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Planning ahead is a smart thing to do, even when it comes to your own funeral. Many people set aside money for retirement or college funds, but some also set aside money to cover potential large funeral expenses. They may even pre-plan their funeral entirely to save their loved ones the hassle. But what exactly are prepaid funeral plans? What are the pros and cons of prepaid funeral plans? A lawyer experienced in estate planning Louisville KY can be invaluable in helping you decide how best to plan ahead. To schedule a free consultation with a family and bankruptcy law firm, please call 502-339-0222 or fill out our online intake form.
What is a Prepaid Funeral Plan?
A pre-paid funeral arrangement with a funeral home allows you to predetermine your personal funeral. They’ll tell you the estimated full payment for your plans with the choice between paying the lump sum in its entirety or gradually across the span of three, five, or ten years.
Prepaid funeral expenditure plans provide inflation protection, one of its most appealing features.
You’ll notice “guaranteed” goods in the contract, which implies the cost of these products is guaranteed to be wholly assured regardless of any future financial changes.
Prepaid funeral plans work to address two difficulties:
First, it is to guarantee that your family is not forced to make difficult and important decisions that require complete focus and clarity at a time when they are most vulnerable from your passing. They will not have to sort this out because you’ve already arranged your funeral details and financing.
Second, it secures your family from having to front and handle the funeral expenses. Whether paid all at once or in intervals, the service expenses are covered, so your family won’t need to foot the bill.
Your preferences, age, and location all seem to impact the price of a funeral preplan. Expect to pay $2,000 to $10,000 for a pre-paid burial plan. You are finished should you choose the “single premium” option, which requires you to pay for the entire cost of your funeral upfront. There is no need to make any more payments.
If monthly payments are your financing preference, depending on the relative cost, age, and length of the repayment period, you should anticipate paying anywhere between $125 and $300 each month. If you are under 85, the standard installment durations are 3, 5, and 10 years. Over the age of 91, a single premium is what you are limited to option-wise.
What is Included in a Prepaid Funeral Plan?
Prepaying for your funeral typically begins with a meeting with a funeral provider of your choice to develop a thorough plan. Costs, services, locations, and any other aspects you want to address to satisfy your end-of-life choices should all be included in that plan. The following items will be included in a conventional package:
- Cremation or burial
- Urn or casket
- Niche or burial plot
- Grave marker or headstone
You can generally opt to add on the following items:
- Service at the funeral home and the graveside
- Visitation and viewing services
- Family transportation for the funeral service.
- Personalized DVD or slideshow
What is Not Included in a Prepaid Funeral Plan?
Flowers, refreshments, presenters, and pallbearers are examples of non-add-on items to consider.
Third-party goods and services usually are not included in the plan. So you should inquire with your pre-planning professional about common third-party expenditures and if you can budget for them in your plan:
- Copies of the death certificate
- Allowing for cremation
- Honoraria for clergy
- Fees for celebrants
- Escort costs charged by the police
The funeral home director will arrive at a price once you’ve produced a statement of everything you wish to be included in the coverage, and it will be the foundation for your policy. You should always ask the funeral director what will and will not be fully covered.
Prepaid Funeral Plan Types
Now that you’ve specified everything you want to cover, how are you going to do it? When prepaying (not preplanning) for a funeral, there are two primary choices to consider:
- Trusts – Most jurisdictions allow trusts to be used to pre-fund funerals. However, the laws regulating use differ by state. Some jurisdictions even mandate that the funeral home director be named as a beneficiary, so speak to your funeral director about your state’s trust financing restrictions.
- Revocable trust: You’ll probably sign a contract agreeing to pay for the burial costs in monthly payments, which will be paid into an interest-bearing account. The funeral director (or someone you pick if state regulations apply) and the trustee will utilize the capital to cover arrangements after you pass away.
- Irrevocable trust: This trust, like a revocable trust, allows you to pay for your funeral in increments, but it is a permanent trust that can’t be amended by anybody save the trustee.
- Pre-Need Insurance – In most states, pre-need insurance is a whole life insurance plan used to finance funerals. It is a specialty insurance coverage paid either in installments or one lump sum. The purchaser is not taxed on the growth of the policy or the payment amount.
Is It Possible To Cancel a Pre-Paid Funeral Plan and Receive a Refund?
If a prepaid funeral plan is maintained through a revocable trust, you have the option to cancel the agreement and get a substantial lump sum refund. The trust will keep hold of an amount for the cancellation fee to cover administration costs).
An irrevocable trust, on the other hand, cannot be reversed. It can be switched to a new funeral home, but price assurance may be lost. You will not get a refund of premiums paid if an insurance plan sponsors your funeral’s prepaid plans.
There are a few additional methods to set aside money for your funeral ceremony, but that’s not the same as prepaying (discussed further on). First, let’s look at the benefits and drawbacks of prepaying for a funeral:
Pros and Cons of Prepaying for Funerals
- If you take care of the logistics of your funeral so that your loved ones don’t have to when you’re gone, then you’ll have a sense of security.
- There is no second-guessing.
This is perhaps the most compelling argument used by funeral service businesses to convince people to get a pre-paid funeral plan. Your family will not have to consider or dispute over the service you would have preferred and how they’d afford it after you pass away.
- You’ve established a predetermined price.
The average expenses of funerals are increasing. Since 2014, average funeral costs have risen by 6.4 percent, while the median price of an average funeral with cremation has risen by 7.3 percent.
- You have full control over the form of funeral you provide and the cemetery site where you’ll be laid to rest.
- You can lock in today’s prices for future rates if you prepay for your services.
However, some funeral homes do not consider and adjust for inflation, so inquire if the contribution you’re making is for a fixed fee before signing. Or else, your family may face unforeseen bills when you are gone.
- Your resting spot has been secured. Prepaying for your burial or mausoleum is a strategy to ensure your location, especially if you have a specific cemetery or mausoleum place in mind.
A pre-paid funeral, however, is not the only option. A burial plot can be purchased individually.
- Despite your best efforts, if the funeral home goes out of operations, it would end up leaving your loved ones to foot the bill.
In reality, the number of funeral homes in the United States has been progressively falling for the past decade. Funeral homes are essential, but that doesn’t mean they’re immune to adversity. If you paid in advance and your funeral home closes, receiving a refund can be a hassle.
- Many prepaid funeral plans will not transfer. Thus, if you have a contract with one funeral home and pass away in another area or wish to relocate, the funeral house will likely refuse to transfer your plan to the alternative funeral home.
- Those funds are preoccupied and immovable. You can’t get your money back if you prepaid for a funeral. That implies that if your family needed to pay your medical costs, they wouldn’t be able to do so with that money.
The last year of life’s out-of-pocket medical costs average roughly $9,500.
The average cost for a patient’s final month of life in a hospital bed is $32,379.
Some Alternatives to a Prepaid Funeral Plan
Preparation, not prepayment, is the greatest method to alleviate your family’s financial stress and ensure that your desires are carried out.
If you can, put any money you have leftover after prepaying your funeral expenses into an investing account, and it will accumulate growth. If you put that average $8,000 into a respectable investing account when you’re 40, you’ll likely have more than enough money by the time you’re 70 to cover the expenses and more. You can relieve yourself and prevent it from becoming your family’s burden to pay for your funeral and any other unforeseen end-of-life expenditures incurred, especially while it would be such an emotional time.
That money isn’t locked away if something comes up before then. And if anything is left over when you die, it will be a benefit to your family. There are specific savings accounts and the option of a joint bank account that you can dedicate to be a preparatory death account.
Final Expenses and Funerals Insurance Policy
A funeral insurance policy, often known as last expense insurance or burial insurance, is one option to pay for your funeral and final wishes and arrangements beforehand. Name a beneficiary to collect the death benefit when purchasing life insurance plans; this could be a family member, a friend, or a trusted individual. Unlike prepaid funeral plans, life insurance funds can be utilized for many purposes, such as funeral expenditures. However, the recipient can also use them for medical bills, credit card debt, and any energy bills that come up throughout the month.
A funeral home can be designated as a beneficiary in several states. If a funeral home is your recipient, your family must trust that the death benefit will be managed truthfully and with integrity. Consider that appointing a funeral home as your receiver may result in no monies remaining for your family.
Prepaid Funeral Plan vs Funeral Insurance
Despite popular belief, a pre-paid funeral plan and a funeral insurance policy are not the same.
A pre-paid policy is payable to the funeral parlor where the contract was signed. The only one who has access to the funds is the funerary home. Your family may have to pay additional charges, but that depends on if the plan is guaranteed or not.
A funeral insurance policy gives you additional options. Anyone can be the beneficiary and have access to the money to pay for your burial, medical costs, last utility bills, and other unpaid liabilities. Your recipient is free to do anything they want with any remaining funds.
What is a Prepaid Cremation, and How Does It Work?
Paying for your funeral ahead of time, be it cremation or burial, may help your family cope with the loss of a loved one. To achieve that impact, however, it must be done correctly.
Prepaying for cremation has financial advantages as well. Prepaying for your cremation might lower the final cost or allow you to start paying in increments throughout your future. Certain crematories and funeral houses will even give you a discount if you pay in advance.
A prepaid cremation usually entails agreeing with a crematory or funeral home. A written agreement specifies the sort of service you’re paying for, as well as who has the authority to redeem it in your place.
Prepaid cremations cost roughly the same amount as a conventional cremation. However, if the firm gives discounts for prepayment, the price may be lower.
Prices are cheaper in more remote places with fewer people. It’s worth your time to search around for a good deal if you’re paying in advance for your cremation.
Other things that may impact the cost of your pre-paid cremation include:
- Direct cremation is the most affordable choice for cremation. In the days following a death, if a body is sent to the crematorium and no embalming or funeral is had prior, this is a direct cremation. A direct cremation typically costs between $600 and $1,000.
- Traditional cremation is comparable to traditional burial, except that the deceased is cremated instead of buried in a coffin. The body is embalmed before a funeral service. The family normally rents a coffin, and there are several other costs involved. Traditional cremation costs approximately $5,000.
- The urn or ash box is another consideration during the cremation process. You should consider an urn if you want your ashes to be kept with a loved one. There are many choices for scattering ashes, such as a biodegradable urn. Urns and beautiful ash boxes vary in cost from as little as $10 to more than $500. Suppose you want something different and unique, using your ashes. In that case, you can consider cremation stones, glass art, jewelry, and suncatchers, turning into diamonds, a self-watering tree urn, sent into space, turning into a coral reef, etc.
Pros and Cons of Prepaid Cremation
It may appear that prepaying for cremation is an obvious choice. While your family is suffering the death of a loved one, you can help them save time and money. Prepaying for cremation has several advantages.
Prepaid cremation plans, on the other hand, aren’t for everyone. They may, in some situations, wind up causing more tension than they relieve.
Here are some of the most crucial benefits and drawbacks of pre-paid cremation to think about:
- Discounts. Prepaying for cremation, as previously explained, has the potential to save you money. This depends on the cremation service you select and the style of cremation service you desire. When paying in advance for cremation, though, you can typically get a better deal.
- Inflation can be avoided. Paying in advance has the advantage of being an investment. The cost of cremation is expected to rise in line with inflation each year, as it has in the past. Paying for it now and not using the service for over a decade will allow you to accumulate quite a bit of money.
- Installed payments. Another cost advantage of pre-paid cremation is the ability to pay over time. The final cost may be more, but the initial financial pressure is reduced.
- Stress alleviation. People select prepaid cremation for various reasons, the most common of which is to save money and reduce worry. You may have had to organize cremation services while grieving the loss of a loved one. You may also want to avoid putting your family through the same hardship.
- The ability to choose. A further important issue is that you have to say and control what happens to your body when you pass. You can make an end-of-life plan without paying ahead of time. However, completing the payments directly assures that your family gets the particular service provider and features you prefer.
- Agreement loss. The first factor that may go awry is losing the contract. There’s no assurance that the service provider will maintain a record of your signed contract and receipt(s). As a result, they may withhold the service you have already purchased.
- Overcharging. When it comes to prepaid cremation, you must be meticulous when comparing prices. Even though you may have paid in advance, it does not guarantee you’ll receive a better deal. Some cremation companies will increase their prices to equate to inflation or other considerations.
- Family miscommunication. Another typical prepaid cremation blunder is failing to notify family members. Although it may be uncomfortable to bring up the issue of pre-paid funeral arrangements with your family, it is necessary. They won’t know which cremation service you paid for if you don’t tell them.
- Refusal to abide by the terms of the contract. For various reasons, the cremation company you paid may breach the arrangement. Unfortunately, there isn’t much your relatives can do to demand a return on the money you’ve already paid.
- The provider is overbooked. For example, if the supplier is overbooked, they may simply refuse to honor the arrangement. If the cost of cremation has increased since you paid, they’re more inclined to prioritize higher-paying consumers.
- Change to products and services. It’s also possible that the crematory’s products or services will shift. You may have bought a plan through them that is no longer available, and there may not be a clause in the contract that specifies how to replace it.
- Provider closes its doors. Lastly, the crematory provider may close its doors. It’s doubtful that either you or your relatives would get a warning or a reimbursement if this happens.
Avoid These Mistakes
- Do not overlook the importance of comparing plans. According to studies, one out of every four funerals/cremations is performed in a substandard or unprofessional manner, disregarding supposed standards. Thus, it is good to compare packages and companies before choosing.
- If you want to prepay for your cremation, make sure you do your homework first. Although your town may have multiple cremation services, one could have a better reputation than the others. Check out internet evaluations and ask for recommendations from individuals you know. It also is important to chat with a few cremation companies before settling on one.
- Look for sections and clauses in the contract that pertain to service cancellation, reimbursements, or anything else that would make it difficult for your family to use the service.
- Make many duplicates of the contract. Retain one for your personal records, and distribute one or more copies to family members to have on hand.
Prepaid Funeral Plan FAQs
Yes, a client can pay for cremation at any qualifying service provider in advance. These facts can be obtained by contacting the state’s funeral services or specialized providers.
Cremation at a low-cost cremation company is the most cost-effective option. These comparisons should be made ahead of time to ensure that the most cost-effective contract is discovered as soon as feasible.
According to research, the average cost of a cremation will be roughly $1,100. This number might differ from one state to the next.
If a customer moves before passing away, the plan will be carried out exactly as specified. The fees will be transferred to any other American cremation facility that has been pre-approved. If the cremation facility and provider chosen next is not pre-approved and denied, the contract may fall apart. It will depend on the provider and their procedures and integrity on whether or not you will receive your payments back minus an administration fee.
In general, both parties will prepare and agree upon the documentation. It will include all of the previously agreed-upon information (costs, disposition permits, and cremation permits). This will also include the death certificate, which is prepared after the person has died, as the state requires. After the cremation, all documentation is done by these requirements and given.
If you buy a pre-paid funeral plan at a funeral parlor, your beneficiaries will not get any funds. Instead, it will be used entirely by the funeral home for your funeral. Purchase last expenditure insurance if you wish to leave money that exceeds most funeral expenses.
Only if you entered a revocable deal will your relatives have to cooperate with the funeral service where you entered into the contract in the majority of circumstances. They will only be able to transfer the monies on rare occasions. If you get last expenditures insurance, though, you won’t have to employ a certain funeral home; they may hire anybody they choose.
Your insurance will continue to be relevant as long as you pay premiums that you owe on time. Both prepaid funeral plans and last expenditure insurance policies fall under this category.
Call the Louisville Attorneys at O’Bryan Law Offices Today
Your estate plan accounts for both what happens when you die and what could happen later in your life. O’Bryan Law Offices‘ estate planning professionals can create a thorough plan to carry out your objectives for your family, future, and financial situation. To schedule a free and confidential consultation with an estate planning lawyer or a Louisville bankruptcy lawyer, please call 502-339-0222 today. You can also fill out our online intake form for more information. If you’re looking to file Chapter 13 bankruptcy Kentucky, we can help with that, too.