What Is a Prepaid Funeral Plan?

A prepaid funeral plan is simply a plan for funeral services that you pay for in advance. It includes the purchase of a funeral package or individual services that will be used and/or available for use at the time of your death. The prepaid funeral plan usually takes the form of a contract with a funeral home and is paid for in advance. The money you pay into this plan goes towards ensuring that all preneed arrangements, including merchandise and service costs, are ready and waiting should you pass away. This means no stress or concern about how to pay for these things when they become necessary.

How Does Prepaid Funeral Plan Work?

When making arrangements ahead of time, it is always best to discuss matters with a funeral home director as they are more familiar with possible options and the best course of action. Prepaid Funeral Plans usually involve three distinct stages: burial, cremation, and memorialization (the latter two may not apply to every plan).

Burial

The first stage is for taking care of your physical remains after death. This includes preparing them for viewing or other forms of ceremonial display, transportation to the final resting place, and interment or entombment in accordance with your wishes. These arrangements are upfront and guaranteed by the prepaid funeral plan, meaning they can be counted on when needed.

Cremation

The second stage is what happens with your remains after the services are paid for. This refers to cremation or other forms of final disposition, such as placing your ashes in a mausoleum trough in a wall space in a cemetery. The plan will include payment for these things in advance, so you do not have to worry about them being done correctly when the time comes.

Memorialization

This includes things like funeral ceremonies and services held before or after the burial or cremation, related expenses such as flowers and food for guests, grave marker/headstone costs, obituary printing fees, and any other special arrangements that may be made. The money you have paid into the plan goes towards these expenses, so this service is guaranteed to be included when needed.

Types of Prepaid Funeral Plans

Prepaid funeral plans come in different options depending on your estimated costs and needs. Below are some of these options:

Life Insurance

Some life insurance policies include a funeral expense rider, which will include benefits for the final expenses of your death. These policies typically offer convenient and fair rates while protecting you and your family from unexpected funeral costs.

Burial Insurance

This type of insurance is targeted specifically for any burial expenses only. Burial insurance guarantees the costs of your burial expenses. It usually offers varying levels of coverage that can be customized to suit your needs and budget, with low monthly premiums.

Pre-Need Funeral Arrangements

Pre-need funeral arrangements are also known as prearrangement funerals. This type of plan involves choosing your memorial services in advance and making all necessary preparations ahead of time. You can usually set up plans for yourself, other family members, other relatives, or other loved ones who you cannot bear to think about dying. The main advantage of this kind of plan is that you get peace of mind knowing your final wishes will be fulfilled without delay—no matter what happens before you pass on.

Trust

In this case, the person you designated to be the trustee will have to take care of asset management in the trust. It will be his responsibility to follow the wishes you have specified for the beneficiaries. There are two types of trust you can set up for yourself: revocable and irrevocable trust. A revocable trust is the most common and lets you change how to share your assets with your family. You will be able to change the terms as you like, whether it’s for tax or other purposes. An irrevocable trust cannot be changed after it has been set up, though this is usually not a problem since you do not need to make changes unless there are dire circumstances that require them.

Joint Bank Account

This is probably one of the most straightforward options. A joint bank account means you name the person or people who will inherit your share in the account according to your wishes. You can choose to break up all of the money in the account and give each beneficiary their share, or you can simply let them keep it intact after paying off any outstanding debt that might be on it.

Payable on Death Account

A payable on death account, or POD for short, works in much the same way as a joint bank account. You can also choose to split up your share of the money when you die and leave it to your beneficiaries according to your wishes. The difference is that this type of account automatically transfers everything in the account over to the beneficiary when you pass away. This is very convenient if you want all of your money going directly to someone who will need it right after your passing without any delay.

Advantages of Prepaid Funeral Plans

No matter what type of arrangement you choose, the main advantage of prepaid funeral plans is that they protect you and your family from having to deal with unexpected costs and stress when a loved one dies. Prepaid plans give you peace of mind knowing your final expenses will be covered when they become necessary. This makes all such arrangements simple, stress-free, and convenient; removing any potential for emotional or psychological trauma in times of grief.

Disadvantages of Prepaid Funeral Plans

The main disadvantage is that these plans require you to make some assumptions about your future. For example, if you have a plan that covers the costs of burial and cremation, there is a chance you might not need both of them. Yet, since you cannot get your money back from these plans once they are paid for, you cannot cancel either one without losing some of your investment. Another important thing to consider about prepaid funeral plans is that these deals only cover the basic services provided by the company itself. This means you will probably have to pay extra charges for additional services or products such as a casket or headstone marker on top of what you’ve already paid in the initial cost. In addition, some prepaid plans may end up charging hidden fees and penalties on top of their usual rates. The best way to avoid this is to thoroughly read the fine print and reviews before making a final decision.

Final Thoughts

In case you have been wondering what to choose from all the options you have, you can assume that prepaid funeral plans are ideal for those who want simplicity, flexibility, predictability, and peace of mind in these difficult times. Prepaid funeral arrangements may not be perfect for everyone, but they generally work well for most people.

The price of a funeral plan varies by company and location, but you can expect to pay between $1,500 and $2,000 for the average plan. Depending on what you want to be covered in your agreement, costs can go up from there. Most companies offer multiple payment options that range from making payments monthly to yearly or even over the course of several years.
Yes, they are 100 percent legal in all 50 states as long as they are offered through an authorized agent for the company providing the services - not through door-to-door salespeople. Any seller must provide proof of their license before entering into any business agreements with consumers.
Unfortunately, you cannot cancel your agreement without facing penalties and losing part of your principal investment. However, you still have options if you want to stop the payments charged on the account or move it into another plan that fits your changing needs better. You can take advantage of these options if desired by contacting the company directly instead of just letting them know you are canceling.
If this happens, your beneficiary will receive whatever money is left in the account minus what was owed for any outstanding installments. It works much like a policy where something occurs first before collecting any benefits.
A pre-need funeral plan is an agreement where you pay for your future funeral costs today so they will be covered by the time you need them. In essence, you are buying service in advance at today's prices with the option to cancel or change these plans as needed before those services become necessary.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.