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2021 Complete Guide to Prepaid Funerals

Complete Guide to Prepaid Funerals

The uncertainty of life can sometimes make it a very scary adventure, yet, you have to take this crazy adventure even when it’s scary. As life would have it, a lot can go wrong in life, but one thing that would help make life a lot more bearable is having a plan, and not just a plan for what you’ll do tomorrow, in the next week, or the next few years, but also what would happen upon your demise. 

Naturally, it sounds scary to think about and even put in place plans for what happens when you die, but pre-planning your funeral is a very important thing. So, if you can, you should pre-plan and also prepay for your funeral. Doing this isn’t preemptive; it is a process that ensures you get what you want. On top of that, it also ensures that it is much easier for your entire family to deal with the tough, emotional side of grieving. Often, funeral arrangements are hard on the family, and having a plan will ensure that your family isn’t too stressed out. 

Unfortunately, funeral pre-planning isn’t the most straightforward thing, and you could easily get things wrong without a plan and a good guide for the entire process. 

This article will share a comprehensive guide on funeral pre-planning to help you make the right decision and also to avoid costly mistakes that would otherwise be too costly for you. 

What Is A Prepaid Funeral Plan?

What Is A Prepaid Funeral Plan?
What Is A Prepaid Funeral Plan

Prepaid funeral plans can be defined as the planning process that involves the planning and payment of your funeral plan or cremation – both in advance, easing burden on your family,

The prepaid funeral plan makes it possible for you to accurately outlined your end-of-life preferences, whether you’d prefer a funeral, the type of funeral preferred, or cremation. The plan also allows you to make a choice for the products/services that you’d like to be included in your funeral plan, along with all the other specifics for your funeral, as well as payment for the funeral arrangements. 

In other words, a pre-paid funeral plan can be defined as the set of funeral arrangements that an individual makes with the funeral home. This arrangement can be as detailed as you’d like it to be. Besides making a plan for your funeral, the pre-planning could also include payment of the funeral plan ahead of time. In such cases, the pre-paid plan would include money that’s already paid off for the funeral, or the money could also be set aside just for the purpose of the funeral. 

Often, these plans often range from $10,000 – $25,000, with the policy amounts often paid in installments to the funeral home directly. You get to specify the specific amount you’d like to pay for your plan. Besides paying to the funeral home, you could also make the payment to one of the registered pre-paid contractor service providers. 

Whichever option you choose, the funeral home would be the only party with access to the funeral pre-payment money. And in cases where you select an estate to pay for the pre-paid funeral costs, this would be a tax-deductible expense. That said, you should know that there is always a risk that is associated with the cost of the pre-paid funeral. 

So, if you are looking for a way of paying for your funeral arrangements before your passing, the pre-paid funeral plans might be ideal for you. Keep in mind that it’s okay if you are hesitant about talking about funeral pre-planning at first; eventually, you’d have to do it though.

Types of Prepaid Funeral Plans

Types of Prepaid Funeral Plans
Types of Prepaid Funeral Plans

As mentioned above, the prepaid funeral plan lays out your preferred funeral plans and arrangements while also locking in the prices of the funeral at today’s market rates. Because of this setup, the prepaid funeral plan is different from any other plan, including funeral insurance and the pre-need arrangements.

That said, the pre-paid funeral plans also go by names such as the pre-arrangement and the pre-need funeral plans.

In this section, we’ll go through the main types of prepaid funeral plans and how they differ from each other.

For starters, it’s important to note that there are 4 main types of prepaid funeral plans – the whole life policy, burial insurance, the revocable trust, and the irrevocable trust.

Whole Life Policy

With this option, you’d have to pay for your whole life policy as you would the regular life insurance policy, which means that when you die, the named beneficiaries will receive the insurance payout, which is then used for the funeral arrangements. In some states, however, the funeral home director has to be named as one of the beneficiaries of the policy. This is not the standard, though.

Pre-Need Insurance Policy (Burial Insurance)

Unlike the whole life policy, which would cover only some of the funeral costs or the costs specified, burial insurance is designed to cover all the funeral expenses to be incurred by your loved ones upon your demise. 

The beneficiaries could, however, use the payout from the death benefits in whichever way they choose. In most cases, the premium paid for this plan is for a set amount of time, often a period of between 3 and 10 years, and the policy will remain in effect for as long as the installment payments are up to date. The benefit of paying for this policy on time is that the policy will remain in effect. Also, the benefits from this plan are often paid to the funeral home directly. 

Revocable Trust

When it comes to the revocable trust, you’d be required to sign a contract that allows you to pay for your funeral in installments. The funeral director would deposit your installment payment to an interest-bearing account, and upon receipt of your death notification, either the funeral director or the person you choose to handle your affairs, maybe a trustee would use the funds put aside to pay for your funeral.

Irrevocable Trust

This trust is designed to allow for the prepayment of all your funeral expenses, in the same way as the revocable trust – in installments. But the difference between these two trusts is that the irrevocable trust is, as the name suggests, a permanent trust. Once created, no one can change the terms of the trust, not even its creator. For this trust, the trustee is the only one with the power and authority to change it after its creation. 

Whether you take up the insurance policy or have the plan prepaid and managed by a trust, you will be happy to know that these products are often highly regulated by both the state and the federal authorities. They also offer greater flexibility than most the pre-paid funeral plans. Just make sure to go through the fine print in detail before you sign off a prepaid funeral plan. 

Now, if you are wondering whether the Prepaid Funeral Plan is a scam or good idea, this article sheds more light and helps dispel any fears or doubts you may have. 

What’s covered by a prepaid funeral plan?

What’s covered by a prepaid funeral plan
What’s covered by a prepaid funeral plan

Often, the prepaid funeral plan you choose to pay for will be a customized plan that included specific goods and services you’d want for your funeral. This means that if, for example, you’d like the plan to include the casket, flowers, transportation, or funeral home services, among other products, the cost of the plan will vary if you leave some of these products out. 

To ensure that the cost covers all the expenses for the products and services you’d like offered at your funeral, the first thing you should do is to create a list of all the things you’d want to be included in the policy. Once you have the list (and you’ve checked and compared the prices), you’ll have to discuss the pricing with the funeral home director, get the final cost, and this final cost of what’s on your list, plus what the funeral home charges is the cost that will be the basic cost of your prepaid funeral plan/ policy.

Sometimes, you want to be sure that the items listed will actually be offered by the funeral home upon your demise, meaning that your loved ones won’t have to struggle to determine what to select because it may or may not be what you wanted. To do this, you’d want to sign up for a plan known as the guaranteed plan – this is the prepaid funeral plan which will specify the exact goods and services that you’d like to pay for – the price for this product will be locked once you sign the contract.

 So, even if the price for that product ever goes up, the guarantee on the plan means that your loved one will not be forced to pay additional money. This level of protection is important when you don’t want your loved ones to struggle with funeral expenses while they are still grieving.

In the absence of this protection, the plan you will be signing up for is the non-guaranteed prepaid funeral plan – which, as the name suggests, means that you will not have any cover in case of price changes and your loved ones have to pay more in future if the prices go up. 

Below is the list of items that are covered by the prepaid funeral plans:

  • Services offered by the funeral home staff and the funeral home’s director. This is not just the cost of these professionals offering guidance to your family and even caring for them on the funeral day, but also the cost of the services involving the expert handling of different details like obtaining essential permits and the death certificate, scheduling speakers, and the clergy, as well as flowers and music, among others.
  • Transport costs to the funeral home from your home or the medical facility they were in
  • Cremation container or casket, and the cremation services if this is what you opt for
  • Cost of the venue for the reception and/or the funeral
  • Catering
  • Transport costs to the cemetery
  • The burial vault
  • Other important items like stationery, flowers, décor, mementos, and keepsakes. 

What’s not covered by a prepaid funeral plan?

What’s not covered by a prepaid funeral plan
What’s not covered by a prepaid funeral plan

The following aren’t covered by the prepaid funeral plans:

  • Goods/ services that are offered by third parties like the copies of the death certificate, the cremation permits, honorariums for the clergy, escort fees for the police, musicians, and celebrant fees.
  • Costs associated with the opening and closing of the grave, along with other cemetery-related goods like monuments or grave markers.
  • Expenses for death away from home
  • Extra refrigeration costs in case of delays
  • Cost of getting the remains from a different funeral home
  • Special cosmetic procedures
  • Additional costs for embalming the body from autopsy or even organ donation

Pre-Paid Funeral Costs & Expenses

Often, the prepaid funeral expenses/ costs are basic costs that apply to pretty much all funeral homes.

These typical costs include:

  • The basic service fee for the funeral home
  • The cost of transporting the remains to the pre-selected funeral home
  • The cost of embalming and refrigeration of the body

These three are what we’d regard as non-negotiable costs. But they are not the only costs covered. Others would include the cost of the cremation urn or the casket, the burial or the cremation costs, the cost of the headstone or the grave marker, and the cost of the burial plot (niche).

Pros & Cons of Prepaid Funeral Plans

Pros & Cons of Prepaid Funeral Plans
Pros & Cons of Prepaid Funeral Plans

Pros

  • The plan gives you peace of mind because you know that the details of your funeral are taken care of, and your loved ones will not have to worry about these plans after your demise.
  • It allows you to make plans for the exact type of funeral you’d like and also the cemetery you’d be put to rest in
  • Guaranteed plans allow you to lock in today’s market prices
  • The plan ensures that your end of life wishes are honored 
  • You get the final say regarding the details of your funeral

Cons

  • Without protection, there is always the risk of the funeral home going out of business, and this may leave your loved ones with high funeral planning costs, despite all the efforts you’d made in the past.
  • Most of these plans aren’t transferable, and things would be problematic if you died in a different state of location and the funeral home doesn’t allow for the transfer of your plan to a different home. 
  • You aren’t guaranteed a refund in case you change your mind about the service.
  • Despite the prepayment, there is no guarantee that the plan will cover all the funeral expenses that are incurred in the future.
  • The money is often tied to the funeral home, and you cannot access the money in case of emergencies. 

Things to Consider Before Prepaying for Funeral

  1. Choose the products and services you’d like for your funeral

Initially, this will leave you feeling some type of way, but if you’ve decided to prepay for your funeral, it is the most important step you will undertake. 

The first thing to do would be to choose the list of products and services that you’d like at your funeral – once settled, the funeral home locks in their prices. The prices for the selected goods and services will not change after you’ve signed the plan, meaning the plan is protected from inflation. 

Here, you must be very specific in your list, ask all those seemingly stupid questions, and ensure that the items selected are really necessary, and also, things you’d like. It’s also important to attend the pre-arrangement meeting with a loved one like your adult children or spouse – not for their input, but for them to be aware of the existence of the contract. 

  1. Abide by your state’s regulations

As you make arrangements, ensure that your plan and options abide by set state regulations – depending on the state, there are specific products and services that must be in the plan. For example, the cremation permit and urn if you choose cremation. 

  1. Consider your alternatives

Some of the most common alternatives to the prepaid funeral plans include:

The Payable on Death (POD) Account, which is a special bank account that caters for your final expenses specifically, with any of the cash left overpaid out to the designated beneficiaries.

There is also the Pre-Arrange Without Paying option, where you fill out the pre-arrangement form for your funeral then leave it on file at a selected funeral home. Although you won’t have invested any money, your funeral plans will be set.

The last option would be making a preferred plan and leaving it with your loved ones. This allows you to let people know exactly what you’d like. You get to specify your wishes, and if you are interested, you could also set aside funds specifically for the funeral.

  1. Pay for the chosen plan

Once you meet the requirements for the plan, the next thing to do is to pay for it. Keep in mind that the total cost of the plan will vary depending on the products and services selected, and you’d have to make a down payment for the plan. The contract is only effective after the full cost of the plan is covered.

Conclusion

A prepaid funeral plan gives your family the peace of mind they need during grieving because they won’t have to worry too much about funeral planning and expenses associated. Once you’ve paid for your funeral, the money is often put in a trust until the time of your demise, when it’s converted into an At-Need Policy to be used for final expenses by the named persons or party. So, at the time of your demise, the named next of kin signs the documents saying that the funeral home is the party entitled to collect the funds from the trust for the services rendered, in this case – funeral planning. The trust will then pay the money in full to that funeral home.