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Funeral Insurance

A good idea, but be cautious

Funeral insurance is an insurance policy designed to cover any costs directly related to your funeral. The payer may stipulate what costs are to be covered or the funeral insurance policy may pay out a lump sum. Funeral costs covered may include embalming, other cosmetology, flowers, burial plot (or grave space), grave marker (or other memorial) and more.

Many insurance companies offer funeral insurance packages, and some funeral homes or funeral companies also offer policies.

Funeral Insurance vs. Pre-Need Trust

Funeral insurance is often offered as a term agreement, similar to some life insurance policies. The term may be, for example, three, five or ten years. The advantage over a pre-need trust agreement is that you know you're covered for the full amount as soon as you sign the policy. However, if you have a terminal disease or some other condition, you may not be insurable.

Funeral Insurance
When you purchase funeral insurance you can choose the amount you want to cover. If you want to insure your funeral for at least $7000 you can rest assured that this figure will be covered as soon as you sign the policy. Many insurance policies will accrue interest, which guarantees your cost against inflation. Another advantage to funeral insurance is that accounts are not generally taxable.

Funeral insurance accounts can also come with an interest-free period that allows you to pay off the policy in full. It saves you in the long term and provides you with full peace of mind, knowing that your family will not be burdened with any of the funeral costs that you're covered for.

One advantage to using insurance for funeral prepayment is that it's not considered an estate asset, while savings and pre-need trust agreements are. Further, if you become ill a savings account may be depleted by medical bills; but a funeral insurance policy will always be reserved for its intended purpose.

Potential Disadvantages

Some people are concerned that insurance policies will not account for inflation, as funeral costs can double in as little as ten years. Most insurance policies are handled through the funeral home. As part of the contract, you can get a price guarantee, so that the funeral home cannot charge any more to your family. Beware though, that the funeral home can keep any funds that remain after their responsibility has been carried out.

Darryl Roberts warns that funeral insurance is overpriced compared to other forms of insurance.

One other potential problem with insurance policies is that the policy benefits may be variable or they may decrease terribly after you reach a certain age. This is one more thing you need to check out in the fine print. 

Summary

On the whole, when buying funeral insurance you need to read the contract carefully; but if you do decide in favor of a policy, it will be a big relief for your family to know they will not have to finance your funeral.

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