Prepaid Funeral Plans – What they are and are they worth it?

It is never too soon for you to start making plans for your funeral. As you begin to plan, you will notice you have many options for paying for services and planning. Prepaid funeral plans are one common planning option.

However, they have pros and cons, and you need to understand what you are getting into before you buy one. Taking time to research and understand all of the options is a great start to funeral planning. If you haven’t heard of prepaid funeral plans, then you can learn more about them in this article.

What are Prepaid Funeral Plans?

Prepaid funeral plans are not the same as life insurance. Prepaid funeral plans are when you make funeral arrangements and pay for services before death. This allows you to choose services and products that you want. By choosing a prepaid funeral plan, your family does not have the burden and stress of funeral planning.

What is Included in Prepaid Funeral Plans?

You can choose to plan and pay for as much as you want. Most funeral homes offer prepaid planning, which allows you to make the plans and pay ahead of your death. 

The first thing you choose when you are pre-planning your funeral, is a funeral home. You should search for funeral homes in the area you would like to have your funeral and review their website and call them to learn more about their services and prices.

Note, it is important to find a funeral home that makes you feel comfortable with your post-life plans. The funeral home will walk you through the funeral planning process.

Planning Questions:

funeral plans - a helpful complete funeral planning guide

Some things you might want to think about to prepare yourself for the funeral planning process include:

  • What do you want done with your body? Cremation? Burial? At sea burial? Body donation? If you have an idea about what you want done with your body, it will be much easier to make decisions about the funeral arrangements.
  • If you want to be buried, do you have a location in mind or a prepaid plot?
  • Are you religious or do you have a type of service in mind, such as a military service?
  • If you want people to make donations in your name, make a list of organizations you would want people to donate to.
  • What is your budget for a casket/urn?

You have the power to make all of the choices for your funeral. You can write your own obituary, make a playlist of songs, have specific poems read, and even decide what flowers you want. The funeral home you choose will help guide you through the planning process.

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Prepaid Burial Plans

Prepaid burial plans are the same as prepaid funeral plans, but they’re specific to burials. The term “Prepaid Funeral Plans” encompasses all funeral plans, such as cremation or body donation where as the term “Prepaid Burial Plan” refers to funerals that include burial of the body.

Pre Arranged Funeral Plans

Making arrangements before the funeral does not always have to include prepaying for the funeral. You may decide to arrange many aspects of your funeral ahead of time, and you may decide to set money aside and pay at a later date, or leave that money to someone else who will fulfill your funeral arrangements. If you have life insurance, it will be helpful to your family, or whoever will be left to handle your post-life care, if you have pre-arranged funeral plans.

Are Prepaid Funeral Plans Safe?

It is difficult to answer this question because every state has different laws regarding whether funds are protected, or if they have to be managed in a certain way. Some questions you can ask when researching funeral include:

  • Is the money I pay put in a trust fund account?
  • Can I transfer my prepaid funeral arrangement to a different funeral home if I choose?
  • What is your policy on refunds?
  • What is your policy if your business closes before my services are conducted?

You may also want to hire a lawyer to review the contract with you. A lawyer can help you understand the terms of the contract so you can make an informed decision. If the funeral home cannot guarantee that your money will be returned to you if the business closes, it may not be the best decision to agree to a prepaid plan.

How Much are Prepaid Funeral Plans?

The cost of a prepaid funeral plan varies based on what you include in your plan. The benefit to prepaying for a funeral is you pay the current market value price for the services and products. This means you will pay less for the funeral services because the services will increase overtime due to inflation. The average cost of a burial funeral exceeds $10,000 when you include the services, casket, burial plot, and vault. Of course, this price is expected to continue to rise with inflation just like all other goods and services.  

Can I Cancel a Prepaid Funeral Plan?

This is largely dependent on your state’s laws and the funeral home’s policies. In some cases, you cannot get your money back if you decide you want to cancel the plan. In other cases, you may be able to get back most of your money if you cancel your plan. Also, you might be able to transfer your plan to another funeral home. Additionally, there may be the option to change or alter your plan if you find you have changed your mind about what you want your funeral entail.

Pros and Cons of Prepaid Funeral Plans

PROS

  • Locks in market prices of today to avoid paying the cost of inflation down the road.
  • Allows you to have control over the planning of your funeral.
  • The burden and stress of funeral planning is removed from family or friends after your passing.

CONS

  • If the funeral home closes, you could lose all the money you paid. It’s important to make sure you ask questions and thoroughly understand what will happen to your money in all possible situations.
  • If you move later in your life and decide you no longer want your funeral done in your previous location, you may have difficulty transferring or canceling your plan.
  • There is a risk of losing money if the funeral home mishandles your money and cannot provide you with the services you paid for.

Alternatives to Prepaid Funeral Plans

Prepaid funeral plans are not the only way to be proactive about your post-life care.

Whole Life Insurance

There are different types of life insurance policies. Whole life policies are typically referred to as funeral insurance because it does not expire. Most people use part of the burial insurance policy payout to help cover costs of the funeral.

Term Insurance

Term insurance rarely pays out and is rarely used for funerals. This is because term life insurance expires and the money the person paid into it is not returned. Unless you die during the term of the policy, it won’t cover your funeral expenses.

Cash

Cash a popular way to cover funeral expenses, but because funerals can be very expensive, the average American does not have enough in savings to cover the cost of a funeral. However, cash is a great option if you are wanting to arrange a low-cost funeral.

For example, if you are wanting your body donated to science, many times cremation is free when the organization is done with your body. In this instance you may only have the expense of an Urn and a small gathering for loved ones.

Another example would be if you are an avid investor, cash might be a wise option for you. Investing cash and allowing it to grow at a higher rate than inflation can allow you to cover the cost of a funeral down the road, while also making money on your investment for the present time.

Payable Upon Death

A payable upon death, or POD, is an agreement with your financial institution to transfer your assets to designated beneficiaries.

In this arrangement you can leave a specific amount of money to any beneficiary of your choosing. That means you can leave the money to a specific person you trust to carry out your funeral arrangements.

You can also designate a funeral service provider as the beneficiary which ensures the funeral service is paid for upon your death.

Prepaid Funeral Plans vs Funeral Insurance

Prepaid funeral plans allow you to lock in current market rates and you don’t have to worry about the plan lapsing and not having a way to pay for your funeral. However, prepaid funerals are a little more risky than funeral insurance.

Funeral insurance (also known as Final Expense Insurance) is paid on monthly and upon death will give your next of kin a certain amount of money that was established when you started the plan. Funeral insurance gives you more flexibility, allowing the money to be spent at any funeral home or on any services you or your loved ones want.

In addition, with funeral insurance, there is a much lower risk of your money not being paid out. Unlike prepaid funeral plans, life insurance policies have a lot more federal regulations to protect your money in the event the insurance company shuts down or fails.

Are Prepaid Funeral Plans a Good Idea?

Now, this really comes down to what is best for you and your situation. A prepaid funeral plan might be a good investment for someone who lives in a small town with little competition for funeral homes. Moreover, they need to have full intentions of having their funeral in that town.

For others that want more flexibility, a different option, such as life insurance, payable upon death accounts, or even just setting aside cash, can be a better option.

One thing that is a good idea no matter who you are though, is making arrangements and plans now. Even if you don’t pay for those arrangements now, preparing your funeral and being financially prepared for it, will be the greatest gift you can leave with your loved ones.

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