Although it’s easy to assume that a pre-paid funeral plan and a funeral insurance policy are the same things, they’re not. A pre-paid policy is paid directly to the funeral home. The funeral home is the only one that has access to the money.
A prepaid funeral plan is customized to include the services and goods you want for your funeral. For instance, you can include the funeral home services, the casket, flowers, transportation, and anything else you require. After you’ve made a list of everything you want to include in the policy, the funeral home director will consult with you about the total cost of services, and that will be the basis for your policy. The price you agree to is locked in. That means even if prices go up, your loved ones won’t have to pay more.
On the other hand, a funeral insurance policy allows for more flexibility. You can assign any beneficiary you want, and they can use the payout for your funeral expenses, medical bills, final utility payments, and other outstanding bills. And if there is money left over, your beneficiary can do with it as they please. The beneficiary decides how the money is spent, and there is no protection against inflation. In addition, your family may have to front the money for funeral expenses and wait for the policy to pay later.
Life insurance differs from prepaid funeral plans and funeral insurance in that the funds paid to beneficiaries are intended to replace lost income. Money can be used to pay for a funeral, though generally that's not why people buy life insurance, and there are downsides to this strategy.
For one, your family will have to pay for all funeral expenses at the time of the service and wait on the insurance policy to pay out—which can take weeks or months. Such a delay can cause financial hardship, frustration and stress during an already difficult time.
Consumers are at a disadvantage when making arrangements "at need," that is when a death is imminent or has just occurred, consumers are at a handicapped bargaining position. By pre-planning, it allows you to shop around for the best options and prices, allows for great quality funeral services at decent prices and by doing this, you will save money. This means there will be more inheritance to your loved ones. In general, families who discuss(ed) final arrangements prior to death had a much lower costs than families who did not. Pre-need purchasing puts consumers in control because of the opportunity to make decisions without the pressure of time and emotional stress.