Is a prepaid funeral plan the right choice for you? Let’s explore the pros, cons, and alternatives.
Have you considered how the funeral your loved ones choose for you would be different than one you plan for yourself? Remember, someone else will do it for you if you haven’t created your plan. In addition to that, they’ll be planning while they are grieving. They’ll also be figuring out how to pay for it. So what’s the solution? A prepaid funeral plan is one method to overcome this situation, and it is becoming increasingly popular.
A prepaid funeral plan is a contract with a funeral home or cremation service to pay for your funeral services in advance. By making your decisions now, you could lock in today’s prices and ensure your funeral is planned according to your wishes. The contract will itemize the services to be provided by the funeral director and staff, use of facilities, merchandise such as a casket or urn, and other items, including the cost of death certificates, obituary, clergy honorariam, floral arrangements and may even include certain cemetery costs. Some “preneed” plans offer price guarantees to fix the cost a current prices.
This article will help you make an informed decision about whether a prepaid funeral plan is right for you. If you need more information, please let us know. We’ll be happy to have a specialist contact you to answer any questions.
The Benefits of a Prepaid Funeral Plan
Peace of mind for you and your family.
One of the most significant advantages of a prepaid funeral plan is the relief a plan can offer your family. Grieving loved ones won’t have to make stressful and overwhelming last-minute decisions or worry about finances. Everything is arranged and paid for beforehand, allowing your loved ones to focus on saying goodbye.
Locking in Today’s Prices
Funeral costs tend to rise over time. By prepaying, you may protect yourself from inflation and secure the services you want at today’s rates. A “guaranteed” plan can be a considerable financial benefit, especially if your plan covers a broad range of services.
Personal Control Over Funeral Details
Prepaid plans allow you to choose how you want to be remembered. You outline your preferences, ensuring that your funeral aligns with your values and beliefs. You specify the burial or cremation specifics along with the type of service, music, and readings. By doing your own planning, you’ll be able to add personal details that reflect your unique personality and characteristics.
>>Learn more about planning a funeral.
Reduces the Financial Burden
Funerals can be expensive. Today, average funeral costs range from $7,000 to $12,000 and payment is due at the time of the funeral. By paying in advance, you relieve your family’s financial pressure. It’s one less thing for them to worry about during an emotional time.
>>Learn more about funeral costs.
Other Things to Consider About Prepaid Funeral Plans
Lack of Flexibility
Once you choose a prepaid funeral plan, making changes can be challenging. If you move to another state or country, your plan might not transfer easily. Some plans require additional fees to make it applicable in your new location. You can minimize risk by ensuring your plan can be transferred to another location if necessary. Look for a plan that includes portability and has provisions to allow modifications. Funding your plan with funeral insurance (as described below) offers the flexibility of changing your funeral provider.
What Happens if the Funeral Provider Goes Out of Business?
Funeral homes and providers are not immune to financial troubles. If the company handling your plan goes out of business, you could risk losing the money you paid in. Some states have laws that protect prepaid funds, so it’s crucial to research the provider’s stability and any guarantees they offer. Using funeral insurance as the payment method provides financial protection in case your provider goes out of business.
Opportunity Cost
Prepaying for a funeral ties up funds that could potentially be invested elsewhere. If you are financially savvy, the money used for a prepaid funeral might show better growth through other investments. For many people, the peace of mind that a prepaid plan offers is extremely valuable and there is no need to liquidate investments to pay for the funeral. It’s always best to consult with a financial advisor to make sure that any significant spending makes sense for you.
Your Options For Funding a Prepaid Funeral Plan
Pay the Funeral Service Provider
A prearranged contract can be purchased directly from a funeral service provider, such as a funeral home or cremation service. Since this purchase is made in advance, the provider may be required to place some or all of the proceeds in a trust. Each state has laws governing the trusting of the proceeds of the sale to ensure that money is available at the time of death. These laws vary by state. Keep in mind that paying the provider directly could pose problems if you or your survivors need to change to another provider at the time of the funeral.
Funeral Insurance
Funeral insurance is a specialized life insurance policy designed to cover your funeral, burial, cremation, and other final expenses. There are basically two types of funeral insurance – preneed insurance, and final expense insurance (also known as burial insurance). Preneed insurance is typically used to fund a prearranged funeral contract, whereas final expense insurance is a stand-alone policy. Preneed policies can be paid in full in a one-time payment or payments over 1, 3, 5, or 10 years. Final Expense policy premiums must be paid continually to keep the policy in force. Both types of policies offer greater flexibility and options than purchasing directly from a funeral service provider.
>>Learn About Funeral Insurance
Funeral Trusts
You can set aside funds in a trust specifically for funeral expenses, and those funds are protected from creditors. The trust is tied to a prearranged funeral contract, with the trust’s beneficiary being the funeral service provider. Typically, the funeral service provider will help you set up the trust when you enter into a contract with them.
Pay-on-Death (POD) Accounts
Some people prefer to set aside funds in a savings account specifically for funeral expenses. A Pay-on-Death account allows you to designate a beneficiary who can access the funds immediately after your passing, without going through probate. This option offers flexibility and ensures that the money is available for funeral expenses without locking you into a specific funeral provider. Of course, you need to select the beneficiary carefully since the money in the account is not required to be used for funeral expenses.
>>Funeral Trusts and Payable on Death Accounts
Is a Prepaid Funeral Plan Right for You?
Whether or not you should buy a prepaid funeral plan depends on your unique situation. Here are some key questions to ask yourself:
- Do I want to ensure everything is planned and paid for in advance to relieve my family of the burden?
- Do I have a preferred funeral provider, and do I feel comfortable with their financial stability?
- Am I concerned about rising funeral costs?
- Is there a chance I might move to another location in the future?
If you value the certainty of having your funeral paid for and arranged, and you’re confident in the provider you choose, a prepaid funeral plan might be an excellent option. However, if you prefer more flexibility in the choice of funeral provider or the ability to manage your funds yourself, alternatives such as a final expense policy or Pay-on-Death account might be a better choice.
FREQUENTLY ASKED QUESTIONS
How do prepaid funeral plans work?
When you purchase a prepaid funeral plan, you pay a lump sum or make regular installment payments to cover the anticipated costs of your funeral. The funds are typically held in a trust or insurance policy.
What do prepaid funeral plans cover?
A prepaid funeral plan that covers the things you decide are important. You can plan a simple gathering or a grand event. If you want to have a traditional burial, it can include embalming, a casket, flowers, catering, and cemetery property. If you are planning a simple cremation, you can include the process of cremation along with an urn.
How much do prepaid funeral plans cost?
Prepaid funeral, cremation, and cemetery plans set aside funds for specific products and services. The exact cost depends on what you choose. Prepaid plans usually start in the low thousands. According to the National Funeral Directors Association, the median cost for a funeral with a casket was $8,300 in 2023. The median cost for a cremation with an urn was $6,280. Those median costs do not include cemetery costs.
What happens if you miss a payment on your plan?
A prepaid funeral plan is similar to car insurance in that if you miss a payment, you receive a lapse warning. Your plan may have a “grace period,” but ultimately, it will be canceled for non-payment. Be sure you understand the terms of your specific plan. Depending on your contract, you might be able to use the money you’ve paid in to fund future arrangements, but lose any price protection.
What happens if the provider I purchase my prepaid plan goes out of business?
The laws protecting prepaid plans vary by state. Make sure you know what kind of protection your state offers. In many cases, your money is kept safe by a third party (an insurance company or a trustee, not the funeral home) until the time of your funeral. In these cases, transferring your account to another provider may be possible. Of course, research the funeral home offering the prepaid plan to ensure its reputation and financial stability.
What happens to my prepaid funeral plan if I move?
Some plans offer relocation protection. This is especially true when you purchase from a funeral home that is part of a chain. Again, you must understand the details of the plan you are buying.
Do I need a prepaid funeral plan if I have sufficient financial resources?
Will your family have access to your financial resources? Since payment is due at the time of the funeral, it could be a problem for your family if they do not have ready access to cash from your estate. Also, you need to consider other final expenses that you may leave behind. Depending on your circumstances at the time, there could be considerable expenses to be paid, such as, medical bills, legal fees, income taxes, living expenses, etc.
Final Thoughts
A prepaid funeral plan can be a smart and thoughtful way to prepare for the inevitable. The right plan can ease financial and emotional stress for your loved ones. Like any big purchase, you should explore alternatives before making a decision. Regardless of what you choose, planning ahead is a responsible step that can provide peace of mind for you and your family.
To get more information on prepaid funeral plans, you have come to the right place. Our website has information that can help you better understand the basics. We also have a network of specialists who can help you find a funeral home with a prepaid plan that will best suit your needs. Just let us know you would like someone to contact you, and we’ll put you in touch with a preneed specialist in your area. Email support@funeralwise.com.
Whether you choose to purchase a prepaid funeral plan or not, we suggest you consider preplanning your funeral. The Funeralwise Wise Planning System is a great option. With the Wise Planning System, you can plan in as much detail as works for you. Click here or on the link below to get started.
