A Complete Guide to Pre-Paid Funeral Plans for 2021

It’s no secret that funerals are expensive, but many people don’t realize just how expensive they can be until you’re planning a funeral yourself. There are many ways to make a funeral more affordable, and many are turning to pre-paid funeral plans to relieve their loved ones of this burden. 

Jump ahead to these sections:

• What Are Pre-Paid Funerals?
• What Are the Different Types of Pre-Paid Funerals?
• How Do Pre-Paid Funerals Work?
• Why Do People Choose Pre-Paid Funeral Plans?
• What Are Some Criticisms of Pre-Paid Funeral Plans?
• What Are the Common Alternatives to Using a Pre-Paid Funeral Plan?
• Frequently Asked Questions: Pre-Paid Funeral Plans

When you’re making a large purchase, it’s normal to put money aside in advance. This is true for big life purchases, such as buying a house, a car, or paying for a vacation. Yet many people don’t do the same for funerals. This means the stress often falls to loved ones after a loss. 

With funerals costing upwards of $7,000, this is no small burden to carry. Pre-paying for a funeral in advance might be a great option, depending on your needs. Not only does this let you take control of your final wishes, but it means your family doesn’t have to worry about unexpected costs. 

However, like all things end-of-life, it’s important to know exactly what you’re agreeing to before you make this decision. Read through this complete guide to pre-paid funeral plans to understand whether it’s right for you. 

What Are Pre-Paid Funerals?

First, what are pre-paid funerals, and how do they work? Like most things related to funerals, there is a lot of confusion around prepaying. In general, a pre-paid funeral is when someone makes pre-arrangements with a funeral home. This usually involves paying ahead of time, ensuring that all of the expenses are taken care of in advance. 

Many funeral homes have prepayment packages that make it easy to choose the service and arrangements right for you. These can be anywhere from $7,000 to $25,000, depending on your wishes. They’re either paid for in a lump-sum payment or in monthly installments. When you prepay for a funeral, you send payments directly to the funeral home. 

In other words, this is a way to pay for your funeral before you die. It makes things simpler for loved ones when the time comes, knowing all final expenses are already arranged. That being said, there is more to these plans than meets the eye. Many people are caught by surprise when they learn certain things aren’t included, they’re limited in choices, or there are added fees.

What does a pre-paid funeral include?

A pre-paid funeral includes a number of different services and arrangements, depending on the specific package. It’s important to recognize that these don’t usually include everything. Most funeral pre-arrangements include:

• Funeral services
• Casket
• Flowers
• Transportation to/from funeral
• Cemetery plot and headstone
• Cremation

Because you pay the average price for your package at the time you make your arrangements, you might save money by planning in advance. Funeral costs are known to rise, so this could be a financially sound decision. 

That being said, the opposite could also be true. For example, if you pay $2,000 towards a casket that increases in price, your family could be on the hook for the additional cost. Ultimately, it’s a good idea to read the fine print before you agree to any specific funeral pre-payment plan. 

What Are the Different Types of Pre-Paid Funerals?

Next, there are different types of pre-paid funerals. Some are done specifically through funeral homes, whereas others are a type of trust or insurance policy. There are different pros and cons to each, so consider your options wisely. 

• Whole-life policy: This functions like a regular life insurance policy. When you die, your beneficiary receives your payout to go toward funeral arrangements. Many pre-arrangements involve making the funeral home a beneficiary on these plans to receive funds for your arrangements. 

• Burial insurance: This is a specific type of insurance that covers the cost of your final expenses when you die. This can be used by your beneficiary however they see fit. 

• Revocable trust: A revocable trust is when you sign a contract to pay for your pre-paid funeral in installments. When you pass away, the funeral director or a trustee uses these funds to pay for your funeral. 

• Irrevocable trust: Lastly, this is when you prepay for your funeral in installments. Unlike a revocable trust, this cannot be changed by anyone except the trustee. 

All of these options are big decisions, and they shouldn’t be entered into lightly. Whenever you make someone a beneficiary, whether this is a loved one or a funeral director, you need to make sure you understand the arrangement. 

How Do Pre-Paid Funerals Work?

Now that you understand the different types of pre-paid funerals, let’s talk about how they actually work. There’s a lot of mystery around most things in the funeral industry, and funeral planning is no exception. Here’s what you need to know about the process for pre-paid funerals. 

How do you purchase a pre-paid funeral plan?

To purchase a pre-paid funeral plan, you must go through a funeral home. This means you’re typically locked into a specific funeral home unless you go with a national provider. When you choose a funeral home, you contact them directly about their pre-payment options. 

Most funeral homes have their own preset arrangement plans. You can choose how much you’d like to spend and the type of payment that works for you. If you choose to make the funeral home a beneficiary on your insurance policy, you will need to take additional legal steps. 

Once you’ve purchased your plan, you’ll continue making payments. These are made either through your insurance or directly to the funeral home. This is also an important time to talk to your family about your wishes and make sure they understand your pre-arrangements. 

What happens to a pre-paid funeral plan when you die?

When you die, what happens to your pre-paid funeral plan depends on the type of plan you choose. If you make the funeral home a beneficiary on your life insurance, they will receive the full payout. If you wish to leave money to your family, you’ll need to choose another option. All of your funds will be used to pay for your funeral expenses. 

Otherwise, if you set up a trust with the funeral home, they will use these funds to pay for your arrangements. If there is anything not covered by your trust or insurance payout, your family will still need to pay for these arrangements. 

How much do prepaid funeral plans typically cost? 

There is a lot of variation in how much pre-paid funeral plans typically cost. The full price depends on your specific wishes and final arrangements, as well as your location. Most of these plans cost between $10,000 and $25,000. 

These may or may not be more affordable than a typical insurance policy. In most cases, it’s more cost-effective to use an alternative way to pre-pay for your final expenses other than arranging this with a funeral home. 

Why Do People Choose Pre-Paid Funeral Plans?

With all of that in mind, why do people choose pre-paid funeral plans? Though they’re not a fit for everyone, there are certainly some clear benefits. Again, it all comes down to your personal comfort level and wishes. 

• Peace of mind: Knowing your arrangements are made and paid for in advance gives you peace of mind. 

• Family: It’s common to worry about what your family will do when you’re gone. These pre-payments relieve that uncertainty.

• Cost-effective: Because you can lock in a one-time rate, this might end up being more affordable depending on the future cost of funerals near you.

• Funeral home: Lastly, some people feel strongly about using a specific funeral home. This is a way to make sure your wishes are honored. 

All of these reasons are enough for many, but that doesn’t mean this is the best fit for you. These pros can also be secured with other types of funeral pre-planning. 

What Are Some Criticisms of Pre-Paid Funeral Plans?

Unfortunately, there are many criticisms related to pre-paid funeral plans. Not only do you have to be vigilant about funeral scams when using these services, but there are many other cons. 

• Don’t transfer: These plans don’t usually transfer, meaning you will only be able to use one funeral home. If you change locations or move, this could be a problem. 

• Out of business: There’s nothing stopping a funeral home from going out of business and leaving your family on the hook for funeral costs at another home, without a refund from the original home. 

• Doesn’t cover other expenses: Aside from your funeral and final resting place, there are other fees your family might be stuck with, such as your end-of-life medical care. Other options can allow you to put money away for these costs, too.  

• Flexibility: These plans don’t leave much room for flexibility, meaning your family can’t make many decisions when you do pass. 

• Protection: Most states don’t offer much protection for those who pre-pay for funerals, leading to an FTC warning to consumers. 

• Unexpected costs: When you pre-pay, there’s no guarantee that everything will be covered. If your funeral home uses third-party providers (like car rentals, celebrants, musicians, etc.), your family could still need to pay for these services. 

• Beneficiary: Lastly, if you name your funeral home as the beneficiary on your life insurance, they might not return any remaining funds to your family. 

Though it’s hard to believe, there have been many stories about fraud and scams related to pre-paid funeral plans. For example, one funeral company embezzled funds for years, affecting over 97,000 people. 

It’s important to not only do your research but to also fully understand what you’re agreeing to. Because of all these misunderstandings, many funeral homes advocate for pre-planning rather than prepayment. 

What Are the Common Alternatives to Using a Pre-Paid Funeral Plan?

As you can see from the discussion above, a pre-paid funeral plan isn’t always the right choice. Luckily, there are many cost-effective alternatives that allow for more flexibility. 

Funeral insurance

Many people mistakenly assume pre-paid funeral plans are the same as funeral insurance. In reality, these are very different things. Funeral insurance is usually included as part of a life insurance policy.

The payout can be used to pay for any funeral expenses, medical bills, final utility payments, and other outstanding bills. This money goes directly to a beneficiary of your choice, and this gives them more control over the money when it matters most.

Life insurance

If you have a more basic life insurance policy (whole life or term life insurance), the death benefits might be enough to cover your funeral expenses. This is the most flexible choice. 

However, you’ll need to talk to your beneficiaries and loved ones about how you’d like this life insurance money to be spent. Because it has no specific designation, it doesn’t need to be used exclusively for funeral expenses. 

Joint bank account

Because it takes time for someone’s assets to be released after death, a joint bank account ensures funds are immediately available. When you set up a joint bank account, the surviving loved one has access immediately. 

If you put money aside in the joint account to pay for end-of-life services and arrangements, this is a great DIY alternative. Of course, if there isn’t enough money in the account, your loved one will need to find other means to pay for the funeral. 

Payable on Death Account

Also known as a Totten Trust, you might also consider a Payable on Death (POD) account instead of a pre-paid funeral. You set this type of trust up through your bank. When you name a beneficiary, the funds are available to this individual upon your death. 

Because you can change the beneficiary and access funds at any time, this is a very flexible option. A POD account also avoids probate court. 

Frequently Asked Questions: Pre-Paid Funeral Plans

Any decision about your end-of-life plans likely comes with a bit of intimidation. It’s only normal to feel uneasy about starting this process, so read through these frequently asked questions. 

How do pre-paid funeral plans work with Medicaid eligibility?

In order to qualify for Medicaid or low-income insurance, you need to meet specific requirements. These typically relate to your current savings, healthcare pre-payments, and income. Contributing to a funeral pre-payment does not affect your Medicaid eligibility. 

That being said, there are still some limitations. Most states limit how much you can prepay with a funeral trust, and this is usually capped below $15,000. 

How can you tell if pre-paid funeral plans are worth it?

The best way to tell if pre-paid funeral plans are worth it is to create a budget for your funeral. Add up how much you expect things to cost, including your burial, service, and so on. With this number in mind, compare pre-paid funeral plans in your area. It’s always a good idea to shop around for the best deal. 

Ultimately, pre-paid funeral plans aren’t worth it for everyone. If you’re unsure, consult with your family to determine their comfort level when it comes to handling your funeral plans. 

What are some of the larger pre-paid funeral plan companies in the US?

While you can contact any local funeral home to talk about pre-paid options, there are some national chains that offer services across the country. Some of these larger providers are:

• Dignity Memorials
• AARP Life and Burial Insurance
• Globe Life Insurance
• Gerber Life Insurance

Making the Right Plans for You

Ultimately, there is no such thing as one-size-fits-all when it comes to your final sendoff. For many, taking pre-planning steps makes perfect sense. For others, it’s better to talk with your family about your wishes and trust them to take the reins. 

Regardless of your wishes, it’s a good idea to put your thoughts into action by creating a free, secure end-of-life plan. Sharing your plan with loved ones makes sure they know exactly what you want when the time comes. Everyone deserves a final sendoff they’re comfortable with, so don’t overlook this important step.  

Sources:

1. “Complete Guide to Pre-Paid Funerals: Plans, Costs, Pros & Cons.” Lincoln Heritage Funeral Advantage. LHLIC.com. 
2. “Using a Prepaid Funeral Contract to Spend Down Assets for Medicaid.” Elder Law Answers. 28 November 2017. ElderLawAnswer.com.