Prepaid Funeral Plans Pros and Cons
Prepaid Funeral Plans vs. Life Insurance
Since you’re looking up prepaid funeral plans pros and cons, you’re probably considering whether to buy one. We’re big fans of the idea of planning ahead for your funeral and burial. However, we don’t think prepaid funeral plans are the best way to go. Instead, we recommend life insurance for additional flexibility.
There’s even a specific type of life insurance specifically created to pay for your final expenses. You may see this referred to as guaranteed issue life insurance or final expense life insurance. They both refer to the same type of policy, one you can get even if you have health issues.
So what’s the difference between a prepaid funeral plan and life insurance?
Prepaid funeral plans are an arrangement between you and a particular funeral home for very specific services. Life insurance is a contract between you and an insurance company, where you get to specify who gets the death benefit. That income-tax-free cash payout can be used for anything, which makes it a more versatile way to handle your final expenses. As you’re evaluating the prepaid funeral plans pros and cons, this is an incredibly important point to keep in mind.
Here are some of the benefits you get with a life insurance policy:
Flexibility. The 100% income-tax-free death benefit can be used for anything. There are no limits or exclusions. If you leave behind medical bills that are more pressing than funeral arrangements, for example, your beneficiary could pay off the most important bills first, and use any amount left over to pay for the less pressing arrangements. That kind of flexibility is valuable since you never know in advance whether you’ll leave medical bills behind, and if so, how much they’re going to be. You may also leave other bills behind, like rent/mortgage, utilities, and your final income tax bill, usually due the year after you pass away. Pre-paying for your funeral won’t cover these kinds of additional expenses…but the life insurance death benefit will.
Avoid financing charges. If you select a payment plan when making arrangements with the funeral home, you’re probably going to incur financing charges. That means you’re actually paying for the services you want. Life insurance has no financing charge. Your rate is flat and will never increase – it’s locked in when you buy your policy. You know exactly what you’re paying and exactly what your beneficiary(ies) will get.
Select multiple beneficiaries. You can name one or more beneficiaries for your life insurance policy, including your estate or a trust. This is helpful if your policy is intended to cover more than just your funeral arrangements. For example, you may have a $20,000 policy, but your funeral arrangements are expected to cost $10,000. You could have one beneficiary receive $10,000 and be in charge of planning your funeral, and another beneficiary receive the remaining $10,000 as a final gift. You don’t have to split up the death benefit, but it’s an option available to you that puts you in control.
Rather talk to a real person about life insurance? Let us help! Call us at (800) 521-7873 and let us answer your questions and give you a quote for guaranteed issue over the phone!
