Pre-need insurance is a form of “life insurance”. At one time, it was referred to as “death insurance” but the term was changed to “pre-need insurance” or “funeral insurance” to make it more acceptable.
Every pre-need insurance company has different approaches. Generally, a person either pays for a whole-life policy to cover the funeral costs in one lump sum, or they can pay over a 3, 5 or 10 year-period depending upon the insurance company and a person’s age, health history and other factors.
One benefit of pre-need insurance policies is that some times they may actually pay higher dividends than trust accounts. It’s possible your survivors could receive some money back from the policy after the cost of the funeral is covered.
Another benefit is that owning a pre-need funeral policy does not affect eligibility for Medicare. Plus, in general, pre-need insurance policies are not taxable. Most pre-need insurance policies can be transferred to different funeral homes and different states. But there are many variables to consider and questions to ask. (See link to our checklist below)
Unlike funds in a bank that are insured by the federal government, pre-need insurance policies are only as secure as the insurance company that provides them. That is why it is a good practice to learn more about the company that is issuing the policy and to ask about their ratings by such national reporting companies as A.M. Best or Standard and Poors. Also inquire about how long the insurance company has been in business and the size of their asset base.
Where can you buy pre-need insurance? Conveniently, the policies can be purchased directly from your locally licensed funeral director or insurance agent. National insurance firms arrange the sale of their policies through funeral homes. Some states require the funeral director to take an exam and obtain a state license. Regulations vary by state.
A funeral director might represent one pre-need insurance company or several. Talk to a few funeral directors to see which plans they offer and which options are available to fit your specific needs.
With any pre-paid funeral service, there are several questions you should ask.
To see a helpful checklist, click here.