What to Know About Prepaid Funeral Plans

Thinking ahead to your own funeral can be overwhelming. But ensuring funeral expenses don’t burden your loved ones can be a thoughtful way to lighten the load during a sad and stressful time.

Prepaid funeral plans allow individuals to make arrangements and pay for them in advance. With this approach, you can lock in current prices and choose specific services you’d like to use beforehand. Here’s what you need to know about prepaid funeral plans.

What Is a Prepaid Funeral Plan and How Does It Work?

A prepaid funeral plan is a financial arrangement where you pay for funeral or burial services beforehand. Costs are typically covered by a lump sum payment or by setting up installments with a funeral home or insurance provider.

Prepaying is different from preplanning, which usually involves detailing your wishes without any upfront payment. Paying for your burial expenses ahead of time can help protect your loved ones from needing to cover immediate costs during a difficult period. With some plans, you can even secure current prices, reducing the impact of inflation.

People choose prepaid plans for different reasons. Some may want to ease the emotional and financial load on family members. Others may see it as part of estate planning or a Medicaid spend-down strategy. Regardless of the reason behind the decision, prepaying funeral expenses can help ensure your preferences are clearly documented while reducing potential out-of-pocket costs for your loved ones.

Understanding Prepaid Funeral Expenses

Before signing any agreement, understand what these expenses entail. A typical funeral includes several parts:

• Professional services: Funeral director fees, administrative costs, permits, and paperwork.
• Merchandise: A casket, urn, headstone, or burial vault.
• Ceremonies and viewing: Facilities for a wake, visitation, or service.
• Transportation: Hearse or limousine fees for transporting the deceased and the family.
• Additional options: Flowers, obituary notices, memorial folders, and music.

Some prepaid plans offer more comprehensive coverage of these components compared to others. You may need to pay extra fees if you select optional add-ons, like an upgraded casket or larger reception.

What Expenses Are Covered by a Prepaid Funeral Plan?

According to the National Funeral Directors Association, the median cost of a funeral with viewing and burial in the United States is approximately $8,300. For cremation, the median price is just under $6,300. These costs and the costs of your prepaid burial plan can vary depending on location, type of service, funeral home expenses, and personal preferences. However, many contracts will list specific services and merchandise, such as:

• Basic service fee: This may include the funeral home’s overhead and staff services.
• Body preparation: Embalming, hair and makeup, and styling if you prefer a viewing.
• Use of facilities: For a wake, viewing, funeral ceremony, memorial, or alternative services.
• Casket or urn: Sometimes included, but verify the option and if you can upgrade if desired.
• Burial plot: This may be included in the plan or purchased separately.

Not all prepaid funeral expenses come with guaranteed pricing. Some contracts may only lock in certain items. Other plans may be subject to inflation or additional administrative fees. Confirm whether future price increases would be passed on to your loved ones.

Finally, if any major elements are not included, such as a headstone, flowers, or obituary fees, make sure you’re aware of those additional costs.

Pros and Cons of Prepaid Funeral Plans

Like any financial arrangement, prepaid funeral plans have advantages and disadvantages. Here’s a look at each.

Pros

• Less emotional strain: Your loved ones won’t have to scramble for funds or make difficult decisions when emotions are running high.
• Potential cost savings: Some plans lock in today’s prices, protecting you and your loved ones from future inflation or rising service fees.
• Medicaid planning: Properly structured prepaid funeral expenses may not be counted as assets, helping some people qualify for Medicaid.

Cons

• Limited flexibility: If you relocate or change your mind about arrangements, transferring or surrendering the plan may be complicated or expensive.
• Provider stability: If a funeral home goes out of business, you’ll need to see how (or if) your funds are protected.
• Partial coverage: Not every contract guarantees 100% of costs; some items may still need to be paid at the time of the service.

Before committing, carefully review contract terms, compare providers, and ask questions. Because not all items are bundled, be sure to read the fine print.

6 Questions to Ask Before Committing

If you’re considering a prepaid plan, here are some questions to keep in mind.

1. Is the Plan Guaranteed or Non-Guaranteed?

Ask whether the contract locks in pricing for every item or if certain costs could increase.

2. How Are the Funds Handled?

Is the money kept in an insurance policy, trust, or escrow account? This detail can impact how secure your payments are over the long term.

3. What Happens If You Move?

Can the contract be transferred to another funeral home, or is it tied to only one location?

4. Is There a Cancellation Policy?

Life circumstances can change. Ask if there are any penalties or refunds if you need to change or cancel your arrangements.

5. Which Expenses Are Excluded?

Check exactly what’s included and find out what isn’t so you can price out anything that requires a separate payment.

6. What About State Regulations?

Laws vary by state, so confirm how local rules may impact funeral prepayments and any consumer protections associated with them. For example, the Federal Trade Commission has a Funeral Rule that requires providers to produce a price list when asked.

Prepayment Methods

There are multiple ways to cover prepaid funeral expenses, including:

1. Funeral Insurance

Final expense or burial insurance is a policy designed to cover funeral costs. At your passing, the insurer pays out directly to your beneficiaries or funeral provider.

2. Funeral Trust

A funeral trust lets you deposit funds that are earmarked for funeral expenses. In many states, an irrevocable funeral trust isn’t counted as an asset for Medicaid purposes. However, fees and administration can vary, so confirm the details.

3. Burial Bank Account

You may be able to open a “payable on death” account for designated funeral costs. Your beneficiary will have access to the funds on your passing.

4. Pre-Need Policy (Contract with the Funeral Home)

With a pre-need contract, you agree to pay the funeral home directly for merchandise and services. It can help lock in prices, but verify what happens if you move or need to cancel it.

Prepaid Funeral Plans vs. Life Insurance

Consider how a prepaid burial plan compares to traditional life insurance. While a prepaid plan is only for funeral and burial expenses, life insurance typically offers a more flexible death benefit payout that beneficiaries can use for any purpose (e.g., paying off debts, household bills, or other final expenses).

Even if you’ve prepaid for a funeral, there can be value in life insurance, especially if you have dependents or outstanding debts. A funeral plan can cover specific costs, but life insurance can offer your loved ones broader financial protection and support, helping them avoid strain during a difficult time. For instance, your loved one may need to handle remaining debts or household costs your prepaid plan won’t cover.

A prepaid plan can help handle immediate funeral expenses, while life insurance can provide long-term security for your family.

Make the Right Choice for Your Needs

Prepaid funeral plans can be a strategic way to manage funeral costs and reduce the emotional and financial toll on loved ones. However, it’s important to understand the specifics of each plan, so consider your needs, compare options, and ask questions to find the right coverage for you.

Colonial Penn is here for you!

Colonial Penn has specialized in making life insurance simple and accessible by offering it directly to consumers since 1957. Click here to learn more.