Funeral insurance, also called burial, final expense or pre-need insurance, refers to a group of products intended to pay for final arrangements.
Many people use funeral insurance as a way to ensure their funeral is arranged and paid for in advance, so the burden isn't left to their families or beneficiaries. It can also be used by parents to guarantee funeral funding for their children. The average cost of a funeral was a little over $7,000 in 2012, according to the National Funeral Directors Association -- but that doesn't include the cost of a cemetery plot, vault (if the cemetery requires it), headstone, flowers or obituaries, which can push the total over $10,000.
There is no standard type of funeral insurance. The term "funeral insurance" describes any insurance policy or other legal contract purchased with the intent of providing for final expenses. The amount of funeral insurance coverage depends on how much you want final expenses to cost. In most states, the only people licensed to write a burial policy are life insurance agents and funeral directors.
Variations range from traditional whole life insurance to policies or agreements that only cover funeral expenses:
Depending on the type of policy or contract you buy, you may either have one, lump-sum payment, or continuing monthly payments. A contract with a funeral home will most likely include a payment plan.
Your coverage may determine what kind of payment schedule you have:
Many states have given consumers added protection by creating laws that give them additional rights when it comes to pre-paying for funeral expenses. Some states ban the sale of some types of burial insurance policies, because many policyholders paid more in premiums than they got back in their death benefit. Other states created protections which prohibit checks to purchase burial insurance to be made out to the funeral home - they must be made out to the life insurance company. Some states specify that payments made ahead of time for pre-need contracts are placed into a fund which becomes your property and must be available to you at any time. Your state department of insurance is the best resource for local laws.
It is important to keep in mind that states felt the need to implement these protections because of significant problems with some types of pre-need contracts. For example, an irrevocable assignment transfers ownership of your contract to the funeral director, which means you cannot withdraw any payments you have made on this contract. Similarly, if you name the funeral director as the beneficiary of a life insurance policy for funeral benefits, the director is the only person authorized to spend the proceeds of your policy. Always be sure you understand the terms of the policy, and weigh the costs against the policy coverage.
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