As we age. It is only natural that we start to think about what will happen when we pass away.
Who will pay for our funeral?
Will our loved ones be able to cope financially without our income?
For that reason we start looking towards things that we can put into place to help ease that transition. Funeral plans and life insurance are two of the biggest things that we can do for our loved ones.
Although these two products are very different they both go a long way towards preparing for your future and helping your loved ones should the worst happen.
Are they the same thing or do we actually need both of them?
A funeral plan and life insurance are two different types of products that are available on the market today.
A funeral plan
Allows you to pre-arrange and pay for your funeral in advance.
Pays out a lump sum in the event of your death. Your beneficiaries can use this money how they wish.
There are several key differences to both of these products
A funeral plan offers no cash value to your dependents. The money is used in its entirety towards your funeral.
Whereas, with life insurance, your dependents can choose how to use the lump sum.
- Pay off the mortgage on your home.
- Clear any of your outstanding debts.
- Pay for your funeral
- To use as an inheritance.
A funeral plan can be paid off in one lump sum or with fixed monthly payments until the cost is payed in full. The total cost of your plan will vary depending on which provider you choose. As well as which level of cover you choose.
You will know the total cost of your plan from the start. However, life insurance requires you to make fixed monthly payments for the term of your insurance.
The price will be dependent on several factors.
- The age you are when taking out the funeral plan.
- Your medical history and any pre-existing medical conditions you may have.
- Lifestyle. For example whether you smoke or drink heavily.
- Your occupation.
- Whether you take part in any dangerous sports or activities.
NOTE: If you choose term life insurance, for example, for twenty years. Your life insurance will only pay out if you pass away during this term. Providing you have paid for your funeral plan then there are no time restraints on when it can be used. For those wanting a guaranteed option that their life insurance will be paid out. You will need whole life insurance. Which is typically more expensive.
NOTE: A funeral plan offers price protection. The full price that you pay for your plan is the price that it stays. The costs of funerals are always increasing however your family will not be asked to pay the difference.
Can I have both a funeral plan and life insurance?
By ensuring that your funeral is paid for in advance and your wishes are clearly stated. It can bring you peace of mind. Your life insurance can then be used for other things such as paying off your debts or used as an inheritance.
I can only afford one. Which one should I choose?
The cost of life insurance will vary depending on your circumstances.
If you are elderly or in poor health. Then you may find it difficult to obtain life insurance or the premiums may be too expensive. In this scenario then, a funeral plan would probably be the cheaper and more attractive option.
If you are in good health and are young. Then life insurance would be a better fit. Especially if you are still paying a mortgage or have young dependents living at home.
You may decide to start with one and as your circumstances change you can choose to add another. It is a very personal decision and one that cannot be made for you. Although these two products are very different they both go a long way towards preparing for your future and helping your loved ones should the worst happen.