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Prepaid Funeral Plans - What You Need to Know

Having prepaid funeral plan is one way to support your family during a difficult time. Keep reading to find out whether or not it would be the right choice for you.

Estate planning is all about taking advantage of ways to care for your loved ones, even after you’re gone. A lot of it has to do with protecting your assets, but some of it has to do with preparing for the actual event of your death. One way to care for your loved ones is to prepare for your funeral in advance by creating a prepaid funeral plan.

What is a Prepaid Funeral?

A prepaid funeral is a funeral that you have arranged and paid for before your passing. This means that you’ve already worked with a funeral home to lay out all the details of your own funeral, and you’ve either paid for the entire cost or have set the funds aside. 

Estate planning is a common catalyst for making the decision to plan a prepaid funeral. When you’re planning for the future, you’ll learn about tools that will help you take care of loved ones after you’re gone. Of course, no one necessarily wants to plan for their own death. However, it’s only practical to realize that a funeral is a large financial and logistical commitment. Knowing this, you might make the decision to arrange a prepaid funeral to help relieve the stress and burden from your loved ones during their time of grieving. However, there are also potential drawbacks to consider. We’ll lay out some of these pros and cons for you in a moment, but first let’s delve a little deeper into how prepaid funeral plans work.

How Do Prepaid Funeral Plans Work?

You can plan your prepaid funeral by working directly with a funeral home of your choosing. Not unlike planning a wedding, you’d work with a planner or coordinator to work out all of your funeral details. There are many customization options available, based on your personal taste and financial circumstances. 

Once all the arrangements are made, you will be quoted a final policy amount. You can elect to pay for your funeral all at once, pay for it in installments, or set the money aside in a funeral Trust. One day, when you pass away, the funeral home will help your family carry out the funeral per your wishes. 

How Much Do Prepaid Funerals Cost? 

According to the National Funeral Directors Association, the median cost of an adult funeral is $7,640. This figure includes a viewing and burial, but does not include a vault. The median cost for a funeral including a vault is $9,135. 

Items factoring into the overall cost include the basic service fee charged by the funeral home, transportation of the remains, embalming, preparation of the body, staffing and facility fees, casket, hearse, and service car.

Check out our guide on the cost of a funeral for more information, which also provides an overview of the cost of other types of ceremonies and options. 

Pros and Cons of Prepaid Funeral Plans 

Before you make a decision on whether or not to create your own prepaid funeral plan, it’s a good idea to carefully weigh the pros and cons. Here, we summarize the main advantages and disadvantages that you may not have considered:

Pros of Prepaid Funeral Plans

  • Have peace of mind knowing that your funeral details are already taken care of.

  • Relieve worry and stress of arranging a funeral from your family

  • Lock in costs at today’s prices to avoid inflation

  • Potential taxable amount of your estate or inheritance

Cons of Prepaid Funeral Plans

  • Risk of funeral home closing or going out of business

  • Most prepaid plans won’t transfer from funeral home to funeral home, in the case that you move or pass away in another location

  • You may not receive a refund if your plan change 

  • Opportunity cost of prepaying for a funeral rather than investing funds to grow your estate or purchasing a life insurance policy

Is It Smart to Prepay Your Funeral?

Whether or not it’s smart to prepay your funeral is highly dependent on your personal circumstances. A prepaid funeral plan can be a great idea if you have specific desires for how you want your funeral to play out, or you’re very concerned that planning a funeral would be a great burden for your family members. If you do decide to plan a funeral, you might find our funeral planning guide helpful! 

However, keep in mind that there are some risks involved. For example, you or your family may not be able to get a refund or transfer your prepaid plan if your circumstances change. From this aspect, age is a factor to consider. If you are in the process of planning your estate, but have quite a bit of life to live, you may want to think about holding off on arranging your funeral in advance. The funeral home could close, or perhaps your funeral desires might be entirely different in 10 or 20 years from now. 

In addition, some would argue that there are better ways to leverage your money. Earlier, we mentioned that prepaid funeral plans could cost you around $7,000 to $9,000. This is a significant sum of money, and there are some opportunity costs. For instance, you could use that money to purchase a life insurance policy that could provide a sizable payout for your beneficiaries. They could use the insurance payout to pay for the funeral, and much more. Another option is to place the money into a Trust, and allow it to grow over the years through investments. 

Looking at the bigger picture of your assets, end-of-life and after-life wishes would help you make a better informed decision. On one hand, it might be nice to remove the worry of funeral planning from your family. On the other hand, you might find that the cost of a prepaid funeral might be a better benefit to your family if you invest it or take out an insurance policy instead. Regardless of whether or not you decide to pursue a prepaid funeral plan, it’s always a good idea to take a look at your estate plan as a whole. 

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