Prepaid Burial Plans

Prepaid burial plans are an oft-discussed way to plan ahead for death and protect your family from the cost and burden of funerals. 

But are they the best choice for you and your family? 

Let’s take a look at what they are and how they help take care of your final expenses.

Prepaid Burial Plans

What are prepaid burial plans?

A prepaid funeral plan is a contract you make with a funeral home. You make an upfront payment to your funeral home of choice and the funeral home agrees that the price you pay covers all of your funeral costs. 

You will need to make sure that the price you pay covers everything you and your family will want.

They aren’t very flexible

One of the major drawbacks to these contracts are that they don’t offer a chance to change your mind.  

There are two different kinds of prepaid funeral contracts:

• Revocable: This means you can cancel the contract. However, you will NOT get all of your money back.

• Irrevocable: You cannot cancel the contract, but sometimes you can transfer it to a different funeral home. 

Also, unless you make one big down payment to cover all of your final expenses, your family is still going to be on the hook for some of your funeral costs for a while. 

You will also have to pay for a burial plot as these do not include one. They cost $500 or more. And they are not transferable. So, if you decide on a different cemetery, you have to eat the cost and pay for another one.

There’s some risk with prepaid burial plans

The money you invest in a prepaid burial plan is often invested. Do not expect it to grow much though, as they typically earn less interest than an average savings account. 

And if the funeral home mismanages your investment and the remainder is not enough to cover the agreed upon funeral expenses, oftentimes it’s a nightmare to try to get your money back. Most of the time, you can’t recover your investment. 

And if the funeral home goes out of business or declares bankruptcy, there is usually no way to get your investment back. If you can get some of it back, it’ll be a lot less than you invested as you will be one of many trying to recover your funds.

What is a safer route to take?

Burial insurance, or final expense insurance, is a form of life insurance that is a great deal safer than a prepaid burial plan. 

Even if the premium you’ve paid to date doesn’t match the coverage amount you select, it still pays out the agreed upon death benefit. 

Full disclosure, there’s sometimes a waiting period of two to four years if you are in poor health. But your beneficiaries will get all the premium you paid in if you die during that period — if not more.

As far as what happens if your insurance company goes bankrupt, state insurance regulators will protect your funds and try to transfer your policy to a stable insurance company. If that doesn’t work, each state has a central guarantee fund that provides coverage. 

Burial insurance benefits can be used to pay for any kind of final expenses, too. Your beneficiaries can use the funds however you describe in your will and you can change your mind however many times you need.

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