It is essential to know prepaid funeral pros and cons to determine if it’s right for you or if there are better alternatives to prepare for the inevitable. In this article, we will help you explore your options to be able to make a wise buying decision.
Experts have different opinions on prepaid funeral funds, but they all agree that we need to preplan. Preplanning your funeral lets your family put your specific plans into action knowing they are acting on your wishes.
Planning your funeral may not only offer relief to your family in a time of grief, but it may also help them in preserving assets while determining their eligibility for government assistance. While they are good ideas to alleviate problems for your family, there are some disadvantages that you need to be aware of.
Like all investments, prepaid funeral pros and cons should be carefully considered before committing to a full investment in funeral plans. Once you understand the pro’s and con’s, you can make a better decision.
WHAT IS A PREPAID FUNERAL PLAN?
Prepaid Funeral Plans are usually sold by funeral homes to allow you to pay for the funeral in advance.
You can choose where you want to be buried and what kind of funeral you will have. Payment can be made through a lump sum or installments. The funeral home either put your money in a state-regulated trust fund or buy a life insurance policy with the death benefit assigned to them.
Prepaid planning takes the stress off your family members upon your passing.
All of your burial details are planned and ready to go on the final day. Prepaid contracts lock in today’s funeral rates, and you don’t have to worry about any inflation. You effectively freeze the cost at today’s prices and your funeral will be protected from future price increases.
HOW DO PREPAID FUNERAL PLANS WORK?
If you choose to prepay a funeral home, you will either pay a lump sum or installment payments to the funeral home or the plan provider. They invest your money through:
- A trust fund to earn interest to keep pace with inflation to cover the future cost of the funeral.
- In a life insurance policy, the payout will be used to pay for the funeral when death occurs.
These methods will safeguard your money until the time it is needed, ensuring that the money is used to provide the funeral that you have paid for.
Should you pay for your funeral in advance? PREPAID FUNERAL PROS AND CONS
PREPAID FUNERAL PRO’S
- Surviving family doesn’t have to make any decisions about the funeral arrangement at an emotional time right after your passing. It can also help to avoid arguments among family members.
- You can make your wishes known to your family and having a plan in place will ensure they will honor them. Prepaying for your funeral can guarantee that you will get what you want. Notably, the cemetery plot, the cemetery plot location you desire today may not be available in 10 or 20 years.
- Preplanning lets you choose the casket, urn, headstone, burial plot, clergy, funeral facilities, and services. You can have the final say on everything from floral arrangements to the last resting place. You can even arrange for unique services more fitting to your specific needs.
- You can negotiate the funeral arrangements you want and pay for them now locking the cost at today’s prices. Doing this will protect your loved ones from the rising funeral cost. Prepaying will result in a lower cost because you pay for tomorrow’s funeral at today’s prices.
- It could take some time to arrange for money to be released to pay for the funeral costs. Your survivors will never have to deal with this hassle because the funeral is paid for in advance.
- The money you paid into your prepaid funeral plan is not included in any calculations to determine Medicaid eligibility. The prepaid funeral plan lets you set aside reasonable burial funds that would be exempted from Medicaid.
- Prepaid funeral alleviates stress during the grieving process. Knowing the funeral is already paid is comforting during a difficult time. The plan will provide detailed instructions on the funeral arrangement you want at the time when your loved ones are not prepared to see those details.
- Prepaid funeral planning lets you and your loved one talk about the plan and makes the decisions together.
- Prepaid funeral plans are easy to get and it doesn’t require a medical exam, health screening or age limit to qualify.
- There are many payment options available; some may require you to pay the sum in a single payment, or you can make regular monthly installments. You can choose a prepaid funeral plan that is suitable for your financial circumstances and make the total cost of the funeral more affordable.
PREPAID FUNERAL CON’S
- Funeral directors can go bankrupt or embezzle funds that are set aside to pay for your funeral. There is no guarantee that all your money will be returned to you.
- Prepaying doesn’t always guarantee that the plan will cover all future funeral expenses. Some funeral expenses are not controlled by the funeral home particularly those purchased from outside vendors such as obituaries, flowers, crematory fees, and other related costs. Your loved ones will need to pay the difference or substitute something less expensive.
- The prepaid funeral plan is not portable. The plan can’t be moved. You cannot use the plan if you move out of state or if you decide to be serviced with a different funeral home. You would need to pay an administrative fee or penalty if the funeral home allowed you to transfer the plan.
- Your money is tied to the funeral home. When you prepay, the funeral home puts your money in a trust which you cannot withdraw if you have a family emergency.
- The funeral home might cancel the prepaid funeral plan if you are late with one monthly payment.
- When you prepay, the funeral home puts your money in a life insurance policy and designate their company as the beneficiary. The remaining funds from your life insurance policy should go to your family, but the funeral home may add additional fees and services to keep the remaining funds for themselves.
- You can’t make any alterations to your prepaid funeral plan. Some funeral homes won’t allow you to create specific request once the plan is in place. You can’t make any changes even if you own the contract.
- You cannot get all your money back if you decide to cancel the plan. If you had put $7,000 into the plan and you change your mind, you could lose 50% of your investment. Most states don’t require full refunds if you cancel a prepaid funeral fund.
- You may be stuck with a funeral plot you don’t want.
- Prepaid funeral plans are not a good investment. They make very little financial sense because the interest they generate is very minimal. You have little control over where the money is invested.
CHARGES NOT COVERED BY A PREPAID FUNERAL PLAN
- Extra refrigeration cost if there are delays
- Cost of receiving remains from another funeral home
- Additional embalming cost because of an autopsy or organ donation
- Expenses if death occurs away from home
- Special cosmetic procedures needed because of the body condition
ITEMS THAT MAY BE PURCHASED FROM OUTSIDE VENDORS
The funeral home does not control the costs of these items because they may be purchased from outside vendors:
- Grave vault or liner
- Opening and closing of the grave or niche
- Newspaper obituaries
- Cemetery charges for funeral setup
- Floral arrangements
- Certified copies of the death certificate
- Honoraria for celebrant, clergy, or musicians
- Cost of an outside facility for service
- Third-party crematory fees
- Engraving charges for monument or niche
- Memorial Tribute Video
- Catering costs for a reception
- Hearse or Limousine costs
- Motorcycle escorts
QUESTIONS TO ASK THE PREPAID FUNERAL PROVIDER
- What is included in the plan and what potential cost are not included?
- Are there any expenses for the funeral that are not covered by the plan, what happens if there are?
- Can you cancel the plan if circumstances change, for instance, you arrange your spouse’s funeral, but you separate later?
- Are there any cancellation charges?
- What happens when the funeral director goes out of business?
- Can you choose the funeral director?
- What happens if you die abroad or away from home?
- How long will it take if I pay on installments, do I need to pay interest?
- Do you have the freedom to change the details of your funeral plan?
- What happens if there are outstanding installments at death?
- Can the funeral director arrange a funeral with a different standard than the one I choose?
- How will the funeral director know about the plan holder’s death?
OTHER WAYS TO PREPAY FOR FUNERAL EXPENSES
Joint bank account
You establish a joint bank account with your beneficiary specifically for payment of your funeral expenses. You can fund the account with the amount you estimate to cover the cost of your funeral. When you die, the joint account holder can pay the funeral expenses using the money in the account.
The main advantage of a joint bank account as prepayment is the immediate access to the funds in the bank account. The money is more secured since the funds are deposited in the bank which is covered by the Federal Deposit Insurance Corporation (FDIC).
The main disadvantage of this method is that people often find it difficult to be diligent in saving money on a steady schedule over time to build these funds up.
Totten Trust (Payable on Death Account)
Payable on death account is a bank account that allows you to name a beneficiary on your bank account. You can fund the account to be used for your funeral. Your beneficiary can immediately access the funds when you’re gone. Your beneficiary has the right to the funds, and he can use it to pay the funeral expenses.
This method takes planning and the diligence to properly fund this account over time to cover all your burial expenses.
Associated Life Insurance Contract
You purchase a prepaid funeral plan, and a burial insurance plan funds the plan through a life insurance carrier associated with the funeral home. The funeral director is your beneficiary. When you die, the entire death benefit of your life insurance will be paid to the funeral home to cover the prepaid funeral plan.
You can plan your funeral and lock in the cost of services at today’s prices. Your money is protected from loss since the insurance company, and the funeral home is separate entities. If the funeral home went out of business, your insurance payout would still be available to pay for the funeral cost. However, you could lose the locked-in cost-benefit of your prepaid funeral plan if the funeral home goes out of business.
THE BEST WAY TO PREPAY FOR FUNERAL EXPENSES
Burial insurance is the best way to prepay for funeral expenses. Think of it as a prepaid funeral plan with benefits. A burial insurance policy is similar to prepaid funeral plans in a way that it helps you prepay for your funeral expenses.
You can take out a burial insurance policy to cover the cost of your funeral and other final expenses at the time of your death. You can leave a funeral plan that outlines your wishes for funeral services to your loved ones that they need to carry out when you’re gone.
There are many advantages to burial insurance compared with a prepaid funeral plan.
First, you can leave money to your loved ones when you pass away. Burial insurance payout is usually a lump sum that is given to your beneficiary. The payout is not tied to the funeral home, and your loved one can use it as they wish. It can be spent to pay for your funeral, and the rest can be used for lost wages or other financial needs.
Having burial insurance gives flexibility to your loved ones since a particular funeral home does not hold the funds. Your family won’t be locked to your funeral choices you made a decade ago. They can decide where and how to organize your funeral according to your wishes.
Burial insurance is easy to get. You can purchase the policy online or on the phone without being subject to a medical exam or health questions.
If you need coverage but have some medical issues, you can still qualify for burial insurance.
Burial insurance policies have flexible payment plans compared with prepaid funeral plans. You can pay monthly, quarterly or annually. Prepaid funeral plans are rigid in payment, and you can lose the plan if you miss one payment.
Burial insurance is affordable. You can purchase burial insurance in small amounts such as $5,000 or $10,000 up to a maximum of $50,000. The premium for burial insurance is more affordable because it has a lower face amount.
If you are thinking of ways to cover your funeral expenses, the best option for your budget and peace of mind is to purchase a burial insurance policy. Funeral Funds have helped many people find the coverage they need at an affordable price. We can help you too.
Please call us at (888)862-9456 if you have any questions or fill in the instant QUOTE form on this page to get accurate quotes from different insurance carriers.