Pre-need insurance was once referred to as "death insurance" and is a type of life insurance. A funeral can be a large financial burden to the family and loved ones left behind after a death. By setting up a type of pre-need burial insurance, you can help offset these costs. It is important to check with your local government since each State has its own laws governing burial insurance. Find out if your insurance can be transferred to another state if necessary. Be careful not to leave any blank spots in the contract that might be filled in after your death and make sure to deal only with a licensed insurance company or individual. Both funeral directors and insurance brokers sell burial insurance that are written to include all the services and products you require or want.
These can include:
- The casket or urn
- Embalming if necessary
- Grave liner or burial vault
- Digging and filling the grave
- Grave marker
- Cemetery plot
Pre-Need Trust Account
A trust account is a pre-payment for funeral services that is deposited with a trust company or in a bank. Banks are federally insured by the United States government, making the funds 100% secure. Larger, pooled trusts can earn higher rates of interest as well. Be sure to check with your funeral director about the regulations regarding trusts in your state as they can vary from state to state. The main advantage of putting money into a trust fund is that it can be paid to the funeral director immediately upon death. These accounts can earn a higher return rate than pre-need insurance accounts, but unlike pre-need insurance programs, trusts are also taxable.
Another trust option is called an irrevocable trust that is not counted as a financial asset. These funds are designated solely for funeral services and cannot be otherwise spent. If you ever need to apply for social services such as Medicaid, irrevocable trusts are a great option. Be sure to talk to your funeral director to find out which program best suits your needs.
Tax advantages of Pre-need Insurance
- Most pre-need insurance plans are not taxable
- Pre-need funeral policies do not negatively affect eligibility for Medicare or Medicaid
- Most policies can be transferred between funeral homes and states
- Some policies will even leave money behind for the survivors after funeral services have been paid