Preneed insurance is a small whole life insurance policy purchased through a funeral home to cover your ultimate needs. A preneed insurance payout, as opposed to a regular life insurance death benefit, is paid to the funeral home of your choice when you die.
People frequently purchase preneed insurance because they are concerned about burdening their loved ones with funeral expenses. In 2023, the National Funeral Directors Association reported that the median cost of a funeral including a viewing and burial was $8,300. Some common expenses that preneed insurance covers are:
- Funeral home expenses.
- Embalmed, prepared, and transported the body.
- Casket or urn.
- Death certificate fees.
How much does preneed insurance cost?
Preneed insurance allows you to lock in today’s funeral and burial rates and pay for them in monthly installments. Furthermore, it is frequently easier to qualify for than a traditional life insurance policy. However, you will frequently pay greater premiums for less coverage than for life insurance. You may even end up spending more in premiums than the funeral itself costs.
Preneed insurance does not cover all types of prepaid funeral plans. Some funeral homes provide the option of paying expenses in one flat amount. When funeral expenses are covered with a single premium, the money is transferred to a trust account rather than being used to purchase a life insurance policy.
The cost of preneed insurance varies according to your age, location, and desired final arrangements. Premiums typically range from $125 to $300 per month, with payments spread out over three to ten years.
If you are thinking about getting preneed insurance, make sure to read the contract carefully. Some services may be guaranteed, which implies that the funeral home will pay the bill regardless of how much it costs when you die. Other services are not guaranteed, therefore your loved ones may have to pay the difference between the cost of the service and what your plan covers.
Alternatives to preneed insurance
If you are thinking about getting preneed insurance, there are a few options to consider. Final expense insurance, commonly known as burial insurance, covers only your funeral and associated end-of-life expenses. The death benefit is often more than a preneed policy, and it is paid to your survivors rather than the funeral home.
If you have enough money to cover funeral expenses, you could open a savings account with a payable on death designation and name a loved one as beneficiary. When you die, the money will be immediately transferred to the person you specify, who can use it to cover your final expenditures.
