Pre-Need vs. Burial & Cremation Insurance
Preplanning a funeral is becoming more commonplace today as individuals make their own or a loved one’s final arrangements long before they are actually needed. Funeral pre-planning involves not only choosing a funeral home, burial plot or urn for cremation, it also includes paying for all of these arrangements, so the financial burden isn’t left for a spouse or other next of kin.
A pre-need funeral plan allows a person to buy a pre-planned funeral. This includes preparing all the arrangements beforehand – which alleviates any burden on the family during an emotional time. The entire service and burial are chosen and pre-funded in advance.
Pre-need funeral plans should not be confused with burial insurance, which is death benefit monies paid out to a beneficiary after a person dies. Both plans allow individuals to think ahead, but there are several differences that must be considered.
The Rising Popularity of Pre-Need Funerals
Planning a pre-need funeral service relieves the financial and emotional burden your family may face when you die. The process involves arranging some or all of the elements of the service and communicating those wishes to someone before a serious illness or death occurs. Typically written up in a pre-need plan, this contract usually involves the following decisions:
- Location of funeral home and cemetery
- Traditional burial or cremation
- Open or closed casket
- Visitation or no visitation
- Type of service: church, graveside or funeral home
- Purchasing a cemetery plot
A person’s vital information and important paperwork must then be gathered. While there isn’t a specified time for you to plan a pre-need funeral, most people make these arrangements when a:
The most important thing to remember when pre-planning a funeral is to find a provider that will take care of your wishes. Avoid hasty decisions if you’re pressed for time or money. Once you choose your provider, they will help you choose the arrangements that are best for you or your loved one.
Making funeral arrangements in advance means receiving peace of mind. You’re putting your final wishes in place, sparing your family the heartache and financial burden. Pre-paying for a funeral also means paying for them either through a trust in which the provider is the beneficiary. This includes prepaid burial or prepaid cremation plans. Your funeral is paid for in one lump sum or in installments before you die. A pre-need funeral will ensure:
- Your funeral and burial or cremation arrangements are well-planned.
- Your service will be meaningful and just the way you want it.
- Your funeral is affordable. Pre-plan services are drastically cheaper than need-based services.
What Is Burial or Cremation Insurance?
Burial insurance is another name for a life insurance policy that people use to cover funeral costs. However, since not many people plan ahead, they may not realize that the amount of their policy usually won’t cover all the funeral expenses. This puts a burden on surviving family members. Burial insurance policies not only vary between insurance companies, but they are also offered as a term policy or whole policy. This means the death benefits on these policies typically range anywhere from $5,000 to $25,000.
After a person dies, the burial insurance pays the death benefit directly to a beneficiary who can use the money how he sees fit. Many times, it will pay for the funeral, as well as any outstanding medical bills, legal fees or other outstanding debts. However, a burial insurance policy only pays out to a beneficiary after the person dies, and it may come after the funeral expenses need to be paid — unless the benefactor lists the funeral home directly as the beneficiary.
Cremation insurance is very similar to burial insurance although cremations are cheaper than traditional burials. Cremations normally cost around $3,000, not counting the cost of a funeral or memorial service, an urn, burial plot or columbarium niche. When you add it all up, a cremation can still cost a consumer more than $10,000.
However, burial insurance policies may come with a few stipulations such as:
- Policyholders being subject to a waiting or contestability period
- Suicide clauses
- Possible investigation by an insurance company if a claim is made quickly after purchasing the policy
- Possibility of being rejected if insurance applicant already has life-threatening illness such as cancer, uses recreational drugs, or had been hospitalized for a certain number of days the previous year
How Pre-Need Services Differ From Burial Insurance
While both pre-need services and burial insurance can give you peace of mind and help you protect your loved ones in the event of your death, there are some clear differences between them. The main difference between a pre-need plan and burial insurance is that with a pre-need plan, all funeral expenses are locked in and taken care of before the person dies. Other key differences include:
- Pre-paid plans allow consumers to choose their own funeral options
- Pre-paid plans can lighten the financial burden on surviving family members
- A person’s health isn’t questioned when purchasing a pre-need plan
- Burial insurance may require and may be determined by answering a few health-related questions or by having a medical examination
- Burial insurance costs can increase if you forego a medical exam
- The death benefit is whatever the premium will buy at the consumer’s current age
- Burial insurance can cover more than one person
Rising Costs of Funeral and Burial Arrangements
It’s no surprise that funerals are expensive, and their cost is increasing just as fast — if not faster — as the rate of inflation. This is one of the main reasons why people are drawing up pre-need funeral contracts that lock in the current rates.
According to the National Funeral Directors Association, the national average cost of an adult funeral in 2012 was roughly $7,000. This figure is 7.4 percent higher than just three years prior. Besides inflation, the increased cost of overhead, including building and labor costs, and real estate are factored into higher funeral and burial prices.
Some of the costs associated with a funeral include:
- Basic services fee (which is non-declinable)
- Removal and transfer of remains
- Body preparation
- Use of facilities and staff for viewing and funeral ceremony
- Service car or van
- Funeral cards and other stationery
A bigger part of the increased costs, which is why many people consider pre-need plans, is the rising number of funeral homes that become part of publicly traded corporations. These funeral homes often reduce the competition and choices available by pooling their resources for various funeral and burial needs. The savings are passed on to shareholders, but not the consumers.
It’s no wonder people are looking to pre-plan their own arrangements. Besides being able to lock in costs, as is done with pre-need plans and providers, it also allows patrons to make payments instead of trying to come up with all of the money for a funeral quickly.
Creating a Pre-Need Funeral Plan
Advance funeral planning offers peace of mind for everyone involved, which is one of the benefits of pre-need funeral arrangements. When you pre-plan funeral and burial arrangements, you ensure that your wishes are not only communicated, but carried out as well. This spares your family and friends the burden during a most difficult time.
Making advance arrangements includes comparing prices, reviewing funeral homes and cemeteries, and selecting the services you want. Important steps to take when pre-planning a funeral include:
- Creating a will — Regardless if you are wealthy or not, it’s vital to have a will drawn up by a lawyer. If you don’t, the state can take over your estate after you die. It’s important to make sure your funeral and burial wishes are part of this legal document, and an executor is set up to administer your will after you die.
- Planning the actual service — Besides deciding on the elements of the service, pre-planning also includes deciding between cremation and burial, and cemetery plot, urn or mausoleum crypt. If you plan to be cremated and have your ashes scattered, your pre-need plan needs to address this just as it would if you decide to donate your body to science or want to be an organ donor after you die.
- Deciding on the type of ceremony — Typical funerals are religious in nature, but that doesn’t mean yours has to be that way. You can also choose to hold a memorial service or Celebration of Life ceremony instead of a funeral after you die. You will also want to pick an open or closed casket, the type of funeral program you want and who will serve as pallbearers. If you decide on cremation, will you still want a funeral and burial?
- Adding up the numbers — Tally the total cost of the funeral, which will probably be more than you expected. Don’t forget to ask about package deals and alternatives to traditional elements of a service.
Understanding Pre-Need Funeral Contracts
A vital part in drawing up a pre-need funeral plan is determining a budget and paying for or allocating the appropriate funds to pay for whatever service you choose. A certified pre-need counselor, not a funeral director, can help with this. He can help set up a plan that covers all of you and your family’s wishes and needs while offering a price guarantee on the services. Your funeral plan is the basis for the contract that will outline the services, goods and merchandise purchased.
You do not have to plan everything in advance. Some people pick out only the cemetery plot and casket, while others plan and pay for every element of the service and burial. To secure a price guarantee, in most cases, the pre-need contract needs to be funded. The contract establishes a funeral or irrevocable burial trust and places the money with a third party, such as a trustee or insurance company who will manage the funds and use them to pay designated providers when needed. Customers can also make early payments directly to the provider.
Pennsylvania State and Local Laws and Pre-Need Contracts
While regulations governing the sale of pre-need funeral and burial contracts vary by state, for those living in and looking for affordable funeral plans in Lancaster or elsewhere in Pennsylvania, all pre-paid funeral monies are required to be put in escrow or transferred to a trust in a local banking institution. This includes funds for all services and merchandise, and additional service and arrangement fees.
Pennsylvania law also allows an irrevocable trust to be set up in pre-need instances. This means that no one can take away the money you put in a trust for your services or change it for any reason – even in the case of the provider going out of business. This money is off limits until it is needed. This type of trust, which is used by many funeral pre-planning companies in Pennsylvania, is established under the name of the buyer and can’t be listed as income. The money in this type of trust is managed according to state and federal laws.
If you are on Medicaid, a transfer of funeral funds into an irrevocable trust is considered a gift when it comes to eligibility purposes. This means their money would be protected if you ever need Medicaid to pay for long-term care. If you decide to put your funds into a revocable trust, however, Medicaid has the right to seize the funds trust if you ever need Medicaid to cover your long-term care or medical costs and all of your assets are depleted.
Questions to Keep in Mind Before Signing a Pre-Need Contract
Carefully read over the entire contract before signing but make sure to keep these questions in mind:
- Is the contract flexible?
- Can the products and services be changed?
- What happens if you move, or you want the funeral in another city?
- When will the products, such as casket, urn, etc. be delivered?
- What happens if the merchandise you select now is not available when you need it?
- What type of replacements will be offered?
- To what extent is the price guaranteed?
- If on a payment plan, what happens if the death occurs before all of the arrangements are paid for?
- Are you responsible for paying income taxes on the interest earned by this account?
- What happens if our funeral home or pre-need services company goes out of business?
Communication Is Key
It’s important to keep the lines of communication open between yourself, your pre-need counselor and your family regarding all of your funeral wishes and needs. Pre-planning your own funeral is personal, so it’s best to take your time, be selective and choose what you want. Deciding between a pre-need funeral contract and burial insurance is another important decision that should be made with care. The primary benefit of pre-need services is alleviating financial and emotion burden from family members when it comes time for the service. At Pre-Need Family Services, all the family needs to do is make one simple phone call to us – and we will take care of the rest.
For more information on pre-need cremation and pre-planned funeral arrangements in Lancaster or elsewhere in the Commonwealth, contact us today. We’re a funeral pre-planning company in Pennsylvania with affordable funeral plans starting at less than $50 per month.