What is pre-need life insurance & how does it work?

Pre-need life insurance allows you to make funeral arrangements in advance and authorizes your funeral home to cover service and burial costs with your death benefit.

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By

Amanda ShihEditor & Licensed Life Insurance ExpertAmanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.&Julia KaganContributing EditorJulia Kagan is a contributing editor at Policygenius, where she specializes in life insurance. Previously, Julia was the senior personal finance editor at Investopedia for nearly a decade, a vice president and editorial director at Consumer Reports, the editor of Psychology Today, and the vice president of content at Zagat Surveys.

Edited by

Antonio Ruiz-CamachoAntonio Ruiz-CamachoAssociate Content DirectorAntonio is a former associate content director who helped lead our life insurance and annuities editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.
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Reviewed by

Maria FilindrasMaria FilindrasFinancial AdvisorMaria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

Updated|3 min read

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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.

Ready to shop for life insurance?

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.

Pre-need insurance

Final expense insurance

Term

No expiration

No expiration

Death benefit

Cost of funeral service and burial or cremation expenses

$1,000 to $40,000

Age restrictions

Varies by provider

Varies by provider. Some insurers only allow age 45 and up; others allow all ages

Medical requirements

None

Varies by provider. Some have no medical requirements, others require a brief health questionnaire

Beneficiary

Funeral home you choose

Your choice: Funeral home or loved ones, but loved ones receive any balance left after funeral expenses are paid

Best for

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

Collapse table

→ Learn more about whole life insurance

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.

Pros

Cons

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.

Authors

Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

Julia Kagan is a contributing editor at Policygenius, where she specializes in life insurance. Previously, Julia was the senior personal finance editor at Investopedia for nearly a decade, a vice president and editorial director at Consumer Reports, the editor of Psychology Today, and the vice president of content at Zagat Surveys.

Editor

Antonio is a former associate content director who helped lead our life insurance and annuities editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

Expert reviewer

Maria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

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