The pre-arrangement insurance policies used by funeral homes to defray funeral expenses differ from what’s generally known as "life insurance." A life insurance policy is designed to cover unexpected death. However, it is never guaranteed to pay out benefits. That’s because factors like cause of death affect the policy payout, says Yahoo Life’s recent article, “Should You Pre-Pay for Your Own Funeral as Part of Estate Planning?”

One of the benefits of an insurance policy through a funeral home is that you have the choice of pre-paying in full with a single-pay option. This locks in the prices and guarantees full coverage benefits, no matter your health or time of death. Multi-pay options also set up a three-, five-, or 10-year payment plan with varying payout policies, according to contract length and health factors.

Each payment plan works differently. Therefore, an extended multi-pay pay policy would require monthly premium payments and an insurance fee. It's like a car insurance policy. However, a death insurance policy is 100% guaranteed to be used.

If a healthy person makes a 10-year plan, makes their payments regularly and dies in year five, they are covered and locked in at the prices of the arrangements from when they made the plan. However, they live those ten years and finish making premium payments. When they do pass, the funds that were paid into insurance fees and interests above and beyond the cost of the funeral arrangements will be returned to their estate or paid to beneficiaries named in the policy.

There are three benefits to insurance:

1. The policy will often lock in the price of goods and services from the funeral home;
2. The paperwork will be taken care of for your family ahead of time; and
3. No interest accrues—just an insurance fee that can be returned to your beneficiaries if the plan is paid out in full.

These funeral insurance policies are also usually transferable to different funeral homes in other cities or states. This could greatly benefit a young person still determining what the next 10, 20, or 50 years of their life will bring.

Funeral insurance doesn’t guarantee a fixed rate for the cost of "cash advance" items like death certificates, clergy fees, sales tax, or any fee from an outside party that’s not the funeral home because they don’t control inflation of those items over time as they would for products and services in-house.

Reference: Yahoo Life (Feb. 17, 2022) “Should You Pre-Pay for Your Own Funeral as Part of Estate Planning?”