In the past there have been some challenges with a number of funeral annuity policies which were under-capitalised,, and subsequently collapsed. It has come as a tragic shock to families, who were at first profoundly touched to find their loved one had made advance provisions for their funeral, only to become further devastated to learn that the policy is worthless. These were policies which were often sold by national chain funeral directors. Or, in some cases, independent funeral directors, who operated under license from corporate organizations.
There were also some funeral directors who offered individual pre-pay schemes where the funeral director was paid in installments in advance. However, further problems arose when the funeral home went out of business, filed bankruptcy, or was sold. In the case of those that were sold, in almost every instance, the new owners would tell the bereaved that their purchase of the funeral business did not cover any agreements made with the previous owners. The bereaved would discover after lengthy and costly legal action that the previous owners had no assets remaining to reimburse the beneficiaries.
Another important consideration regarding pre-paid funeral plans is regarding disbursements and equipment caps. In almost every case, the 'pre-need' policies, as they're called in the funeral industry. have caps on the amount of disbursements made on behalf of the funeral. This includes, to name a few: Document fees, coroner costs, private ambulance services (such as the removal of the deceased), crematory fees, cemetery plot, opening of grave, vault, memorial stones, etc. Again, these policies vary greatly by country and even by province, state, or county.
Another consideration is that the pre-need policies are seldom interest-bearing. It is merely paying the current fixed-cost as advertised, where a general assurance is made that as costs spiral upwards, the beneficiary is protected. It's deeper within the policy that it's revealed that disbursements can often represent fifty-percent of the entire funeral cost. In the states, it may also have caps on the coffin cost - one of the highest profit centers for funeral directors, where special attention is given towards the encouragement to purchase what can only be described as ludicrously extravagant coffins or caskets under the guise of burying a loved one in a manner, which represents 'their, or the deceased's standing in society.'
It must also be considered that with pre-need policies, should the policy not have been paid in full before the death of the policy owner, it is most probable, (as explained in many policies), that survivors will be reimbursed only the premiums paid, (less a nominal handling fee), or it may be abandoned altogether, with no credit given, leaving you to start from scratch, as if a policy never existed. (This has often been prevalent where there are no other funeral homes within a fifty-mile radius).
Many financial advisers, (again, depending on country of residence variables), suggest arranging a wholly separate investment account for the specific purpose of a funeral. Some countries offer tax credits or deductions for these policies.
In almost every instance, it may be most prudent to keep the investment of any finances wholly separate from your proposed funeral home. Many staff are offered lucrative incentives for referrals, sale of policies, and many other elements, such as coffins, caskets, flowers purchased through the funeral director, printed materials, such as service sheets, etc. And particularly in the USA, larger funeral homes have taken the 'one-stop-shop approach whereby they are selling (pushing), the holding of wakes or gatherings on their premises, where they will sell you extravagant packages featuring catering, memorial booklets, drinks, and, of course, presentation of the deceased, replete with their very own funerary 'tonsorial' and make-up artists! So remain aware of your options.
In reference to an earlier answer provided herein; if there is proof of a policy set aside for payment of the funeral, most professional funeral directors are happy to deal with the solicitor/executor & attorney, for settlement of the account. In almost every instance, even when an estate must go to probate, provisions exist in law, for the executor to settle the funeral debt in advance of any other disbursements during the general waiting time expected with most probate issues.
One of the greatest gifts anybody can leave their loved ones is a clear and concise outline of their funeral requests. This should even include specific requests about music, wakes, printed materials, burial vs cremation and if cremation, the disposition of cremains or ashes. (such as; are you happy to have your cremains 'apportioned.' (divided up so as to be given to different persons or for different purposes). (Some religions strictly prohibit this).
Remember: a funeral home is a business, not a public service. And a business exists to make profits for its shareholders. The only opportunity the funeral director has to maximize profits is at a time when the bereaved are at their most vulnerable, and often decisions are made out of a range of shock, despair, guilt, or a touching - if not possibly even social pressure to match what others have done within the local community. Taking those difficult tasks out of the hands of your loved ones will mean more than you can ever imagine.
And consider, as a gift to your loved ones, a mandate that your remains should not go to the hands of a funeral director at any point, but should be donated to medical science, or a donor service. Your shell will indeed be cremated in due time and the cremains sent to your family, where, should they wish, may hold a brief strewing service, either interring your cremains as a base for a rose bush, or strewing them in a favorite area.
Then considering including a mandate that the funds that would have been spent for all your spectacular coffins, hearses, and traditional funerary accoutrements, instead be used for a family holiday - such as a cruise or a re-enactment of a particular holiday you and your loved one(s) once enjoyed together.
It depends on whether you have other life insurance set up, as well as prearranged burial. If you have no life insurance, I would strongly advise a burial policy, since the cost can range from 5 to 10 thousand (USD$), without even being extravagant. Another alternative is to prearrange all of the funeral elements directly with your local funeral homes. Even with prearranged burial, having some life insurance can be a good thing, as it will help defer medical expenses and estate tax.
Answer As stated above, if there is no other insurance in place at all then a policy to cover funeral and burial costs is a prudent idea. However, there may be reasons to add this coverage even if you have other policies in place.
This type of policy is generally for a relatively small amount of money and most funeral homes will take the endorsed policy as payment for services. Any remaining funds would be returned to your heirs or any deficit would need to be paid by them.
If you have a $500,000 policy it could take some time to get those proceeds and no funeral home would generally take a policy in that amount. Consequently that would require that your heirs pay for everything out of their own pocket. If that may be problematic for them then this could be a good addition.
Funeral homes sell burial insurance policies but you are much better off buying a regular life insurance policy and using part of the benefits to pay for funeral costs. The cost per thousand of the normal life insurance policy is much less on a regular policy than on a burial policy sold by the funeral home. Funeral homes make extremely high commissions on the sales of these policies, the beneficiary and owner of the policy is probably the funeral home as well so you can't change your mind later and make any changes in the policy.
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