I work with insurance. These policies are regulated by state departments of insurance. Last week a reader asked me a question about his pre-paid funeral contract.
Pre-paid Funeral contracts are sold by employees of funeral homes. They may be regulated by your state but not by your state insurance department.
As a licensed insurance agent, I try to stick with products that I know something about. I try to avoid extended conversations about Pre-Paid Funerals. When the topic comes up I try to show my client that I am aware of their concerns and have enough experience to know what a Pre-paid Funeral contract is.
If a client wants someone to consult with about a Pre-paid Funeral, I am the wrong professional. They need to speak to someone at a funeral home.
I work with Life insurance. The purpose of a Life insurance contract and a Pre-paid Funeral contract are different. A Pre-paid Funeral contract allows you to purchase a “service” for the future at today’s prices. A Life insurance contract provides money to surviving loved ones with which to pay your bills.
The insurance industry has a special type of contract, called a Final Expense policy, with which to handle the same concerns as a Pre-paid Funeral contract at a similar price. The difference is that, since the Final Expense contract pays out a cash benefit, the money can be used to pay your final medical bills, body transportation, etc. along with your funeral service, gravesite and headstone.
Pre-paid funerals are not in my “wheel-house.” I know about them only because the topic often arises during Life insurance conversations with my clients.
I am often asked whether a Pre-paid Funeral contract is desirable. My answer is, “If all your family needs is money to pay for your funeral, you know that your death will occur locally (so there is no cost for transporting your body) and you know what cemetery and funeral home you wish to use, a Pre-paid Funeral may be all you need. However, if you want to leave your loved ones money to pay for other expenses that you might incur shortly before your death (i.e. final medical bills), you travel and your death could occur somewhere else and your body would need to be transported home or you are not certain what cemetery or funeral home you wish to use, a Final Expense Life insurance plan may suit your needs better.”
As you can see, both Pre-paid Funerals and Life insurance can be used to meet your final expenses. The question is which contract is right for you.
Below is the question that inspired me to write today’s post and the answer I gave him.
“If a person has already paid for their funeral a while back, will what they paid still cover the funeral when they die years later?”
“If I understand you correctly, what I think you are talking about is called a “pre-paid funeral.” They are not regulated by the State Department of Insurance so I am not able to speak with any certainty. All I can share with you is my personal observations over the last 25 years.
You should have a contract with the funeral home someplace in your files. It should list what is covered and how long it is covered for. I urge you to blow the dust off it to make certain that it allows for payment for everything you want. Some contracts are comprehensive and include things like a grave and headstone. Others, I understand, only pay for embalming, casket and funeral service. It would be up to your survivors to obtain a grave, vault and headstone.
Most “pre-paid funerals” that I have worked with are not subject to future inflation. If a person pre-pays a funeral for $5000 20 years before they die but inflation increases the cost to $8000, the funeral home will take the financial hit. However, my experience is with insurance rather than “pre-paid funerals.” There is a chance that if you paid $5000 twenty years ago and a funeral costs $8000 today, your family would be responsible for that additional $3000.
The only way for you to know is to pull out your contract and review it. Just make certain that when you replace it, you do so someplace that your survivors will think to look for it. When I deliver a Life insurance policy, I always put it in a plastic expandable file and encourage my clients to not only keep their life insurance policies in it but all paper-work (wills, pre-paid funerals, trusts, etc.) so that things will be easier for survivors to find.
I wish I could give you more information but the most important thing to remember is that the funeral home is only going to provide the services that are in your contract. They will do not more but your survivors should expect no less. Spend 10 minutes to review your contract to make certain that it is sufficient for your needs and make certain that it is somewhere your survivors can easily find it.”