Financial planning for any massive expected or unexpected expense is wise, and a funeral is no exception. Many people set aside a fund for college and retirement funds; sometimes, people also save for arranging a huge funeral.
Moreover, many people preplan their funeral with every detail to save their loved ones from the hassle. The best approach to funeral planning is to understand prepaid funerals and their main benefits and drawbacks.
However, not all prepaid services are the same and don’t make sense; therefore, preplanning can help you decide which kind of funeral service you might need, and also, you can save some dollars from extravagant expenses.
Want to have more details about it? Let us tell you how it works, what you should do, and what to ask to ensure you purchase the right plan. So, let’s get to it!
Prepaid Funeral Plans – in a Nutshell
You might be afraid that it might be a hassle or difficult for loved ones to arrange a funeral when they are in grief. A prepaid funeral service or plan, along with a funeral home, helps you to predetermine your own funeral expenses.
Furthermore, these plans have flexible payment options: whether you are willing to pay the lump sum amount in one go or want to pay them in installments within three, five, or ten years – the choice is yours!
One of the most appealing features of prepaid funeral plans is Inflation protection. This guarantees that your contracted are safe regardless of future financial fluctuations.
Primarily, prepaid funeral plans address two fundamental difficulties:
Firstly, your family and loved ones will not be forced to make difficult decisions as they might be vulnerable while you are no more. Sorting out funeral arrangements and financing expenses won’t be an issue for them.
Secondly, your family won’t have to foot the bill – whether you have paid all at once or in intervals, the expenses will be covered, and your family will be secured from covering them from the front.
Prepaid Funeral Plan Cost
Typically, your age, location, and other preferences significantly impact the price of the prepaid funeral plan. Expect to pay somewhere between 2,000 to 10,000 dollars – you can choose a ‘single premium’ option requiring you to pay the entire funeral expenses cost upfront.
If you are picking an option for monthly payments, you must anticipate paying somewhere close to 125 to 300 dollars a month, depending on the age, cost, and length of the repayment duration.
Nevertheless, if you are aged below 85, you can have a standard repayment plan of 3, 5, or 10 years; but for individuals above 91, a single premium payment plan is essential.
Types of Prepaid Funeral Plans
While deciding on prepaid funeral plans, there are two primary choices you must consider:
1. Pre-Need Insurance
Pre-need insurance is an entire life insurance plan helpful for financing funeral expenses in most states. The specialty of this package is whether you can pay in installments or a lump sum amount completely.
The buyer is not bound to bear the growth of taxes on the payment account or changes in the policy associated with the prepaid funeral plans.
2. Trusts
Most courts have allowed trusts to be leveraged to pre-fund funerals. Some courts have even allowed the crematory director to be given the name of a beneficiary, so communicate your state’s trust financing restrictions with the funeral director.
Revocable Trust
Maybe, you have to sign an agreement to pay for the funeral cost in monthly payments, which will account for interest bearing account. Together, the funeral director and trustee will use the capital for the arrangements after you have passed away.
Irrevocable Trust
Like a revocable trust, it allows you to pay for the expenses in increments, but it’s a permanent trust that nobody in the trust can change.
Can You Get a Refund on a Prepaid Funeral or Cancel a Plan?
You can cancel an agreement and receive a substantial lump sum refund if you have purchased a prepaid funeral plan via a revocable trust. However, a trustee will hold an amount for a while to cover the administration and cancellation costs.
On the contrary, if you have signed an irrevocable agreement, it can be switched to new funeral home; however, price assurance might be lost if an insurance plan sponsored the funeral’s prepaid expenses. You will not get a refund of the premiums paid.
Benefits of Prepaying Funerals
Security and No Second-Guessing
Taking care of the logistics of your funeral so that your loved ones and other family members don’t have to worry while you are gone will give you a sense of security, and there will be no second-guessing.
Perhaps, this is the most compelling and convincing argument used by pre-paid funeral plans companies to sell a prepaid funeral plan. Mainly, your family won’t have to go through a dispute about how they will afford a plan you wished to have or think about what you might have preferred.
Predetermined Cost
Admit it: the average pre-paid funeral plan costs each year are increasing gradually. As of 2014, funeral costs increased 6.4% on average, while median funeral costs increased 7.3%. That leads us to the point that you can have complete control to lock your funeral rates and cemetery prices at current prices.
Moreover, you can also rest assured about the form of funeral you wished for and the cemetery site where you will be laid to rest. However, funeral homes sometimes do not consider inflation, so inquire whether the expenses are fixed, or your family members might face unforeseen bills.
Secured Resting Spot
Prepaying for the funeral bills to the funeral director is also a way to secure your location for the mausoleum or burial, as your resting spot can be reserved. It is beneficial in a case when you have a specific mausoleum place or cemetery in mind.
However, buying prepaid funeral home services is not the only option to reserve a burial place, as this can be done individually.
Drawbacks of Prepaid Funeral Arrangements
Funeral Home Shuts
Despite all the efforts and hard work of buying the prepaid funeral arrangements, if the funeral home shuts down or goes out of operation, your loved ones might end up paying the unforeseen bills and funeral expenses after you have gone.
In reality, numerous funeral homes progressively fell over the past decade in the United States. A Funeral home is essential but does not guarantee its immunity to adversity. Unfortunately, if you have paid for all the expenses in advance, getting a refund can be tricky from a funeral director.
Immovable and Preoccupied Funds
Most of the time, the prepaid funeral plan is nonrefundable as per the funeral home policy. That means if you require funds for emergency medical treatment or other essential needs, you won’t get the money back from the funeral director.
Non-Transferrable
Most funeral homes do not offer the transfer of funds from one to another. Thus, if you have a contract with one of the funeral homes and passed away in another area or relocated to another location and wish to relocate funds, the funeral companies are more likely to refuse to offer you a plan for the alternative funeral home.
Funeral Insurance Plan and Final Expenses
A funeral insurance policy, burial insurance, or final expenses insurance is an option to pay for your funeral and final arrangements and wishes beforehand. You can add a beneficiary’s name to receive the death benefit while signing a contract for a life insurance policy. This can be your family member, a trusted individual, or a friend.
Unlike funeral plans, you can utilize these funds for funeral expenditures, medical bills, credit card bills, or any other debts a month after you have passed away.
Subsequently, in several states, a beneficiary reserves a funeral home. If your recipient is a funeral home, your friends and family should trust that the death benefit will be managed with integrity and truthfulness. If you pick a funeral home as your receiver, you might end up leaving your family with no money.
Funeral Insurance vs. Pre-paid Funeral Plan
Though the terms pre-paid funeral plan and funeral insurance are often used interchangeably, there is a difference between the two. Here’s a quick rundown of each:
Funeral Insurance Policy
Interestingly, a funeral insurance plan can offer you some additional benefits. Any person can be a beneficiary and pay for burial expenses. Last utility bills, medical expenses, and other payable and unforeseen expenses. Your beneficiary can do anything they want to do with the remaining funds.
Prepaid Funeral Funds
Regarding the prepaid funeral funds, both parties sign an agreement related to the funeral expenses. The funeral home will assign and register only a single beneficiary for the funds. Additionally, your loved ones or family members may need to pay for the additional funeral arrangements.
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