry preneed or prepaid plans may leave unresolved. Many of the concerns and limitations of those plans don’t apply to final expense. However, there are some things you should be aware of before enrolling in final expense insurance.

Benefit	Burial/Preneed/Prepaid Insurance	Final Expense Insurance
Expenses Covered:	Burial/funeral costs only	A variety of final expenses
Beneficiary:	Funeral home	Your choice
Specific Arrangements:	Locked in at the time you choose	Remain flexible, although you give instructions
Cost:	Varies by provider and selection—solely covers funeral costs	A $10,000 policy costs about $2 per day.
Benefit Amount:	Once the plan is paid for, the benefit amount remains the same.	Tax-free savings are built up over time up to $35,000.
Balance May Be Borrowed Against:	No	Yes

For more information on Pre-Arranging refer to:
Texas finance code, Section 154.133
www.prepaidfunerals.texas.gov

Texas Department of Banking
www.dob.texas.gov/cemetery-prepaid-funeral-services