State Shuts Down Funeral Home – What about your pre-paid funeral expenses?

I stumbled upon the post State Shuts Down Detroit Funeral Home for Deplorable Conditions, the post also mentioned that the funeral home did not renew its business license and failed to deposit $21,000 regarding 13 preneed contracts (pre-paid contracts), which is a felony punishable by a $5,000 fine and up to 5 years in prison in Michigan. The funeral home has 60 days to assign its funeral contracts to another funeral home or cancel them and give its customers a refund.

How do Preneed Contracts compare to Funeral Insurance?

Funeral insurance is a type of life insurance with smaller benefits that pays out much quicker. Funeral insurance provides the most flexibility and the smallest upfront payments. If you have funeral insurance, you may change from burial to cremation, you may change your funeral home, move to another city, and even another country. Funeral insurance also provides a possibility to reduce the final cost of the funeral through adequate planning and makes it easier to shop for services and items. Funeral insurance is an immediate state and provides full coverage starting from your first payment, while a preneed contract is a state that is built up with your payments. The full balance of the preneed contract is due upon death.

Bellow a comparison of the pros and cons of preneed contract and funeral insurance.

Preneed ContractFuneral Insurance
Cash for emergenciesNot AvailableCash Value Loans
Financial stability (see carriers below)Less stableVery stable
Flexibility to change locationNot FlexibleVery flexible
Flexibility to shop for itemsNot FlexibleVery flexible
CostHigher upfront paymentsSmall fixed monthly payments
InterestDoes not earn interest on depositsEarn interest on cash value
Protection against inflationProtection by paying upfrontProtection by increasing initial face value
Protection from first dayWith full paymentWith the first monthly payment

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Funeral insurance is provided by top life insurance companies.

The financial stability of our funeral insurance is provided by the companies below. Most life insurance companies below are more than 100 years old. Additionally, life insurance companies are very regulated on a federal and state level and have their financials regularly scrutinized by rating agencies.