Whole Life Policy vs. Funeral Home Policy

I have had clients call me and ask about pre-funeral arrangements to see if I thought it was a good idea.  In order to fully answer the question, I went to a funeral home to see  if a whole life policy or a funeral home policy was best. Here is what I found.

The cost of a funeral was around $10,000. The funeral home director wanted to sell me a Life Insurance Policy to cover the cost. She asked a few basic questions, like my age and whether I smoked. Based on the fact that I am a 42-year-old male non-smoker, these were the rates I was given:

For $10,000 of coverage and death benefits that DO NOT go up:

  • $340.00 a month for 3 years which comes to $12,240. Cost $12,240 for $10,000.
  • $213.00 a month for 5 years which comes to $12,780.   Cost $12,780 for $10,000.
  • $198.00 a month for 7 years which comes to $16,632.   Cost $16,632 for $10,000.
  • $156.00 a month for 10 years which comes to $18,720. Cost $18,720 for $10,000.

For $10,000 of coverage and death benefits that DO go up every year when dividends are paid:

  • $53.75 a month for 10 years which comes to $6,450.00.
  • You would only pay $6,450.00 for $10,000 plus.

After I got back to the office (and the shock wore off), I decided to look up a Whole Life Policy quote for myself for $10,000. The director at the funeral home said that if I went with the insurance plan they offered, it would lock in the rate for the funeral. Now, I am not sure exactly how much the commissions are for this particular funeral home, but I do know it has to be a nice amount since the commission rates at some funeral homes can run anywhere from 90% to 120%. With the above rates, if I had to bet, I’d bet that it is closer to 120% for the first year.

My suggestion would be to get a Whole Life Policy for 20% more than the current cost of a funeral.  This helps to insure that if and when the rates for the funeral go up, you’ll have enough to cover the expenses and not leave a burden on your family in their time of grief.

With a Whole Life Policy, you would also be in control of the cash value that builds in the policy. The funeral home wanted me to make them an irreversible beneficiary on the policy. This means I could not access the cash value or change the beneficiary without the permission of the funeral home.  So you lose all control of your money.

Bottom Line

 With all of this information, I would say pre-funeral arrangements are NOT worth the money you would put into it. A Whole Life Policy would take care of your needs AND save you money in the long run.

If you are interested in more information on a Whole Life Policy, or if you have any questions about this blog, please feel free to contact me. I am happy to help. 504-228-7184 or 800-528-7184