By M. Kotch
We buy insurance policies for so many things in our daily lives. From health to car to travel, it seems like everything has to be covered. Life insurance is something we all think about at some point or other. After all, don’t we want our loved ones taken care of? In that same vein, wouldn’t a pre-need death insurance policy be a prudent purchase to protect our loved ones? It may not.
Such policies are purchased from a particular funeral home and allow you to choose specific goods and services for your funeral; these choices are not subject to change.
This may or not work for your situation. To help you make an informed decision, here are some of the reasons not to get a pre-need death insurance policy.
1. Don’t lock your money away for someone else’s benefit. When you purchase a pre-need death insurance policy, you are not buying a policy from an insurance company. The funeral director is in fact a licensed agent that is selling you the policy, and as the beneficiary of the pre-need insurance policy, the funeral home will receive a bonus from your purchase. The real question is, why give someone thousands of dollars (and accumulating interest) to cover your future funeral expenses when you could be saving the same amount of money and accrue the interest yourself? Thanks to medical advancements, we’re living longer than ever. Five, ten or more years of interest could add up to a lot money that would only end up in someone else’s pocket.
2. If your circumstances change, the policy won’t. A pre-need death insurance policy can be very limiting in that it does not allow you to cancel, change any details or transfer benefits to another funeral home. If you and your entire family live in one place and always have that may sound like a great idea. But for a majority of Americans, a new job, medical concerns, and different marital status can mean moving to another town or state. Pre-need death insurance policies are non-transferable, so if you change locations, you’re out of luck. Even if you are retired and settled, circumstances can change if you move in with other family member who may in turn need to move.
3. The fine print. This kind of policy sounds all-inclusive and covers every single detail, right? Wrong. For example, while you may have already purchased a plot of land through the policy, that may not cover the fee of digging and covering the grave during the burial. Other variables that are hard to predict include the cemetery you’ve chosen running out of space, the funeral home closing/changing owners and particular services you’ve requested—and paid for—no longer being available. Remember, your family will be stuck with any extra fees and decisions to make.
4. In case of emergency—there’s nothing you can do. Setting up a trust or savings account with a certain amount of money to cover funeral expenses is a smart move for you and your loved ones. What isn’t smart is locking away a large sum of money that cannot be accessed in case of a family emergency or financial crisis. The current economy has illustrated the fact that setting money aside (that cannot be accessed quickly) and assuming that it will only grow and work for you may not be the foregone conclusion it once was. Let’s say you’ve purchased a pre-need death insurance police for $14,000; a few years have passed and you would now rather have a simpler funeral in exchange for financially supporting yourself or a loved one in financial need, but can you? With this kind of policy, unfortunately you cannot.
5. Smart and flexible alternatives are available. Skip the agents, bypass the lawyers and forget the fees by setting up a POD or pay upon death bank account (POD accounts are essentially trusts that you create without the need for an attorney to draw them up). This will enable you to leave a certain amount of money that will be collected by the beneficiary of your choice (including a funeral home) after your passing. A POD account can be set up at almost any bank.
Note: you can create multiple POD accounts for multiple recipients; just know that each POD account can only have one beneficiary.