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What is Funeral & Burial Insurance?

Recently,  I have been asked about this new concept of paying for one's funeral through funeral insurance.  I will list some various questions together with my responses, but first I will explain how funeral pre-funding works. 

When someone pays for his/her funeral in advance, the funds cannot go directly into the general revenue of the funeral home since it has not yet performed the services yet. It should be noted that in the Province of British Columbia there are regulations under the Cemetery and Funeral Services Act regarding funeral pre-payment.  These regulations are in place for the safety of the consumer. The funds are placed in some type of funding vehicle, such as term deposits, trust funds or funeral insurance.  Whatever vehicle is used, most funeral homes will guarantee the costs of their services and merchandise against inflation. 

Once the total cost is arrived at (including professional services, merchandise and disbursements) that amount is paid into the funeral insurance.  However, some people may be eligible to receive a discount (I will elaborate on that later).  The funeral insurance is issued in the name of the purchaser and it names a funeral home as the beneficiary. 

How is funeral insurance better than other plans (ie. trust funds / term deposits)? 
If someone cancels his/her prearrangement contract with a funeral home who has used a trust, the funeral home may keep up to 20% of the funds for administration purposes. ( Cemetery and Funeral Services Act , Section 103 (2).)  With the funeral insurance, the original funeral home cannot access the funds until the death occurs.  If the consumer wishes to cancel the plan, 100% of the funds are transferred to the new beneficiary.  Also, with the insurance the consumer may receive a discount depending on age and gender.  Example: A 40-year-old female would receive 25% off the cost of the funeral.  

What if the funeral home is no longer in business, are my funds safe?  
Yes.  As mentioned above, the funeral home is named the beneficiary and can only access the funds after the death has occurred.  If the funeral home is no longer operating, the consumer would name a new funeral home as the beneficiary.  One hundred percent of the funds including growth would be applied to the new funeral home at the time of death. 

What if the insurance company is no longer in business, are my funds still safe? 
Yes, all insurance companies participating in Canada must belong to ComCorp, an association of insurers, who self-insure each other.  So if an insurer falls short of its obligations the other member insurers would honor the policies. 

How do payment plans work? 
If the entire cost of the funeral is not paid for in one lump sum, the consumer can choose payment plans of 3, 5 or 10 years.  The benefits of the payment plan option are that if there is an accidental death occurring  anytime after the first premium is paid, the full cost of the funeral is covered.  If the death is due to natural causes within first year, the entire year's premiums plus 20% are put toward the cost of the funeral. In the second year, it is  two years' premium plus 30%.  With a death in the third year, the all arranged funeral costs are covered.  (The death benefits of funeral insurance are another advantage over trust plans.) 

I have insurance already to cover the costs of the funeral.  
Some disadvantages to this form of funeral planning are as follows: 

  • the life insurance may not have any growth mechanism to offset inflation. 
  • the consumer may outlive the term of the insurance. 
  • the premiums may have to be paid for life, which may far exceed the cost of the funeral.  - the specific wishes and funeral details may not be recorded.    

    Note: The above-mentioned discounts, payment plans and death benefits are from Life Investors Insurance Co.'s Guaranteed Issue Preneed Plan.  Other insurers use similar discounts, payment plans and death benefits.  Some restrictions may apply.