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| The Basics | Tips for buying funeral insurance
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Don't want to go to your grave in pink satin? Then consider buying a burial policy that allows you to choose and pay for everything ahead, from the coffin or urn to the flowers at the service.
By Insure.com
Have you ever imagined what your funeral would be like? What kind of service there would be? Or even what kind of coffin you would prefer?
Morbid? Perhaps. Unreasonable? Not at all. There are plenty of reasons to preplan and, if possible, prepay your final arrangements long before the need arises. In fact, a product called "preneed" insurance, also known as burial or funeral insurance, is intended for just that purpose.
Unlike some other types of insurance, this is less a "what if" financial strategy and more a question of "when." With this coverage, you can plan many details of your funeral, including the products and services that it will entail, and pay for them in advance.
"People aren't buying this for the financial benefit, but rather to lock in and prearrange their funeral their way," notes Kevin Gough of Conning & Co., a Connecticut-based insurance research firm. "Whether it's a velvet-lined casket or a particular type of service, it guarantees they'll have the funeral they want."
On the surface, it seems like a relatively straightforward purchase. But a spate of funeral insurance scams across the country involving thousands of policyholders shows that you must do as much homework when buying burial insurance as any other type of insurance, perhaps even more so. In fact, there has been so much controversy in the industry -- particularly accusations that elderly people are being duped into paying more in premiums than they will ever receive in benefits -- that states such as Florida have sought to ban the policies outright.
Funeral costs are on the rise
Funeral prearrangement is nothing new. According to the National Funeral Directors Association (NFDA), consumer interest in preplanning funerals has been steadily rising for the past 30 years. Recent developments in the industry, however, have centered on the prefunding of these ceremonies.
Traditionally, funerals were often funded with trusts -- sums set aside in the approximate amount of the funeral. Trusts aren't complex to arrange, but they do carry tax liabilities and are a tricky issue if the purchaser moves out of state. So instead, some consumers set up "final life expense" insurance policies (supplementary policies above and beyond their basic life insurance policies) with small coverage limits, called "face amounts," of $10,000 or so, specifically designed to cover the funeral costs.
And funeral costs are high these days. According to the American Association of Retired Persons (AARP), funerals and burials are among the most expensive purchases older Americans make. The average cost for an adult funeral ranges from $4,500 to $5,500. About one-third of that goes to the cost of the casket alone. What's more, an in-ground burial can add another $2,400 to the total.
With funeral prices continuing their upward trend, a $10,000 burial policy purchased today might not cover a funeral's bill when the time comes. Paying for it might require dipping into funds from a major life insurance policy, a trend that Dean Lambert, director of marketing for Homesteaders Life Co., says is becoming more frequent. "When that lump sum goes to the family, they will spend it on whatever they have to. They shouldn't have to spend it all on the funeral, but that might be the case. If they are grieving, they may not make the most informed choices, perhaps spending more than they should."
Combine those rising costs with the "graying of America" and it's no wonder the preneed industry is in its heyday. "More senior citizens have the money today for these expenses," says Bruce Dalzell, president of the Life Insurers Council, a trade association for the preneed industry. "And they are independent. They don't want to leave this burden on their loved ones."
Individual tastes determine coverage options
Funeral preplanning is a highly personal decision, so there's no "typical" insurance plan. Rather, you choose the products and services that you prefer and an insurance agent or funeral director (in many instances, they are one and the same) writes a policy that covers these specifics.
Among the products and services you can prepurchase:
- A casket or urn
- Cremation
- Embalming (not legally required unless there will be a public viewing)
- Burial vault or grave liner
- Grave marker
- Hearse and other funeral vehicles
- Flowers
- Digging and filling the grave
- The plot
Because these policies are individualized, there's nothing that you can't include in them, unless, perhaps, you have a policy that is capped at a specific dollar amount. For instance, the largest player in the preneed insurance market, Forethought Life Insurance Co., won't cover more than $25,000 of funeral expenses.
A checklist for buying burial insurance
- Find out your state's laws on preneed insurance.
- Before buying a burial policy, discuss your options with your family and lawyer to make sure it is consistent with your will and estate planning.
- Determine how much of the plan value you will actually receive in death benefits.
- Verify the license of the agent, funeral director or company before doing business.
- Take advantage of any "free look" laws your state might have to review your policy before you are locked in.
- The Federal Trade Commission requires funeral homes to give you a written price list of available goods and services.
- Funeral directors may choose not to provide price guarantees, which means the money you pay today for a funeral might not actually be enough to cover the costs later since you haven't locked in the prices.
- Have a companion on hand to help you sort through the paperwork or to help you shop for a casket or other products.
- Do not accept any documents that have not been completely filled in and signed in your presence.
- Make sure the funeral arrangements can be moved to any funeral home at any time (in case you move, for instance).
- Find out if your state requires that the money you pay to funeral directors for preneed funerals be made available to you upon request at any time.
- The location of the grave site should be spelled out by section, row and plot number.
- The policy should specify what type of outer burial container you have purchased (e.g., grave liner vs. a vault, and what it's made of).
- The policy should specify what kind of marker you have purchased, including size, material, and style, preferably with a sketch.
- Find out if opening, closing and marker-installation costs are included (the costs of digging and filling a grave aren't generally included in the cost of the plot).
- Find out if there are extra fees if you buy a marker from a monument dealer instead of the cemetery. And what about buying a casket from your own supplier?
- Find out what happens if the cemetery ownership changes hands.
- Know what recourse you have if the cemetery runs out of money and defaults on your arrangement.
- Ask what happens if your chosen cemetery runs out of burial space.
- Survey your desired cemetery to see how well the upkeep is, particularly after a snowstorm.
- Look at the contingencies if the items you have selected will no longer available at the time of the funeral.
- Make sure you receive your funeral policy in a timely manner.
- Make sure you receive at least one statement each year detailing the status of your account.
- Know what happens if you decide to cancel your policy. You may be refunded for products and services, but be stuck with the plot.
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