If you purchase pre-need insurance with a funeral home, you decide your end-of-life arrangements in advance, and the death benefit covers only those costs. While this may seem convenient, pre-need insurance isn’t the best choice for most shoppers.
The policy is often impossible to alter, and you can likely get an equal or a larger death benefit for less money with other types of life insurance. These other types will also provide more flexibility for your loved ones.
What is pre-need insurance?
Pre-need insurance — sometimes called burial insurance, funeral insurance, or a pre-need funeral contract — is a type of permanent life insurance used to pay for funeral services and burial or cremation.
Pre-need and final expense life insurance both cover your final expenses. However, with pre-need insurance, your funeral home becomes your policy’s beneficiary. It gets your death benefit and will use the funds solely for your funeral and burial expenses.
By contrast, final expense insurance pays your death benefit to the beneficiary of your choice, who will use it for your funeral expenses, medical expenses, debts, or however they see fit.
With some final expense policies, your beneficiary may be able to assign part of the death benefit to a funeral home after you die. This can help pay funeral costs while still allowing loved ones to receive any remaining funds.
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What are the pros and cons of pre-need insurance?
You may want to take funeral planning off your family’s plate and not be worried about committing the funds in advance. Or, you may feel strongly about having a particular type of funeral and don’t want to leave the final arrangements to others.
In these cases, the benefits of pre-need insurance may outweigh the cost. However, we don’t recommend pre-need life insurance in most situations.
If you can qualify for term life insurance, it’ll be the most cost-effective way to provide your family with financial protection for funeral costs, outstanding medical expenses, and other debts. The sizable payout to your beneficiaries gives your loved ones a financial cushion for more than just your end-of-life expenses. The affordability of a term life insurance policy also allows you to fit it into your budget easily.
However, term life policies don’t last forever. If you want a permanent death benefit and a small amount of coverage, you’ll get more value out of a final expense life insurance policy than you would a pre-need policy.
Even older adults or applicants with high-risk health and pre-existing conditions who might not qualify for affordable term life insurance would get more value with final expense insurance.
Final expense policies are often a better deal than pre-need policies, offer higher death benefits, and allow flexibility in how your beneficiaries use the payout.
Who should get pre-need life insurance?
Pre-need life insurance may be worth considering if you cannot qualify for term or final expense life insurance, you want to lift the burden of funeral planning from your beneficiaries, or if you strongly prefer to prearrange your funeral through a specific funeral home. This type of coverage is generally connected to specific funeral arrangements and is designed to help pay for those predetermined expenses.
Another option is guaranteed issue whole life insurance, which may be available to applicants who are not eligible for traditional final expense insurance. Guaranteed issue policies typically do not require a medical exam or health questions and may offer coverage amounts of up to $25,000, depending on the insurer.
Premiums may be comparable to coverage arranged through a funeral home, but the death benefit generally provides beneficiaries with greater flexibility as the money is not limited to predetermined funeral expenses. Beneficiaries may be able to use the proceeds for funeral costs and other end-of-life expenses, outstanding debts, or financial needs.
Otherwise, most shoppers will get a better deal and more flexibility in how your beneficiaries can spend the death benefit by choosing final expense insurance.
If you’re unsure whether to purchase pre-need or final expense insurance, a Policygenius agent can help you decide which policy makes the most sense for your situation.
Pre-need life insurance FAQs
Who is the beneficiary of a pre-need insurance policy?
The funeral home is usually the beneficiary, which means the death benefit is used to pay for funeral, burial or cremation services.
What happens to leftover money from pre-need insurance?
It depends on the contract. Some contracts may return unused funds to your estate or loved ones, while others may not. Review the terms before buying.
Can you cancel pre-need insurance?
Cancellation rules vary by policy and funeral contract. Some policies may be difficult to change or cancel, and surrender fees may apply.
Is pre-need insurance the same as final expense insurance?
No. Pre-need insurance usually pays a funeral home directly for prearranged services, while final expense insurance pays a beneficiary who can use the money for funeral costs, medical bills, debts or other needs.
What is the best alternative to pre-need insurance?
For many shoppers, final expense insurance is a more flexible alternative. If you need broader financial protection and can qualify, term life insurance may provide a larger payout at a lower cost.
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