The short answer
Preneed insurance is a type of life insurance policy that helps pay for a funeral you plan ahead of time with a specific funeral home. It is often called funeral home insurance because it is usually sold there. You pick the funeral now, and when you die, the policy pays the funeral home. Final expense insurance pays cash to a person instead.
Key takeaways
- Preneed insurance funds a prepaid funeral contract, and the funeral home is paid when you die.
- It is usually sold at the funeral home by staff licensed to sell insurance in that state.
- Some preneed contracts lock in prices for certain goods and services; others do not.
- It may fit people who know exactly what funeral they want and where, and plan to stay in the area.
- Final expense insurance is more flexible, because the cash goes to a person who can use it at any funeral home or for other bills.
What is funeral home insurance?
When people search for "funeral home insurance," they usually mean preneed insurance: a policy bought through a funeral home to pay for your own funeral in advance. The funeral home is paid when you die, and it provides the funeral you chose.
The same words are sometimes used for business insurance that funeral homes buy for themselves, such as liability coverage. That is a different product and is not covered here.
Preneed insurance is also different from final expense insurance, which pays cash to a person you name and is not tied to any funeral home.
How preneed insurance works
- You meet with a funeral home and choose the goods and services you want.
- The funeral home prices your funeral and writes a preneed contract.
- You pay for it with a life insurance policy, in one payment or in payments over a set number of years.
- The funeral home is named as beneficiary, or the benefit is assigned to it.
- When you die, the policy pays the funeral home to provide the funeral in the contract.
Some preneed policies are designed so the benefit can grow over time to help keep up with rising prices. Whether your prices are locked in depends on the contract, not just the policy.
The FTC notes that some states require a funeral home that takes payment in advance to either place part of the money in a state-regulated trust or buy a life insurance policy that pays the funeral home. Preneed insurance is that second method. The FTC also notes that prepaying is optional: you can write down your funeral wishes and share them with family without paying anything in advance.
Who sells preneed insurance?
Preneed insurance is usually sold at the funeral home, by a funeral director or pre-planning counselor. The policy itself is issued by an insurance company that specializes in preneed.
- In many states, the person selling the policy must hold an insurance license. Some states have a separate preneed license.
- Who regulates preneed differs by state. It may be the insurance department, a funeral board, the attorney general, or more than one agency.
- You can usually check a seller's license through your state insurance department.
What funeral home insurance covers, and what it may not
| Often included | Often not included or not price-locked |
|---|---|
| Funeral director and staff services | Cemetery plot, opening and closing the grave |
| Embalming or other preparation, if chosen | Headstone or marker, if bought from a cemetery or dealer |
| Casket or urn chosen from the funeral home | Cash advance items, such as death certificates and obituary notices |
| Viewing, service, and hearse | Items the contract lists as non-guaranteed |
Ask for a written list that shows each item and whether its price is guaranteed. Under the FTC Funeral Rule, you have the right to an itemized price list and to buy only what you want, even when planning ahead.
Preneed insurance vs. final expense insurance
| Feature | Preneed insurance | Final expense insurance |
|---|---|---|
| Who is paid | The funeral home | The person you name |
| What it pays for | The funeral in your contract | Any cost your beneficiary chooses |
| Where you buy it | Usually at a funeral home | Through a Licensed Insurance Agent |
| Funeral planned ahead? | Yes, in detail | Not required |
| Price protection | Some contracts guarantee certain prices | Fixed dollar amount; may cover less as prices rise |
| Health questions | Often few or none | Depends on policy type |
| If you move | May need to transfer, sometimes with a fee | Goes with you |
See also prepaid funeral plans, which may be funded by preneed insurance or by a funeral trust.
Pros and cons of preneed insurance
| Pros | Cons |
|---|---|
| Your funeral choices are made and written down | Tied to one funeral home |
| Some prices may be locked in | Not every item is price-guaranteed |
| Often few or no health questions | Money cannot be used for other bills |
| Can be paid all at once or over time | Moving or changing plans may cost extra |
Example (hypothetical): A widow chooses a funeral at her hometown funeral home and pays for it with a preneed insurance policy over five years. The contract guarantees the service and casket prices. It does not include her cemetery plot, which she buys separately from the cemetery. She gives her son a copy of both contracts.
Preneed insurance and Medicaid
Money set aside for a funeral can affect Medicaid and SSI eligibility. In general terms, a preneed policy or contract that you cannot cancel, often called irrevocable, may not be counted as your asset. One you can cancel for cash usually is counted.
For SSI, Social Security's operations manual treats burial insurance, meaning a policy whose proceeds can be used only for burial, as an irrevocable burial arrangement. Its face value reduces the separate $1,500 burial funds exclusion that SSI allows.
The rules, including dollar limits, differ by state. Check with your state Medicaid agency or an elder law attorney before you buy for this reason. See SSI burial funds.
Who preneed insurance fits, and who it does not
Preneed insurance may fit people who know exactly what funeral they want and where, plan to stay in the area, and want those decisions made so family does not have to make them.
It is usually not right for you if:
- You might move to another area or state.
- You want your family to have cash for other bills, not only the funeral.
- You are not sure which funeral home you want.
- You already have savings or life insurance that could cover the funeral.
Questions to ask the funeral home before you buy
- Which insurance company issues the policy, and is the seller licensed in this state?
- Which items are price-guaranteed, and which are not?
- What happens to any money left over after the funeral?
- What happens if the funeral home closes or is sold?
- Can the plan be moved to another funeral home? Is there a fee?
- Can I cancel, and what would I get back?
- Is the contract revocable or irrevocable?
Rules for preneed contracts vary by state. Your state insurance department can tell you who regulates preneed where you live. Tell your family about the contract and where it is kept.
Common questions
Is preneed insurance the same as burial insurance?
No. Both are types of life insurance, but preneed insurance pays a funeral home for a planned funeral. Burial (final expense) insurance pays cash to a beneficiary, who can use it however they need, at any funeral home or for other bills. Preneed also usually requires planning the funeral in detail. See final expense insurance.
What is funeral home insurance?
It usually means preneed insurance: a life insurance policy sold at a funeral home that pays for a funeral you plan ahead of time. The funeral home is paid when you die. The term can also mean business insurance for funeral homes, which is a different product.
Who sells preneed insurance policies?
Usually funeral homes, through a funeral director or pre-planning counselor. The policy is issued by an insurance company. In many states the seller must hold an insurance license, and some states require a separate preneed license. You can check licensing with your state insurance department.
Can I buy preneed insurance without going through a funeral home?
Usually not. Preneed insurance is tied to a contract with a funeral home. It is typically sold there by staff licensed to sell insurance. If you want coverage that is not tied to one funeral home, final expense insurance is the usual alternative.
What if my funeral costs less than the policy pays?
It depends on the contract and state law. Some contracts send leftover money to your estate or family. Others let the funeral home keep it. Ask and get the answer in writing before you sign, and keep a copy of the contract with your important papers so your family can find it.
Does the FTC Funeral Rule apply to preplanned funerals?
Yes. The Funeral Rule applies whether you plan in advance or at the time of death. It gives you the right to itemized prices and to choose only what you want. It does not control how prepaid money is protected; state law does. See prepaid funeral plans.
Is preneed insurance worth it?
It can be if you know exactly what funeral you want and where, plan to stay in the area, and want those choices settled in writing. It is often a poorer fit if you might move, want your family to have cash for other bills, or already have savings or life insurance for the funeral. Compare it with final expense insurance before you decide.
Can I cancel a preneed insurance policy?
It depends on the contract and your state. Most new insurance policies have a short free look period when you can cancel for a refund. After that, a revocable contract may be cancelled for some cash value, while an irrevocable one, often used for Medicaid planning, usually cannot be cashed out. Ask what you would get back in writing before you sign.