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.
Paying the funeral home directly — or making an assignment with a final expense policy — is also possible. This arrangement allows your loved ones to receive any remaining funds after the funeral home covers your funeral costs.
The table below illustrates the differences between pre-need insurance and final expense insurance.
Final expense insurance
Cost of funeral service and burial or cremation expenses
$1,000 to $40,000
Varies by provider
Varies by provider. Some insurers only allow age 45 and up; others allow all ages
Varies by provider. Some have no medical requirements, others require a brief health questionnaire
Funeral home you choose
Your choice: Funeral home or loved ones, but loved ones receive any balance left after funeral expenses are paid
People who don’t qualify for term life or final expense and for whom pre-planning and pre-paying their funeral arrangements is a top priority
Older adults or people with health conditions who don't qualify for a cheaper term life policy and can't fund a burial with their savings
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.
You plan your end-of-life services so others don't have to
Policy may not transfer if funeral home closes or changes ownership
Death benefit pays directly to the funeral home
Your loved ones don't receive a payout
Pays for your final expenses in advance
Ties up money that might provide more value as an investment
No medical questions or exam required
Less coverage than a term life or final expense policy
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 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?
Suppose you have a terminal illness that disqualifies you from a final expense life insurance policy (which is rare but possible), or you don’t qualify for an affordable term life insurance policy. In that case, you may benefit from a pre-need insurance policy.
If you want your funeral to be serviced through a specific institution, or you want to lift the burden of funeral planning from your beneficiaries, you may also consider purchasing pre-need insurance.
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.