Have you ever wondered what the financial situation of your loved ones will be when you’re absent? To protect them from a potential heavy financial burden so they only have to focus on navigating their grief, it’s crucial to plan for your end-of-life expenses.
There are two primary methods that individuals can opt for when preparing for these end-of-life expenses, namely funeral insurance and funeral savings. To better understand both, this article will explore the key differences, as well as the benefits and potential drawbacks of insurance and savings.
After reading this article, you’ll be able to make an informed decision that best suits your own current needs and financial situation.
What is Funeral Insurance?
Funeral insurance, also known as final expense insurance or burial insurance, is one type of life insurance policy specifically designed to cover funeral costs and other related expenses. They typically offer a lower coverage amount compared to traditional life insurance, mostly ranging from $5,000 to $25,000.
Furthermore, they are generally more affordable when it comes to premiums costs. As there are myriad types of funeral insurance, it’s essential to conduct a funeral insurance comparison to understand the various policies available. Here’s some examples of benefits to look out for with funeral insurance.
Immediate coverage
The first benefit of funeral insurance is the immediate coverage, which means that your beneficiaries are guaranteed to receive the payout upon your death, given that you have already paid your premiums costs. This makes sure your funeral expenses can be covered promptly and your family won’t have to worry about it. The lump sum payment can quickly help to mitigate the financial burden of footing a funeral bill.
Fixed premiums
The second benefit is that most funeral insurance policies offer fixed premiums. This means that the amount you pay each month or year will not increase over time. In other words, you’ll be able to make a consistent and stable financial plan, knowing that your insurance policy won’t become more expensive over time or be affected by inflation.
Guaranteed acceptance
The third benefit is that some funeral insurance policies offer guaranteed acceptance, even if you fall into a higher age category (e.g. 65+). This means you could obtain coverage without undergoing a medical exam, which is suitable for those who have pre-existing health conditions, or prefer not to have medical examinations as they can incur extra costs.
Flexible use of funds
The fourth benefit of using a funeral insurance policy is the flexible use of your funds. When planning for a funeral, there are different expenses involved that can be mostly or completely covered by your premiums. These expenses include burial or cremation costs, transportation, flowers, and even outstanding debts or medical bills. By adopting funeral insurance, you’re ensuring your family can cover these necessary expenses without experiencing extra strain.
What are Funeral Savings?
In contrast to funeral insurance, funeral savings involve putting a specific amount of money in a savings account with the intention to be later used to cover funeral expenses. This method can take longer, as you’ll be saving little and often over a longer period to accumulate the necessary funds.
However, when contributing to funeral savings, you will not have to pay for the premiums cost acquired with insurance, and you’ll also earn interest on your savings over time. Here are some more benefits specific to funeral savings.
Control Over Contributions
The first benefit of funeral savings is having complete control over how your funds are used, as you can decide the amount to save each month or adjust your savings plan if you need to. This flexibility is ideal for those operating on a stricter budget, or who don’t want the pressure of meeting an obligation to pay regular premium costs. Plus, if an unexpected accident or other costly event should occur, you can always dip into your funeral savings.
No Premiums
The biggest difference when opting for funeral savings instead of funeral insurance is that there won’t be monthly or annual premiums waiting to be paid. This can be advantageous if you prefer not to commit to regular payments; or if your income is not fixed. Instead, you’re able to contribute to your savings at a pace that suits you, and makes it easier to manage your finances according to your own schedule.
Interest Earnings
A key benefit of funeral savings is being able to earn interest on your funds, therefore gradually increasing the amount available for funeral expenses. This is crucial when considering the current inflation rate and current sky-high cost of living affecting the price of everything for Australians. This earned interest will help you to offset the rising costs of your funeral and relieve the financial burden on your family.
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In conclusion, both funeral insurance and funeral savings can offer you valuable ways to prepare for your end-of-life expenses, as they cater to different needs and financial situations. When comparing these two methods, consider your own circumstances, preferences, and financial goals. And remember, you don’t have to pick one over the other: you may find that a combination of small, regular savings, and a modest funeral insurance plan is the right solution for you.
Talk with your loved ones and involve them in your decision-making. By doing so, you can make an informed decision that best protects your loved ones and honors your wishes.