Prepaid Funeral Plans (An Insider’s Guide)

Let’s talk about prepaid funeral plans.

I have been in the funeral industry for thirteen years and I’ve been selling pre-arrangement policies for much of that time.

Often families think that their loved one has taken care of everything, when in fact, nothing has been.

Perhaps their loved one just happened to see me on the street and waved. Later, they tell their spouse, “I saw Karen, the funeral director from ABC Funeral Home today!” Without a more detailed discussion, the spouse may get the impression that a meeting took place and the funeral arrangements were made when in fact there is no arrangement at all.

Because people can be hesitant to have the full, difficult conversations about death and funeral plans, this sort of misunderstanding happens more often then you might think. When the loved one dies, the family comes to the funeral home and discovers they have a lot of work to do.

This is the kind of surprise you do not want. It might be a hard conversation to have, but it truly is a must.

Is a prepaid funeral plan right for you? Let me guide you through the ins and outs and help you decide the answer.

What is a Prepaid Funeral Plan?

A prepaid funeral plan is a type of insurance policy purchased through the funeral home of your choice to help cover funeral expenses. You pay for the funeral arrangements you want ahead of time, and the funeral home will provide the service at the time of the beneficiary’s death.

The prepaid funeral plan details your funeral arrangements and locks in the prices at today’s rates. This is what separates the prepaid funeral plan from every other type of funeral insurance and pre-need arrangements.

Prepaid funeral plans are known by various names. Pre-need, pre-arrangement, or pre-paid; you’ll run across various combinations of these terms. They are all different names for essentially the same thing. You are purchasing a plan which you will pay in full by the time you need to use it. Specifically, the need is upon your death.

You will only select the goods and services that you want. Don’t let yourself be talked into something that you don’t want or need. There are, unfortunately, unscrupulous people in every industry who are just trying to make a buck.

Related: 10 Things the (Shady) Funeral Home Won’t Tell You

But if you do your research, know what you want, and work with a reputable funeral home to create your plan, you can be well-served by setting up a prepaid funeral plan.

How Does a Prepaid Funeral Plan Work?

So, how does a prepaid funeral plan work? Before anything else you need to choose your funeral services provider. This is typically the funeral home that will take care of all your arrangements. Ask them about their options for prepaid funeral plans and go from there.

Here’s a preview of how these plans and policies work. The prepaid funeral plan is put into place once the final criteria is met:

• You have selected what you want
• You have selected what the state says you need
• The appropriate payment has been made

Keep in mind that you can purchase a plan for yourself or for your loved one.

After the plan is set up and paid for, you can rest easy knowing that you have provided for the majority of your funeral costs and settled most of the decisions relating to the funeral.

When you die, your family will go to the funeral home where you made the arrangements. The funeral director will pull the plan from their files and get to work on it. The trust account or insurance plan will cover all the expenses, minus the few costs which may change. For instance, if state fees for the death certificate increase, your family will need to pay the difference. These items are known as “cash advances” we will discuss them further below.

Your family will still need to make a few minor additional decisions and will probably have some extra costs outside of the services offered by the funeral home. (Also detailed below.)

So let’s take a deeper look at how prepaid funeral plans work.

1. Select the funeral products and services you want

First, you choose the products and services that you want at the funeral. The funeral home will lock their prices in. The prices (for services and merchandise) CANNOT change after you sign your plan. This is one of the major advantages of prepaid funeral plans. While inflation will likely cause the price of goods and services to rise, your policy will lock in today’s prices, forever.

This is where you need to think through and actually plan your funeral. Cremation or burial? Will you be taking the cremated remains home or placing them somewhere? What is your budget for a burial? Do you want to put money towards the cemetery fees? The funeral director will help guide you through these questions. There should be no stones left unturned by the time the arrangements have been made.

When planning your funeral, always remember that there are no stupid questions. We, in the business, talk about this every day. Most people in their lifetime will only deal with death once or twice. You will have questions. Most likely plenty of them. So ask away!

Also, make sure you go to the pre-arrangement meeting with your loved one (or have your loved one come with you). This way, you both will hear everything that is being discussed. You do not want any surprises at the time of death.

Include spouses or adult children in these meetings. Not always for their input, but at least they will have the knowledge of the contract and what your decisions have been.

2. Abide by state regulations

Next, your arrangements will still need to abide by state regulations. This means that there will be some products and services that must be included.

Here’s one example. Let’s say you’ve chosen cremation and your state says you must have a cremation permit and a minimal cremation container. The funeral home purchases the permit through the Medical Examiner’s office. The crematorium places the body in a minimal cremation container for the cremation. This is also purchased through and provided by the funeral home. Since both costs are required by the state, both would need to be addressed in your prepaid plan.

The funeral home or pre-arrangement counselor will guide you through these requirements.

3. Pay for the plan

Lastly, you need to pay for the plan. The total cost of your pre-need funeral plan will vary depending on the products and services you chose. You have the choice of making a down payment, usually 10%, and making payments until the plan is paid off. You also have the option to pay it outright.

The money is held in a trust until the time of your death. (See “Prepaid trust vs final expense policy”, below.) At that time the policy will be converted to an At-Need Policy so it can be used for those final expenses that you have already chosen.

At the time of your death, your next of kin will sign documents stating that the funeral home is the entity collecting the funds for services rendered. The trust then pays out in full to the funeral home.

I like to explain the trust like as “escrow”. The money remains in an account until the time of death. At that time the trust disburses funds as needed to the funeral home.

Once you have paid for the plan, everything is in place. Congratulations, you have completed your funeral arrangements!

But what all can be included? What are the pros and cons of going this route? And what are some alternatives that you might want to consider? Read on for answers to these questions and more!

Prepaid Funeral Expenses: What is Included?

You can tailor the prepaid plan to suit your needs. At the same time, you will always have certain basic expenses to pay. The required expenses typically include:

• The funeral home’s basic service fee
• Transporting of remains to the funeral home
• Embalming or refrigeration; the funeral home must do one or the other with the body

Of course, there are more add-ons depending upon traditional burial or cremation. But those 3 items mentioned above are not negotiable.

Further, most plans also include:

• Burial or cremation
• Casket and/or cremation urn
• Burial plot or niche
• Headstone/grave marker

One of the best ways to plan ahead and control these costs is to know the average cost of a burial or cremation in your area. This gives you a much more informed way to decide what add-ons are a “must”.

Items you may want to add-on:

• Visitation or viewing
• Limousine service
• Upgraded casket or urn
• Custom DVD or slideshow
• Custom music CD
• Obituary
• Funeral service/memorial service with graveside service at cemetery

Depending on the services offered by the funeral home, they may or may not offer the add-ons above and even the ones listed below as part of your plan. If they are available, they may be subject to a “cash advance” clause.

Cash Advances

A cash advance means that, since some of the costs are paid out to separate vendors, these costs may increase over time.

For instance: At the time of the pre-arrangement Mr. Smith paid $50 for the inclusion of his cremation permit in the plan. At the time of death, the permit price has increased to $57. Because the funeral home purchases the cremation permit from the state at the time of death, the family is now responsible for the $7 increase.

The same goes for price increases with any outside vendor. This might include some cemetery and cremation fees (if these are not contracted with the funeral home) and will often include city, county, or state fees. If you include any of the items listed next, they will likely be subject to “cash advance” price increases. These price increases are typically marginal, but they can add up.

Items you may still need to pay for outside of the prepaid plan:

• Flowers
• Catering
• Other reception costs
• Musicians
• Singers
• Speaker/honorarium
• Pallbearers
• Other tips

Again, some of these will vary depending on your specific plan and what the funeral home offers in-house versus outside vendors. Read the plan carefully as you choose your options and add-ons.

Pros and Cons of Prepaid Funeral Plans

As with anything, there are advantages and disadvantages to purchasing a prepaid funeral plan.

Pros

First, let’s talk about the pros:

• The number one “pro” is that you are locking in today’s pricing. No matter how much the funeral home’s prices may go up over the years, your price is staying the same. It is guaranteed.
• You have the control over what you want to be done. Remember those add-ons.
• Your loved ones don’t have the added stress of arranging and paying for a funeral.
• It truly buys you peace of mind. You’ve taken care of everything.
• At the time of death, your family does not need to make any “emotional” decisions. No guilt spending.

Cons

Secondly, the cons:

• Most prepaid plans do not transfer from one funeral home to another. If they are “sister” funeral homes (a funeral home owned by the same corporation) that is not an issue and the other funeral home will take over.
• Unless you purchase an addendum to cover “travel” expenses, if you die out of state, the cost of shipping the body back can get very expensive. Out of state death will involve two funeral homes.
• What if you change your mind? You probably won’t get a 100% refund. The funeral home isn’t always responsible to refund merchandise.
• Some costs can only be paid at the time of the funeral. These items are typically fees that the funeral home pays out to other vendors. More often than not, the scenario goes like this: “My mom says she has paid for everything. I won’t have to spend any money at all.” However, according to the plan she paid for the services and merchandise but no “cash advances.” The cash advances include but are not limited to:
  • Death certificate and copies
  • Obituary publication
  • Honorariums for pastor/clergy and others
  • Flowers
  • Musicians
  • Hairstylist
  • Cremation permit
  • Cemetery fees (if a separate location)

Prepaid Trust vs Final Expense Policy

Or, How is The Prepaid Funeral Plan Funded?

Typically, you can fund your prepaid funeral plan in one of two ways. Your plan can be a set up as a trust or as an insurance policy.

So, what is the difference between a prepaid funeral trust and a final expense policy?

A trust is set up with the funeral home of your choice specifically, for that funeral home. A final expense policy is set up with a life insurance company and is accepted by almost any funeral home.

A final expense policy may also be known as funeral insurance or burial insurance. Although the final expense policy can cover more than just the funeral bill. It may also cover medical expenses, travel expenses or whatever else you need. It covers the majority of end of life expenses if you have taken out a large enough policy. Typically, these plans are worth $10,000 to $25,000.

You can write a pre-need plan with any funeral home when you have a final expense policy. But, if for some reason you change your mind, you don’t want to use that funeral home, you don’t have to. You can transfer that policy to any other funeral home. It is very flexible. For that reason, it might be a better option for you.

As explained earlier, the prepaid funeral plan can be trickier to transfer. And in most cases, if you cancel, you will not receive 100% of your money back. It locks in your prices, saving you money, but because of that it is extremely limited in flexibility.

Most funeral homes will accept the final expense policy at the time of arrangements. The beneficiary of the policy signs forms making the funeral home the first to get paid out of the insurance proceeds.

Alternatives to Prepaid Funeral Plans

Here are some common and somewhat similar alternatives to prepaid funeral plans. With each of these options you do not have the benefit of locking in today’s prices.

• Payable On Death (POD) account. A special bank account for final expenses. If there is any money left over, it will be paid to your designated beneficiary. You can deposit enough to cover funeral expenses at today’s prices, letting the interest cover any inflation.
• Pre-arrange without paying. You can fill out a pre-arrangement form and leave it on file at said funeral home. This sets your funeral plans in place but you haven’t invested any money. The costs of the products and services you chose will probably rise over time.
• Make a plan and leave it with a loved one. Let people know what you want. Leave nothing to chance. You can even set aside funds if you want to. Your have not locked in costs with a policy or a funeral home.

Other Ways to Cover Your Funeral Expenses

There are other ways you can plan ahead for the costs of the funeral. The simplest is with a savings account. Simply set aside funds in your bank account, enough to cover your funeral costs and account for inflation. Aside from that, here are a few ways to cover the funeral expenses:

• Funeral trust, a.k.a. revocable trust. This trust can be dissolved by the person who originally created it. If it is dissolved, the assets that were placed in the trust will go back to the original creator. This is always an asset. 
• Irrevocable funeral trust. You will sign a form making the trust irrevocable. It is no longer an asset to you. The irrevocable funeral trust is a good way to save your assets for your beneficiaries. Once established trust only dissolves when the creator of the trust passes away.
• Burial insurance. The death benefits for burial insurance are generally low. After you die, the benefit goes to your designated beneficiary. The beneficiary can decide to use the money in any way they want. This may or may not include funeral expenses.
• Funeral insurance. The main difference between funeral insurance and burial insurance is the money from funeral insurance policies goes directly to the funeral home. This money will go directly to pay for your funeral.
• Final expense life insurance. A whole life insurance policy. The insurance covers most of your final expenses, including medical and funeral costs.
• Life insurance. A standard life insurance policy will certainly more than cover the funeral expenses. The problem with that is, you do not lock in the funeral costs. You would arrange the service at the time of death and pay “today’s” prices. Also, it may take up to 30 days or longer for the insurance company to pay out. Since funerals are typically held within a week of death, you may need to arrange another payment method.

Of course, you will need to keep any of these policies current. Ensure that your payments are up to date to maintain coverage.

Prepaid Funeral Plans FAQ

What happens if I don’t pay off my prepaid funeral plan before I die?

If that is the case, unfortunately, your next of kin would be responsible to pay it off before the funeral home would go ahead with any services.

Who can make decisions regarding the funeral plan?

If you are the Power of Attorney (POA), present the funeral home with the appropriate documentation stating that you are the POA and they will answer all your questions concerning your loved one’s policy.

Keep in mind, POA ends upon death. Even “Durable Power of Attorney” ends at death. Check with your attorney as to what will be best for you and your family.

Too often, I have had families come in thinking the POA is still in effect. It’s not. It opens up the floodgates for other family members to get involved. If there are 3 children and no spouse, then all 3 must sign the cremation authorization. For the original POA to retain control, he or she must be named the executor or executrix of the will.

What if the funeral home I purchased through sells their business?

If your funeral home of choice sells their business, the “new” funeral home will honor your pre-arranged contract.

What if the funeral home goes out of business entirely?

This is a bad situation all the way around. Likely you will lose all money that you put into your plan. If the funeral home claims bankruptcy, you will have to stand in line behind other creditors to try to get your money back. This is why it is important to work with a reputable funeral home.

Is my pre-arranged contract transferable to any funeral home of my choice?

If it is a straight insurance, yes. If you write a trust with the funeral home, then you can only transfer it to a sister funeral home. That is to say, a funeral home in the same corporation.

Can I cancel my prepaid funeral plan?

Yes, you can. But you may not receive all the money back that you invested. Funeral homes are not obligated to refund the merchandise that you purchased.

This might include caskets, urns, prayer cards, service folders, memorial books and the list will continue. If you have invested in a lot of extras, you could be out a large sum of money. If this is a concern, be sure to talk through these matters with the person who sells you the policy.

What about VA Benefits?

If you are a veteran, or the spouse of a veteran, keep those discharge papers in a safe and accessible place. Your DD214 is the key to “all things veteran”. If you have served in the armed forces, you are entitled to be buried in a Veteran’s Cemetery. As a veteran, you will receive your grave space (this would be in ground or a cremation niche), your grave liner, your head stone or marker, the honor guard of your branch of service will render taps and your next of kin will receive the United States Flag. You have earned this honor. As a spouse of a Veteran, you have also earned this honor minus the honor guard.

If you do not have your DD214, you can get it online here. It takes a few weeks to receive it but is well worth the effort. Don’t put it off for a family member to take care of at a later date.

Also, check into veteran’s death benefits. This goes directly to the surviving spouse. Once again, these benefits have been earned. They are yours for the asking. Taking advantage of your hard-earned VA benefits will save you thousands of dollars. Talk to the funeral home about how your veteran’s benefits can be incorporated into your plan.

Conclusion: Should I Get a Prepaid Funeral Plan?

If you have researched this topic, you will see that there are plenty of people who say to avoid the prepaid plans. That is because there are some risks in setting up a prepaid plan, especially if you are prone to changing your mind or if you move often. Thus, the prepaid funeral plan is not for everyone.

However, as someone who has been in the industry, I feel that a prepaid plan with a funeral home is the way to go because it locks in your prices and ensures your peace of mind.

After all, why wouldn’t you want to get the best price at today’s cost? If you don’t use your policy for another 20 years, imagine the savings you can passed on to your family! I think this is one of the best gifts we can give our loved ones. The increase in the cost of the necessary cash advance items will be minimal.

I have always enjoyed showing a family the savings they have earned because they planned ahead a few years ago. The average cost of a funeral today is between $7,000.00 and $9,000.00. You can plan on that doubling in another 20 years.

Finally, when you set up a prepaid funeral plan all of your final arrangements are made and the costs are paid. This provides peace of mind for yourself and relieves a great burden from your family.

Any way you look at it, death is coming for all of us at some point. Dying is expensive. You will either pay for it at today’s prices with a locked in guarantee or tomorrow’s prices which are bound to be higher. Ultimately, the choice is yours.

Read Next: What Is the Least Expensive Burial Option?