Comparing life insurance and a prepaid funeral plan is like comparing apples and oranges. They are two different things that serve a different purpose in your life. However, even if they are set up to address various needs and concerns, they share the common objective of protecting your loved ones during times of distress. Keep in mind, losing a beloved family member is always difficult. But when you plan these details ahead, you give yourself and your family peace of mind.
Remember, it is impossible to think clearly and make sound decisions during difficult moments. Although no one wants to talk about death and details like funeral or cremation services, it is an eventuality that all human beings have to face. After all, it is only a matter of when! As such, since no one holds the power to predict the future, it is best to be prepared. By making these considerations in advance, you can spare your family from stress and relieve them of any financial burdens. Now, let’s take a look at the nuances of each financial instrument.
What is a funeral plan?
A prepaid funeral plan ensures you have the freedom to decide how you want to be remembered during your last moments on earth. It gives you an outline of your chosen final disposition method. You can also specify which specific products or services you’d like to include like:
- Funeral flowers
- Cremation urns
- Funeral program
You will have the power to set all the details you would like to include for your chosen service. As such, you free your family from the responsibility of making difficult decisions. You leave your loved ones with no worries because every aspect of your celebration of life is covered. They also don’t need to fret about paying for the services because you paid ahead.
Of course, all the final details depend on your budget when you pay for the plan directly to a funeral home. Moreover, you have the option to pay for this via installment over a period of time. Do not confuse this with funeral insurance. Most people make a major mistake of believing they are the same.
What is funeral insurance?
Purchasing funeral insurance assures your family will not deal with the burdensome costs when you pass away. Some people call this burial insurance. This is vastly different from a funeral plan as it may not cover the details mentioned above. This policy works like a regular life insurance policy wherein you pay monthly premiums to keep the policy enforce.
Should you die, the designated beneficiaries receive the payout to cover end-of-life costs. What sets this apart from a traditional life coverage policy is you don’t need a medical exam. There are also no lengthy and complex underwriting processes. Your age usually determines the premium. Take a look at the two types of funeral or burial insurance below:
Final expense insurance: This pays a flat rate to your beneficiary for settling your final expenses. It stays in effect as long as you pay the premiums. Your designated beneficiary can use the money to pay for your funeral costs, as well as medical bills, credit card arrears, etc. As you can see, the beneficiary has control over how the money is spent. The caveats of this plan are you are not protected against inflation, and you will have to wait for the insurance payout to get the money.
Pre-need insurance: This type of insurance is intended only for expenses associated with your end-of-life services. The money is paid by the insurance provider directly to the funeral home, which you will assign as the policyholder. The advantage of this plan is it accounts for inflation because the costs are determined and locked at current market prices. This insurance is only paid for a set period.
What is life insurance?
Life insurance differs vastly from the above-mentioned funeral plan and funeral insurance. Typically, people get this insurance to replace lost income in case of untimely death. As a rule of thumb: most financial advisors or insurance agents suggest that you buy coverage equivalent to 5x or 7X of your current annual gross income. The lump-sum money benefits your loved ones would receive typically outweigh the amount given by a funeral plan/insurance. The bereaved can use the money to cover your funeral expenses, among other things.
When you buy life insurance, you must determine your financial needs. Apart from your income, it would help if you looked at your savings and investments (bonds, stocks, mutual funds, real estate, etc.). Most people pay for this coverage to ensure that their families remain comfortable and sustain their lifestyle even when the insurance owner is gone. Since the coverage is pretty extensive, it requires a thorough medical check-up. Unfortunately, the elderly or those with pre-existing conditions may no longer qualify for life insurance.
Final Wrap Up
If you speak with various people, you will realize that most have different opinions regarding this topic. Though people have different preferences, everyone does agree that planning ahead of time for any eventualities is crucial and worth the effort. Death is tragic. And sadly, it may cause financial hardship, endless frustration, and insurmountable stress during an already very trying time. Being proactive allows you to document your final wishes, so your loved ones no longer have to stress and disagree over what to do in case you pass on.