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Does pre-paying for your funeral protect your loved ones?

Given how expensive funerals can be, people often want to spare their loved ones the financial burden of having to pay for a funeral. Some people also want to have a plan in place before their death, to spare their loved ones the emotional pressure of having to plan a funeral in the midst of grieving.

There are different types of products that can help alleviate both the emotional and financial burden, but which is best? The two most common are pre-need plans (sometimes called pre-paid plans) and whole life insurance (sometimes called final expense insurance). Both can offer protection at a good value, given the right circumstances. But it’s important to understand how each option works to help ensure you don’t leave your family with any unnecessary burden.

Pre-need plans: How they work

A pre-need plan is used to pay for the costs of funeral products and services you choose. This then allows you to make payments over time, so your family will not have to worry about covering the cost. When you purchase a pre-need plan, you will work with a specific funeral home to determine what type of service you want, whether it be a traditional funeral or cremation, and what type of casket or cremation container you choose. In many — or most — cases, costs are agreed upon and then “frozen” when you purchase. These costs should not increase, and the money will go directly to the funeral home, so your loved ones do not have to pay for those costs. However, additional costs like flowers, police escorts, minister honorariums and cemetery charges are not always included in a pre-need plan. This can leave your family with extra costs they may not expect, and you or they would need to cover those in some other way.

Pre-need plans: What you should know

Pre-need plans can help make things easier on your loved ones — they don’t have to worry as much about paying for your funeral, and they don’t have to plan a funeral in an emotional and confusing time. With a pre-need plan, you work with a funeral director to design your funeral and memorial service — you choose the specifics you want and pay the cost ahead of time.

Perhaps the biggest drawback of pre-need plans is their inflexibility. The pre-need plan proceeds are paid directly to the funeral home, so the predetermined costs of the funeral are covered, but nothing else. If there is a need to change any of the pre-planned decisions, it is typically difficult or impossible, and refunds are rarely an option.

Most pre-need plans are nonrefundable and bound by a contract, so you typically can’t make any changes without risk of losing the policy and whatever payments you’ve made into it.

And if the funeral home you choose goes out of business, or changes ownership, the policy may become null and void.

An alternative option: Whole life insurance

Whole life insurance is a type of life insurance that can be used for the final expenses associated with death, including funeral costs, burial or cremation expenses, etc., but also to help cover things like medical costs, credit card debts or other expenses you may leave behind. Different from pre-need plans, whole life insurance allows you to name your beneficiary, who can also use the death benefit however it’s needed — they aren’t technically or legally required to spend the benefit on funeral-related costs. With whole life insurance, you choose a beneficiary you trust, who can then use the death benefit money to help fulfill your funeral plan or cover any additional expenses you may leave behind.

Whole life insurance: What you should know

Whole life insurance is designed to last a lifetime. As long as you continue to pay the premiums, the policy will be in effect until you pass, and your beneficiary will receive the death benefit, which doesn’t reduce as you age or your health changes.

While some life insurance policies require a medical exam or health questions, whole life policies usually do not. Applicants typically only need to answer a few simple questions and meet age requirements.

In general, whole life insurance policies are designed to simply provide a death benefit to your beneficiary — and your beneficiary determines how the money will be used.

Flexibility plus service in one policy

Pre-need and whole life insurance plans can each be useful in certain situations. But, as people look to make their passing as easy as possible for their loved ones, new and innovative options are available to help consumers plan ahead and address both the financial and emotional aspects of their death.

For example, United of Omaha Life Insurance Company and Everest Funeral Concierge Service created an option that allows you to purchase a whole life insurance policy that also provides tools for you to pre-plan your final arrangements.

Here’s how it works. If you want to plan your funeral ahead of time, an Everest Advisor works directly with you to record your end-of-life wants and wishes. Or, if you would rather, you can use Everest’s proprietary online tools to plan on your own. After you pass, Everest will then work with your loved ones to access and activate your plans, as well as compare and negotiate prices for funeral homes in your area. Everest provides the tools to help you create and preserve a will, a health care directive and power of attorney.

This gives your family flexibility in how the money is used, and it’s simple to adjust the plan if circumstances change, such as location or personal preferences regarding funeral arrangements.

Be aware that whole life insurance has age requirements, you may need to answer a few simple questions, and the maximum policy is generally $25,000. You should be prepared to research which options are best for your situation.

Almost everyone wants to spare their loved ones the burden of having to plan and pay for a funeral while dealing with the grief of loss. There are options available to do just that, and some research will help you decide if one of the options is right for you. It may just be the perfect gift to leave your loved ones.

Consult with a professional tax and/or legal advisor before taking any action that may have tax or legal consequences.

Everest Services may be included with your policy for a limited time, but will be available at least through [August 2020]. Neither Mutual of Omaha Insurance Company nor United of Omaha Life Insurance Company are affiliated with Everest Funeral Package, LLC. Everest Package, LLC is solely responsible for providing the funeral concierge services.

Guaranteed Whole Life insurance is underwritten by United of Omaha Life Insurance Company, 3300 Mutual of Omaha Plaza, Omaha, NE, 68175, which is licensed nationwide except in NY. Each company is responsible for its own financial and contractual obligations. Age of eligibility varies in some states. Policy Form ICC11L058P (7751L-0505 in CT; 7752L-0505 in DC; 7753L-0505in FL) or state equivalent. Value Added Benefit rider policy form U001LNA18R (U002LIA18R in IA; U003LID18R in ID; U004LIL18R in IL) or state equivalent. Not available in all states.