Young widow laying flowers at the grave

The Truth About Prepaid Funeral Contracts

You’ve probably seen advertising espousing the benefits of prepaying your funeral costs. Prepaid funeral arrangements, on the other hand, are often seen as a financial misstep by most experts. Here’s why…it may be tempting to relieve your family’s financial stress during this difficult time, but there are better options.

Remember that there are two main plans:

  • Guaranteed plans offer goods and services at current market prices. Flowers, for example, are frequently omitted from guaranteed plans.
  • Non-guaranteed plans are applied at the time of death to products and services at current prices.

Many states have strict regulations governing these plans. Understand your state’s prepaid funeral contract laws before you sign on the dotted line.

There are certain advantages to pre-paid funeral plans:

  • Planning your funeral. You have the option of planning your own funeral. Do you have a funeral plan in mind? It is possible to make it a reality with prepaid plans. However, keep in mind that you can organize your funeral without spending a dollar. Funeral homes will gladly sit down with you and go over every aspect of a plan for the future. They will almost certainly try to sell you a prepaid plan, but you do not have to agree.
  • Having enough money to handle your final expenses. Knowing that money is set aside for your funeral leaves one less thing for your family to worry about if you die.
  • Peace of mind knowing you have a plan. You’ll be relieved that at least some of the financial and emotional burden has been lifted for both you and your family.

Prepaid funeral plans have some advantages, but they also have some drawbacks.

Prepaid funeral arrangements’ drawbacks:

Refunds might be challenging. Inquire whether you will receive your entire deposit back if you change your mind. Some suppliers will return a portion of your money, while others will not. Penalties are commonplace. Many states require the cash to be held in a trust. The fees paid to set up the trust are not reimbursed.

It is not uncommon to face a 10% penalty and a 50% loss of earnings.

Find out what happens if you move. Many plans are portable, while others are not. Understand the specifics.

You might not be completely protected. Most plans place the cash in a trust and cover you for current expenses. Hopefully, the funds will generate enough income to outperform inflation. However, it is still possible to leave your family with a large bill. If there is any money left over and it’s assigned to the funeral home it will be used as the funeral home sees fit.

Consider the possibility that the provider will go insolvent. If this occurs, you may find yourself without a plan and losing several thousand dollars. Embezzlement has also been reported.

Life insurance is a superior alternative. The average funeral cost is around $8,000. Inquire with your insurance agent about a coverage that will cover your funeral.

Your current life insurance policy may be adequate. However, keep in mind that term insurance is a superior option for the majority of general life insurance needs. Term insurance isn’t usually appropriate for funeral expenses. After your term insurance expires, you’ll most certainly require the funds to cover your funeral expenses. Speak with an insurance specialist to determine the best solution.

Term insurance could be an option in the near future, with a whole life policy added later. There are specific insurance plans marketed for final expenses, but they are mainly merely rebranded whole life policies.

It’s an uncomfortable subject, but it’s critical to evaluate your final expenses and the impact they will have on those you leave behind. Prepaid funeral plans are not always the best solution. Instead, consider purchasing a life insurance policy.

Lastly, there is an option through the Legacy of Love program to preplan your funeral with the payments spread out. The assignment of benefits goes to your own beneficiary…not a funeral home. Similar to a prepaid funeral contract the funding will go in a a trust until you pass away.  

Using online funeral planning tool makes planning easy to do.

1 thought on “The Truth About Prepaid Funeral Contracts”

  1. Thank you for pointing out that planning your funeral ahead of time can relieve some worry from your family. I’ve been thinking about if I would want to do something like this for my own funeral. I think this aspect of it plays a big part in the appeal of it.

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