End-of-life planning is no easy task. Unpacking the pros and cons of funeral bonds, funeral insurance, and funeral investments can be overwhelming. However, understanding your options and planning ahead can ease the financial and emotional burden your loved ones will experience. Whether a funeral bond or funeral insurance is right for you will depend on your current financial standing and your financial goals.
Why plan for funeral costs?
The national median funeral cost in 2019 was $7,640. Of course, many factors contribute to the final funeral cost, including the type of casket selected, the venue in which the ceremony is held, the type of burial chosen, transportation fees, catering, and more. These costs also tend to increase over time due to inflation.
When not properly planned for, these costs can catch families off guard during an extremely difficult emotional time. Funeral investments like funeral bonds or funeral insurance can help account for those costs before they occur. Alongside a pre-planned funeral, they take the stress of planning and paying for a funeral off of grieving loved ones.
What is a funeral bond?
Simply put, a funeral bond is a type of managed investment, usually offered by life insurance companies. Funeral bonds allow you to set money aside until it is needed to cover funeral costs. That money can only be accessed upon the person’s death for whom the bond exists, but no sooner. The funds can also only be used towards funeral costs. Many people choose to create funeral bonds for themselves, but they can also create them for family members like spouses, parents, or children if need be.
The good thing about funeral bonds is that they accrue interest over time. However, that interest must be reinvested back into the capital. Another benefit of funeral bonds is that they can be set up as non-countable assets. For this to be the case, you must assign the fund to a specific funeral director for a fully prepaid service. You must also have a contract that outlines the terms of service.
Anyone can take out a funeral bond, regardless of gender, age, health, or financial standing. Most of the time, you can also set your payment terms to suit your budget, even setting a target amount at which to stop your payments. Some people begin funeral bonds with as little as $100 and slowly work their way up over time. The earlier you begin planning, the more time you have to save.
What is funeral insurance?
While funeral bonds work more like investments, funeral insurance functions similarly to other types of insurance policies, a funeral insurance policy gives a lump sum payment to cover funeral costs and related expenses. The total amount and what it will cover will depend on your specific plan. Funeral insurance is sometimes called burial insurance or final expense insurance. The typical death benefit for funeral insurance policies falls between $5,000 and $25,000.
Like most types of insurance, funeral insurance requires you to pay premiums. These payments may be made monthly, quarterly, yearly, or on another schedule, depending on the funeral insurance provider. Your premium will depend on your age, sex, health conditions, and the size of your policy.
There are four main types of funeral insurance premiums: stepped premiums, leveled premiums, capped premiums, and payout guarantee premiums. Stepped premiums are calculated each year, which means the premium is likely to rise as you age. Leveled premiums are established using the same criteria but are locked in for as long as they are paid. They cannot be increased due to your age or changes in health.
Capped premiums set an age or total amount limit. Once you’ve reached a certain age or a certain amount in premium payments, you will no longer have to pay to keep your coverage. Payout guarantee premiums promise to pay your beneficiary whichever is higher: the total of premiums you’ve paid or the original amount of your policy.
Does life insurance cover funeral costs?
Many life insurance policies include a lump sum paid to your beneficiary upon death. This lump sum can be used to pay for funeral costs or other financial needs. These terms are sometimes called final expense plans.
However, not all life insurance policies include final expense plans, so it is important to do your research and communicate with your insurance agent to understand the terms of your policy fully. If you are having trouble qualifying for life insurance for any reason, it may be easier to qualify for funeral insurance. Again, this will depend on your age, health, financial standing, and other factors.
Is a funeral bond or funeral insurance right for me?
Choosing between a funeral bond or funeral insurance is deeply personal. It will depend on your financial and individual circumstances. Funeral insurance can be a good choice for those who have a more flexible financial situation. It is also a good choice for those having trouble qualifying for a life insurance plan.
Many funeral insurance policies do not require you to complete a medical questionnaire or exam. However, the ultimate cost of funeral insurance can be on the higher side. Also, it can take a while for beneficiaries to receive the payout after the policyholder’s death, which means they will be responsible for the costs until the money is available.
Meanwhile, a funeral bond can be a great option for those who want to start with smaller payments or those who prefer the investment model over the insurance model. Funeral bonds can also be set up with a specific funeral director or funeral home, which means the director will be able to access the funds with a certificate of death. That means your beneficiaries will be less likely to foot the bill while waiting for a payout.
Setting up a pre-paid funeral plan
Pre-paid funeral plans are a popular alternative to funeral insurance or funeral bonds. There are many reasons you might choose a pre-paid funeral plan over the other options. Funeral pre-planning is an excellent choice for those who have specific wishes for things like the funeral service, casket or cremation, or obituary. It is also a popular cost-saving option for those who have the funds to cover the costs in advance.
At Bateman-Allen Funeral Home, the funds for a pre-paid funeral plan are placed in a Future Interment Master Trust (similar to a funeral bond), where interest is earned until they are needed. This ensures that even if the cost of the funeral increases, the interest earned will cover it.
However, it is important to note that items not billed by the funeral home but by an outside vendor (like floral arrangements, cemetery plots, and newspaper death notices) cannot be guaranteed as part of your pre-paid funeral plan. It can still be helpful to include them in your arrangement, though, as it will make the planning process easier.
If you would like to learn more about funeral pre-planning or are ready to make an appointment, contact Bateman-Allen Funeral Home by calling 610-876-5237 to talk or schedule a time to meet with Charles or Eve to discuss your options and make a plan. We can walk you through the next steps.