What is Funeral Insurance or Final Expense Insurance
Final expense insurance
or Funeral insurance is not a pleasant topic but is one some
people may want to consider as they get older.
One may begin to consider funeral expenses at age 65 or 75—depending upon his
health. If you want to plan ahead, shop around. If you wait until a loved one
dies, you will probably pay more than if you planned ahead.
Recently, this has become a big
business with large national companies that have signed up or bought local
funeral homes. The policies promise a fixed cost for burial and other services
that are supposed to protect you from price increases from inflation.
Insurance companies have also jumped in the game offering insurance policies
where the death benefit of the insurance policy is earmarked for first paying
all the funeral expenses and the balance paid to the estate of the diseased.
The question of the day is: Which is right for you?
Funeral home or cemetery offered packages generally lock in for you a preplanned
funeral at a fixed price and in a fixed funeral home location or cemetery plot.
This way if the cost of a funeral increases overtime, your heirs don't have
to worry about it. However, there are several concerns you may have with
purchasing a funeral home package.
The first question should be
is it portable? We are a highly mobile society and not everyone will be
living in the same area they live in today. Perhaps you and your wife
will decide to move closer to your children at sometime. If you purchased
a pre-paid funeral home policy in one town and now live somewhere else, do you
want to subject your grieving heirs to returning to your old town to have a
service and burial? With big business expanding into the funeral business
you may be able to find a chain that has funeral homes in your current home
town and in other towns across America. However, unless they have one in your
new town, then your pre-paid policy may not be portable.
Another question should be the solvency of your funeral home. What happens
if they go out of business and you have pre-paid? This could be a major
problem.
The same goes for a burial plot at your local cemetery. While you generally
have no worries about the cemetery and your plot being there when you need it,
you still need to think about where you may live 10 years from now. Many
of times people buy a plot in one town only to find that they now live 100's
of miles away and their family members even further.
The insurance industry, of course, has an answer for these problems, it's
called Final Expense insurance. There are two types of these policies.
One is simple life insurance with the estate as the beneficiary. The
second is a Final Expense Trust, more on this in a minute.
The main benefit of a straight insurance policy is that it allows your
spouse or your heirs to arrange your funeral based on the conditions at the
time of your death. Unlike a funeral home policy, your policy can cover
funeral arrangements anywhere in the world.
With traditional funeral insurance just about anyone can be covered. While
previous health conditions may affect the premium, rarely is someone denied.
Remember, this type of insurance rarely has a face value in excess of
the cost of a funeral or $15,000. The sole purpose of this insurance is
to pay the cost of the funeral and burial. Premiums can be high depending
on age, but again you not buying a policy with a big benefit. Policy values
usually have some sort of "inflation" protection built into them.
Final expense trusts take insurance on step higher. Should you final
may days be spent in a nursing home, many individual count on Medicare and Medicaid
to pay the expenses for them. Unfortunately, for this to occur most "states"
require that the individual be financially "broke". If you have
assets Medicaid will make sure you exhaust those assets to point where you have
less than $1500 left in your name. Further, they will look back up to 5 years
at any gifts you have given and recoup them to. At this time, Medicaid will
then start paying your bills. Medicaid can take you home, your cash
and valuables, and even your paid up life insurance policies should they have
excess cash value above $1500
$1500 will not buy much of a funeral. Add to that the $225 that Social Security
will pitch in and you're still not buried.
In 2006 the federal government acknowledged this problem and enacted a law
allowing you to create a FUNERAL TRUST. With a funeral trust, funds are
put in an irrevocable trust and at the time of death are paid out first to a
"Funeral Provider" and the balance, if any paid to the estate. Each
state's Medicaid department has set limits as to how much you can fund this
trust with. In some state, the funding may be as limited at several thousand
dollars. In other states the amount you put aside may be unlimited. However,
it must be an reasonable amount to pay for funeral expenses only.
There are two ways to fund your trust. One is simply to fund it with cash.
The other way is to transfer a paid up life insurance policy into the trust
at it's cash value. In either case you policy value will increase yearly to
help you keep up with inflation.
Regardless of which direction you decide to go, it is always wise to check
with a financial advisor and get some advice.
To have an advisor contact you regarding final expense planning, CLICK
HERE and fill out the contact form.