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Updated: Wed, 25 Sep 2013 04:00:00 GMT | By Gordon Powers, MSN Money

Pre-paying funeral expenses with insurance

Paying in advance for a funeral may seem morbid but it can ease the emotional strain for the bereaved.

Gordon Powers, MSN Money

Death is a frequently avoided topic, so it’s not that surprising to hear that most Canadians are unprepared for end-of-life considerations.

Just over half (53 per cent) have purchased life insurance, fewer than half (49 per cent) have prepared a will, and only nine per cent have made any arrangements for their funeral, according to a recent survey. 

However, while 84 per cent agree that making funeral arrangements in advance makes sense, roughly two-thirds (64 per cent) admit they’ve never had to plan a funeral before so they have little idea of where to begin.

Many people assume that the Canada Pension Plan (CPP) Death Benefit will cover most end-of-life costs. The reality though is that CPP offers a maximum benefit of $2,500 and the average funeral likely runs three or four times that amount — although costs seem to be trending down as more people are choosing cremation over traditional burial.

In most provinces, there are two ways to pay to get a jump on future funeral services.

You can buy an insurance policy that includes pre-paid funeral arrangements, in which case premiums will be paid to the insurance company and you’ll still have to negotiate with a funeral home on details.

Burial insurance — fixed premium policies generally range from $5,000 to $15,000 through organizations like Purple Shield and the Canada Protection Plan — covers the costs related to such final expenses and is received tax free.

Or, you can purchase pre-paid funeral arrangements directly from a funeral home. When you give the money to the funeral home, it then deposits the money into a trust account (held by a financial institution such as a bank or trust company), where it will earn modest interest until the contract is fulfilled or cancelled.

Often, if you pre-pay this way, the costs are guaranteed, meaning the funeral shouldn’t cost you any more, regardless of inflation. But that’s not always the case so read your contract carefully.

Generally, you can change your mind prior to your death, often without the penalties associated with cancelling an insurance policy.

You could also look at the services offered by Everest Canada, a company that both sells life insurance policies in coverage amounts of $5,000, $7,500 and $10,000, and acts as a consumer advocate for those planning a funeral.

“Funerals are one of life's certainties, yet they are the one thing Canadians seem to be unwilling to plan ahead for," says Everest CEO Mark Duffey.

“The disconnect is obvious: while we want to spare those closest to us the stress and cost of deciding – and having to pay for – our final arrangements, many avoid planning because they don't know where to start, don't know where they'll be, or fear they'll get taken advantage of.”

To make use of Everest’s services, you need to have enjoyed good health for the previous five years and not been declined for any other insurance during that period. There also can’t be any alcohol or drug problems in the past three years, and you can’t have been hospitalized for more than four weeks during the past three years.

If you choose to sign up, you fill in a detailed guide describing your wishes for your funeral. This acts as a template — changes can be made as often as necessary with no charge — for family members or friends to build on. 

Those family members then call Everest when they’re notified of your death. From there, an advisor goes to work comparing prices — and negotiating for the appropriate services — at local funeral homes of your choice.

By opting for such a concierge coverage, you receive help in arranging all of the nitty-gritty details that can often overwhelm grieving survivors, as well as the tax-free death benefit to pay for the funeral.

Premiums do seem higher than standard term-to-100 policy prices, however. But, given the assistance you receive, and the potential savings from having someone help you negotiate a decent deal on the actual funeral expenses, the extra costs may be worthwhile for some families.

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