Why advisors should discuss funeral preplanning with clients

In the realm of financial advising, discussions often revolve around retirement savings, investment strategies and estate planning. However, there’s one critical aspect of advising that frequently goes overlooked: funeral preplanning.

Addressing funeral arrangements with clients can play a pivotal role in ensuring peace of mind and financial security for their loved ones. By incorporating funeral preplanning into your advisory services, you not only help clients manage their end-of-life expenses more effectively but also provide them with a means to ease the emotional and financial burden on their families during a challenging time.

Understanding funeral preplanning and its importance

Funeral preplanning is the process of making one’s funeral arrangements in advance. This may involve selecting the type of services, choosing a funeral home and specifying other details related to the funeral and burial. However, the key aspect of funeral preplanning is setting aside funds to cover related expenses.

Who needs funeral preplanning?

Simply put, everyone. Regardless of age or health status, taking the time to make these arrangements can benefit anyone. Funeral planning ensures that one’s wishes are respected and relieves family members of the financial and emotional burden during an already difficult time.

By preplanning for their funeral, individuals can ensure that funds are available to cover these expenses. This foresight allows families to focus on mourning and celebrating the life of their loved one instead of worrying about how to pay for the funeral.

Why people preplan their funerals

1. Relieve family burden: Preplanning allows individuals to make critical decisions now, sparing their loved ones from having to make difficult choices during an already emotional time. By handling these arrangements in advance, clients can budget now and spend later, ensuring financial preparedness.

2. Peace of mind: Knowing that all funeral arrangements are taken care of provides peace of mind for both the individual and their family. Loved ones can focus on grieving and supporting each other, instead of worrying about funeral logistics and expenses.

3. Immediate access to funds: Preplanning ensures that liquid funds are available immediately at the time of death. This eliminates the financial stress and urgency that can arise when paying for funeral expenses out of pocket.

4. Medicaid asset exemption: When properly structured, certain funeral products are considered exempt assets for Medicaid purposes. This allows individuals looking to qualify for Medicaid benefits to protect a portion of their resources for funeral expenses.

5. Positive grieving experience: With all arrangements made in advance, loved ones can have a more positive grieving experience. They can honor the deceased’s wishes without the added pressure of making quick decisions during a time of loss.

3 essential funeral planning products

Before advising clients on funeral preplanning, it’s crucial to understand the financial tools available. Three common products to ease this burden on clients and their loved ones are final expense insurance, funeral expense trusts and preneed insurance. Each serves a distinct purpose and offers unique benefits, and understanding their differences can help you advise each client on which product is most appropriate for them.

Final expense insurance

Final expense insurance is a whole life product designed to cover end-of-life costs such as funeral expenses, medical bills and legal fees. With face values typically ranging from $5,000 to $25,000, these policies are more affordable than other whole life insurance options. They usually require only a short health questionnaire, making them easier to qualify for than traditional life insurance. Premiums vary based on factors like policy size, age, health and payment frequency but remain fixed throughout the policyholder’s lifetime. 

Upon the insured’s death, beneficiaries receive the payout directly. The payout can be used for any purpose, providing flexibility and peace of mind. However, final expense insurance is considered an asset, which may impact Medicaid eligibility.

Funeral expense trusts

A funeral expense trust is a guaranteed issue, whole life insurance policy where funds are assigned to a funeral trust managed by the insurance company. These funds, irrevocably assigned to the trust, are not countable assets for Medicaid eligibility. Funded by lump-sum or periodic payments, policy values typically range from $2,500 to $20,000. The insurance company maintains the trust at no cost to the policyholder and pays the funeral home upon the policyholder’s death, with any remaining funds reverting to the insured’s estate. 

An FET offers control, allowing policyholders to choose a funeral home and services later, and protects funds from creditors, ensuring they are preserved solely for funeral expenses.

Preneed insurance

Preneed insurance is similar to an FET, but it names the selected funeral home as the beneficiary at the time of policy issuance, linking the policy to a specific provider ahead of death. Policyholders work directly with the funeral provider to plan the details of the funeral, including estimates of services and merchandise, though these prices may change. Preneed insurance offers peace of mind, knowing arrangements are made and paid for in advance. 

Unlike FETs, preneed policies are tied to specific funeral services and products, with payouts going directly to the funeral home. These contracts often have higher insurability maximums — typically up to $35,000 — and, when properly structured, are exempt from Medicaid.

Choosing the right funeral product

Ultimately, the right option depends on your client’s specific needs and financial goals. Understanding the strengths and features of each product allows for the best customization, ensuring the right needs are met for each client’s unique situation. This knowledge will help you guide your clients to make informed decisions that align with their and their families’ needs, ensuring peace of mind during a challenging time.

The advisor’s vital role in discussing funeral planning

When considering funeral preplanning options for your clients, it’s crucial to recognize why you, as their trusted advisor, are the right person to provide these products. Clients are seeking your guidance for their end-of-life planning needs. Your established, trusted relationship with clients allows you to offer comprehensive advice tailored to their specific needs, as well as the funeral provider of choice. In addition to safeguarding their financial interests, you also offer a level of objectivity regarding your recommendations. 

When initiating conversations about funeral planning, approach the topic gently by emphasizing the importance of alleviating the burden on loved ones. Encourage open dialogue by discussing the peace of mind and flexibility that funeral preplanning offers. Highlight how prearranged funeral plans give clients control over their arrangements, ensuring that their wishes are honored.

Communicating the value of funeral preplanning involves breaking down its benefits into simple terms. Emphasize how it provides peace of mind, immediate liquidity of funds and Medicaid compliance for certain products. Illustrate how preplanning offers clients autonomy and freedom of choice and describe the simplicity of the application and claim processes that makes funds easily accessible. By presenting these points clearly, you can help clients appreciate the significance of preplanning and the positive impact it can have on them and their loved ones.

Funeral preplanning is a crucial step in ensuring your clients’ final wishes are honored while providing significant benefits to their loved ones. It relieves emotional and financial stress, guarantees the availability of funds and offers peace of mind. Encouraging clients to pre-plan their funerals is a compassionate and practical way to support them in preparing for the inevitable, ensuring that their families are cared for when they need it most.