When someone dies, their loved ones face funeral expenses and other debts. Funeral insurance (sometimes called burial insurance or preneed insurance) is a life insurance product designed to help cover these costs. Let’s look at the difference between funeral insurance vs life insurance. We will also discuss a third alternative, the funeral trust, and how it can also help you cover end-of-life expenses.
What is Funeral Insurance? What Does It Cover?
Funeral (burial) insurance is a life insurance product designed to help cover funeral expenses and other debts left behind when you pass away. These insurance policies typically have low amounts of coverage, but they are easy to qualify for and can be issued quickly.
Generally, there is no health exam to qualify for a funeral insurance policy. The insurance company will pay out more quickly to the family when someone dies compared to life insurance policies.
Families use funeral insurance policies only to cover funeral and funeral-related expenses.
Funeral Insurance vs Life Insurance
Life insurance and funeral insurance can help your loved ones cover expenses after you die, but there are some critical differences.
Funeral insurance is typically a low coverage policy that is easy to qualify for, while life insurance policies can have much higher amounts of coverage, even into the millions! Because they often have such high coverage amounts, life insurance policies also generally require a health exam to qualify.
Funeral insurance policies also tend to have fixed premiums, while life insurance premiums can vary based on your age and health.
A life Insurance may expire before you die, depending on the type of policy you select. However, funeral insurance policies generally remain in effect until you die as long as you pay your premiums. (2)
Why Set Up A Funeral Trust Instead of Insurance?
If you are looking for a way to help your loved ones cover funeral expenses, you may want to consider setting up a funeral trust. A funeral trust is a revocable or irrevocable trust used to pay for funeral expenses. However, it is much more than that! These trusts are created at your chosen North Carolina funeral home and are sometimes referred to as a “preneed account”.
“The Internal Revenue Service defines a funeral trust as “a ‘pooled income fund’ set up by a funeral home/cemetery to which a person transfers property to cover future funeral and burial costs.” Funeral trusts allow people to pay funeral expenses in advance, and that can spare survivors a lot of difficult decisions. Some nursing homes even require a funeral trust as a condition of admission.” (1)
Specify a Funeral Provider
One of the benefits of a funeral trust is that you can specify a funeral provider that will provide the services to pay for your funeral expenses. The funds are held in the funeral trust. Once the death occurs, the funeral provider will proceed with funeral services as planned in the trust. However, the funeral provider you choose can be changed at any point.
Another benefit of a funeral trust is that the money in the trust is not subject to probate. Probate is a legal process that can take months or even years to complete. Your family must wait for inheritances and undergo a long and complex court process before receiving a dime.
In addition, probate is public. Everyone finds out precisely what you owned and what you owed. If you put your assets into legal trust frameworks instead, your entire estate can skip probate and instead rely on the trustee to administer over assets.
Assets Available With or Without Paying Premiums
A funeral trust gives you the option of paying exact funds with a lump sum or the flexibility of making scheduled or unscheduled payments to reach your financial goal. This all depends on whether you decide to fund your trust with an insurance policy or bank account. Bank accounts are extremely flexible. You can deposit money any time and in any amount. Insurance policies require a lump sum payment or a scheduled set of payments to reach the total of future funeral expenses.
Qualify for Assisted Living or Nursing Home Benefits
One significant advantage is that Medicaid eligibility standards exclude irrevocable funeral trusts when counting assets to determine if you qualify for Medicaid coverage. You can make your funeral trust irrevocable as one of the options. This way, the funeral trust funds will not count as part of your assets since it will only be used to pay for funeral expenses.
Qualifying for Medicaid coverage for assisted living or nursing homes can help you leave a monetary legacy for your loved ones. No standard life insurance policy can help you qualify for these types of benefits! Life insurance is counted as an asset by Medicaid.
Have a Say About Your Future Plans
You can easily set up a funeral trust with your local funeral home. Your plan includes the details of your end-of-life services.
Planning your services ahead of time is a gift to your grieving family, who may feel overwhelmed when you pass away. You can choose everything from the flowers to the speakers to what type of burial you prefer. You can add funds to help pay for a reception, catering, and family travel expenses. Loved ones grieving your loss will feel grateful that you have taken care of the details for them.
Keep Your Assets Safe
With a funeral trust in North Carolina, your funeral home does not hold the assets and has no access to the funds until after the death occurs. A licensed and insured third-party entity such as an insurance company or a bank holds trust assets that keep your money safe. This way, the funeral home cannot access the funds until after the death occurs. And, you can transfer to another funeral home at any point for any reason and with no questions asked. The trust is yours, and the funeral provider or funeral home is simply a beneficiary of the trust funds.
If you want to consider setting up a funeral trust, talk with your local funeral home director and learn more about the process and whether it is right for you and your family.
Help Your Loved Ones Grieve Without Financial Burden
No one wants to think about their own death, but insurance or a funeral trust can be a responsible way to help your loved ones grieve without the financial burden.
However, if you’re considering funeral insurance, you may want to look at funeral trusts before purchasing a policy. A trust has superior benefits compared to an insurance policy.
We Can Help
If you’re unsure how to plan for end-of-life, talk with us at Renaissance Funeral Home and Crematory. We can help you make sense of the different ways to prepare. However you decide to move forward, making your plans now will help your family grieve later.
At Renaissance, we understand that your loved ones need time together when the unexpected happens and life gets turned upside down. In these difficult moments, families spend time with each other to get through. Sitting down with a funeral director and making a preplan is crucial for your loved ones’ future peace of mind.
It’s a gift to prepare now so that your family doesn’t have to think about planning services when they are stricken with grief. Choosing the details of your funeral or memorial services now lets them know what you wanted for your funeral or memorial.
If you’re considering how to plan for end-of-life, contact us at Renaissance Funeral Home and Crematory. We’d be happy to sit down with you and talk about your many options. Give us a call and find out how we can help!