Everyone passes. We all want to think we will live forever, and since our heads are attached to our bodies and have been doing non-stop thinking (sometimes worrying) for all of these years, it’s hard to believe that this function could eventually be permanently turned off. But eventually, we have to start thinking about it. You may consider getting a Prepaid Funeral Home Plan.
But which one should you pick? A prepaid funeral plan or Final Expense Burial Insurance? It’s so overwhelming that many just put it off and never get it done.
What Do You Know about Prepaid Funeral Plans?
Prepaid funeral plans allow you to make funeral arrangements with a funeral home by prepaying the expenses. Depending on your financial situations and preferences, you can choose plans offering coverage from $10,000 to $25,000.
The plan involves a monthly payment directly to the funeral home where you intend your burial or cremation to take place. You can choose coverage for expenses like funeral service, headstone, casket, cremation costs, obituary information, and final medical bills.
What Are the Main Types of Prepaid Funeral Plans?
Once you decide to buy a prepaid funeral expenses plan, you have several options that may work for you.
A Whole Life Policy
It will work as regular life insurance where your beneficiaries will get the payouts to cover the funeral expenses. In some states, you may be mandated to make the funeral director your beneficiary.
The second option is to choose burial insurance that will cover your end-of-life costs, but your beneficiary can use the death benefit fund whichever way they want.
You may also set up a revocable trust with a contract to pay your funeral expenses in installments. At the time of your death, the funeral director and the trustee will use the funds invested in an interest-earning account to pay these expenses.
Finally, irrevocable trust allows you to pay the funeral expenses. But, this is a permanent trust where your beneficiary is the only person entitled to make any changes.
How Much Is a Prepaid Funeral Plan?
Mostly, the prepaid funeral insurance plans cost anywhere from $10,000 to $25,000. According to the policy’s terms, you can make an upfront payment or choose a three, five, or ten-year term. You may also need to pay administration fees of $100-$200 and yearly maintenance of $50-$150.
Here is an itemized list of funeral expenses that you can cover with these plans:
|Funeral home’s basic service fee (nondeclinable)||$2,100|
|Transporting remains to funeral home||$325|
|Body makeup and hairstyling||$250|
|Facilities and staff to manage a viewing||$425|
|Facilities and staff to manage a funeral ceremony||$500|
|Basic memorial printed package||$160|
|The median cost of a funeral with viewing and burial||$7,360|
|Cost with Vault||$8,755|
Can You Find Tax-Deductible Funeral Expenses Insurance?
Though funeral expenses are taxable for individuals, tax deductions are available if the estate bears the funeral costs. As per the IRS, if the estate pays for your burial, it can use the expenses as deductions against taxes.
Is It a Good Idea to Prepay Your Funeral Expenses?
Buying prepaid funeral plans may seem to be a simple way to cover your burial expenses without burdening your loved ones. But, there are many other ways to do that. Prepaying your funeral costs may have many risks involved in it.
Let’s say you want to just go to your local funeral home and cut a deal. Here are some things that can go wrong and then a few things that can go right.
- Your funeral home could go bankrupt (think it can’t happen … WRONG, it can and does happen)
- You have ZERO flexibility with a prepaid funeral plan. Things can change in a few years, let alone 15 or 20 years. While you might like the idea of knowing exactly where you are HOPEFULLY going to be buried, what happens if you have a major life change, and that doesn’t work out for you anymore?
- The FTC has issued alerts that SOME states do not offer you protection from these plans. There is a lot of fine print in the funeral home contracts. Bring your best reading glasses before signing.
- Many times there are ZERO refunds. Change your mind, lose your money.
- Even folks that work at funeral homes will tell you to spend more time planning and less time paying for these prepaid agreements.
- Costs can rise … Don’t think they don’t have those costs figured into their contracts.
Now, what is good?
Some folks like the idea of “knowing” where they will be buried. Not that a Final Expense insurance product wouldn’t offer the same benefits (is the funeral home really going to turn down your loved ones money courtesy of your final expense coverage) with money left over. Still, some folks just want a contract written by the people that are going to bury them.
Guess again if you think a Funeral Director can’t become insolvent or just be a crook and take your money and run. You’re paying someone who is in a mostly unregulated industry. One could argue, paying your neighbor a flat fee each month until you die, would get you to the same place. Maybe they could bury your monthly payments in their backyard.
What Does a Prepaid Funeral Plan Cover?
If you choose a prepaid funeral plan, you may ask for customized expenses as well. For example, you may include the flowers, transportation, and casket in your plan. Please make a list of everything you need for your burial and discuss it with the funeral home director to finalize the price and policy terms.
You may also choose a guaranteed plan with specific services and locked-in prices. It means even if the prices of the casket or any other item rise, your beneficiary or loved ones won’t have to pay for it.
How Can You Buy a Prepaid Plan?
You can prepay your funeral plan by working directly with the funeral director or through a contract provider. The service providers work with various funeral homes to arrange the best payment options. Once you select everything you want, set up a payment plan that suits you.
What Are the Pros and Cons of Choosing Prepaid Funeral Plans?
Before purchasing a prepaid funeral plan, you should look at both sides of the coin to make a rational decision. So, here are the pros and cons of these plans.
- Offers peace of mind by arranging the funeral details without putting additional stress on your loved ones.
- Choose the funeral and cemetery plot that you want.
- You can lock-in current prices with a guaranteed plan.
- Allows honoring the last wishes of a loved one if they want to use a particular funeral home.
- The funeral home may no longer exist in business, and you may leave your loved ones without any financial cushion despite your plans.
- A prepaid funeral plan may not transfer even if you have arrangements with a funeral home but unfortunately die in another location.
- Even if you later change your mind about the plan, there’s no refund.
- Prepaying the burial expenses may not leave your family with any fund to cover costs like your final medical bills or outstanding debts.
Should You Buy Final Expense Insurance Instead?
If you don’t want to take the risk of prepaying the funeral home, you may buy a funeral or final expense insurance. It involves assigning a beneficiary to receive your death benefits. This policy’s benefit is that the funds can be used for other expenses apart from the funeral costs. Your family or beneficiary can use money to pay for your outstanding medical bills, credit cards, or utility expenses.
For folks who have Final Expense life insurance, your loved ones become the beneficiary of any plans you might have.
When you get entangled with a funeral home, expect them to ask to be the beneficiary of any plans you might have. Now granted, this does not always happen, but funeral homes are dealing with the elderly, and they seem very trustworthy since you are trusting your body in the future to the,
You would be surprised what they can ask from their clients. The loved ones might get a big surprise when the funeral director gets all, and the kids, they get none.
How Does Prepaid Funeral Plans Compare with Funeral Insurance?
On the surface, both these options look similar, but they are totally different. While a prepaid funeral trust makes direct payments to the funeral home, a funeral policy gives you more flexibility to assign a beneficiary who can use the funds any way they want.
Final Expense Insurance
- Flexibility to use the coverage money anywhere.
- Policy riders offer additional benefits
- Money goes to the beneficiary
- The beneficiary can find the best funeral services and goods
- Death benefits can be divided among various beneficiaries or organizations
- Policy builds cash value over time
Prepaid Funeral Plans
- Limitations to using the funds only at the funeral home from where you bought the plan
- No riders or benefits
- Money goes to the funeral home
- The funeral home pre-sets prices
- Policy benefits go only to the funeral home
- There may be no cash value
What Questions to Ask When Buying Prepaid Funeral Plans?
If you decide to buy a prepaid funeral policy, you should ask these questions to stay on the safer side.
- Ask if the payments are reasonable
- What will happen if the insured person dies before the policy pays off?
- What if the funeral home changes ownership or close down?
- Are there consumer protection laws applicable in your state?
- What if you move away before the policy pays off?
- Where does the interest earned on your payments go?
- What if the funeral costs increase before you pass away?
- What happens to the left-over money after the funeral?
- What expenses are covered by your payments?
- Can you cancel the plan and ask for a refund?
Will Your Medicaid Get Affected Due to Prepaid Funeral Plans?
The prepaid funeral plans are excluded from Medicaid and will not affect your qualification for the same. However, some states may limit the amount entrusted to funeral plans. It can be restricted to $5000-$15,000.
What Are Other Alternatives to Pay the Funeral Expenses?
If a person passes away, their funds will remain inaccessible even to their family until the estate settlement. You can resolve this hurdle by designating a joint bank account with your survivor. It can help them settle the funeral expenses if you have sufficient money in that account. If not, you may look for other options.
The next option may be to set up a Payable on Death Account or Totten Trust with your bank. With this account, you can choose a survivor and arrange for your funds to be available to the survivor on death. You are free to add funds, withdraw money, or move your account until that time.
One more alternative is to use your term life or whole life insurance policy to cover the funeral expenses. Of course, you must tell your beneficiaries that you intend to use a part of your insurance money for your burial or cremation. But, it has a restriction. Term life insurance can expire before your death leaving you without any death benefits at all.
Always Tell Your Family About Your Intentions
Irrespective of the option you choose, it is always important to communicate the same with your family. Some people may include these details in their will, but your family may not even read the will until after your funeral.
They may also not even go through your safe deposit box to check if you have insurance for funeral expenses. Hence, the best way is to let them know about your prepaid funeral arrangements and provide them copies of relevant documents.
1. Can I leave Additional Money for My Beneficiaries Apart from the Funeral Expenses?
If you plan to buy a prepaid funeral from a specific funeral home, your beneficiaries will not receive a cent of this money. If you want to leave additional cash for your family, buying final expense insurance makes more sense.
2. Will the Insurance Expire?
Whether you choose funeral insurance or prepaid funeral plan, the policy will remain in force if you consistently pay your premiums.
3. Can My Family Choose Another Funeral Home?
Unless you have a revocable contract, your family and loved ones cannot change the funeral home. However, you are not tied to one funeral home if you buy final expense insurance.
Regulation on Funeral plans is sketchy at best, and if you ever need a refund, you better expect to get a minimal one, if any.
Imagine putting $10,000 into a prepaid funeral plan, and then your plans change, and then you can only get half your money back if any? That’s not planning, that’s a total waste. The true key is to get the FULL benefit after you opt-in, which is why a Final Expense Insurance plan from a 100-year-old plus carrier like Royal Neighbors is a far better option for most.
You pay in … Your loved ones get the benefit when you pass … and then they are free to cut the best deal for your family with whatever cremation or burial facility they decide on.
Keep your wishes alive, even after you have passed!
Gary P. Cubeta
(Serving Americans In All 50 States)