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Pre-need life insurance

A scenic cemetery outside of an old chapel on a foggy day.
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Many families need help paying for end-of-life expenses after a loved one’s death. Funerals and all the associated costs can get expensive quickly, with the average burial casket costing $2,000.

A traditional life insurance policy includes a death benefit, which can be used to cover funeral expenses. However, pre-need life insurance is special in that it allows a person to financially plan their funeral service ahead of time with the funeral home so that their mourning family doesn’t have to. The pre-need life insurance policy payout is designed to exclusively pay for the funeral.

What is pre-need life insurance?

Pre-need life insurance is a type of life insurance specifically used to cover funerals, cremations and burials. Pre-need coverage can greatly decrease the financial and logistical burden on the family when it comes to planning the funeral. Unlike traditional life insurance, pre-need insurance policies are sold through funeral homes. When the insured passes away, the funeral home uses the policy to cover the cost of a funeral, casket, cremation, embalming and other end-of-life costs.

A pre-need funeral agreement allows a person to plan their funeral while still alive so their family does not have to worry about that during the grieving process. Key decisions have already been made and the costs of the service are already paid. Once the funeral home is notified of the death, they begin making the appropriate preparations.

Who needs pre-need life insurance?

Several groups of people can benefit from pre-need funeral insurance. This type of policy can be a good fit for people who do not have life insurance and want to help their family pay for end-of-life costs. Pre-need life insurance removes the guesswork for those who think family members would struggle emotionally or financially to plan their funeral.

Pre-need insurance can also benefit people with pre-existing health conditions or do not qualify for a traditional life insurance policy. Unlike regular life insurance, physical health is not a determining factor in the approval process. Most funeral homes allow people within a certain age range to buy pre-need insurance.

How to get pre-need life insurance

The process of getting pre-need insurance is much different than buying coverage through an insurance provider. Here are the steps to purchasing pre-need burial insurance.

1. Contact funeral homes

The first step is to find funeral homes that offer this type of insurance and can accommodate any special requests for the burial or service since the funeral home that provides the coverage will also manage funeral arrangements after the insured person passes away.

2. Ask the right questions

When speaking with funeral home directors, you may want to ask certain questions that can help you understand more about the process of planning a funeral and purchasing a policy to pay for it in advance. Here is a list of questions to help get started:

  • What services are included in the cost of my policy?
  • Am I able to make changes to my funeral or burial plans?
  • What happens if your funeral home goes out of business?
  • What happens if I move away or die in another state?
  • How soon will my funeral be planned after my death?

3. Get price quotes

The average funeral cost is between $7,000 and $10,000. Of course, the price of your funeral will vary based on what arrangements you choose. You may want to talk to a funeral home about what you want and get price estimates. Each funeral home sets its own insurance prices, so it is a good idea to get at least three quotes to see which one offers the most value.

4. Choose a funeral home

Based on the quotes and services offered, choose the best funeral home for your needs and then notify the company to start the final contract agreement process. When choosing the best funeral home for you, you may want to make sure it’s near your home or close to friends and family. You may also want to make sure that you approve of the available accommodations, especially if your family is planning to hold the funeral ceremony or wake at the funeral home’s event space or chapel.

5. Sign a contract

The last step is to sign a contract that outlines any pre-need plans, covered services and the policy cost. The policy will take effect once the first payment is made, and a copy of the contract should be kept and made available to family members and dependents.

Pre-need vs. final expense insurance

Pre-need and final expense insurance both aim to eliminate the financial burden of a policyholder’s funeral on their family. However, pre-need insurance is very different from final expense insurance. The main difference is that final expense insurance doesn’t allow the policyholder to plan his or her own funeral arrangements and pay for them in advance. The table below outlines the main differences between pre-need burial insurance and final expense insurance:

Pre-need insurance Final expense insurance
Purchased from a funeral home Purchased from an insurance company
Does not include a death benefit Includes a death benefit
Payout goes to the funeral home Payout goes to the policyholder’s beneficiaries
Money is used only for funeral costs and end-of-life expenses Money is meant to cover funeral costs, but can also be used for remaining debts and other expenses
Funeral is pre-planned and pre-paid Family must plan and pay for the funeral

Alternatives to pre-need life insurance

Pre-need life insurance is a good option for some people, but it is important to consider alternatives before investing. Other options include:

  • Term life insurance: Term life insurance is a type of life insurance that offers coverage for a specific period, usually between 5-30 years. A beneficiary is selected to receive the death benefit, and the money can be used to pay for funeral expenses, debt, supplemental income and more. The premiums are generally very affordable and it’s possible to get a high level of coverage.
  • Simplified issue life insurance: People who cannot qualify for traditional life insurance due to health or age restrictions should consider simplified issue life insurance. Instead of a medical exam, a short health questionnaire is required and the funds in the death benefit can be used to cover funeral costs.
  • Guaranteed issue life insurance: With guaranteed issue life insurance, almost every person who applies is approved for coverage. This type of policy is expensive, but there are no health qualifications or medical exams. When the insured passes away, beneficiaries can use the money to cover anything, including medical bills, hospice care or burial costs.

Frequently asked questions

How do I choose the best life insurance?

Choosing the best life insurance starts by determining personal needs. Figure out what type of policy and how much coverage is needed based on your family’s financial situation. Search for companies that offer the kind of coverage you need and compare quotes to find the best rate.

How much does pre-need insurance cost?

The cost of pre-need insurance varies. Funeral homes set their own prices and the specifics of the funeral and burial plan will directly impact the cost of the pre-need insurance.

Do all funeral homes offer pre-need insurance?

No, not all funeral homes offer pre-need insurance. It’s best to research several funeral homes to determine which ones offer insurance and which policy you’d feel would offer the best financial protection.

What are the pros and cons of pre-need life insurance?

Pre-need life insurance may make life easier for your loved ones when you pass away because they’ll be able to focus on grieving rather than planning and financing a funeral. However, since the policy pays out to the funeral home, your loved ones won’t receive any direct financial support from your life insurance policy.

Written by
Elizabeth Rivelli
Insurance Contributor
Elizabeth Rivelli is a contributing insurance writer for Bankrate and has years of experience writing for insurance domains such as The Simple Dollar, Coverage.com and NextAdvisor, among others
Edited by
Insurance Editor