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What to Look for in Pre-Paid Funeral Plans

Oct 1, 2019 | Estate Planning

Pre-paid funderal plans are one way to ease the burden on your family following your death and make sure your wishes are carried out. But pre-paid funeral plans come with risks, so you need to exercise care when purchasing a plan. 

Funerals are expensive and can take a lot of effort to plan. To help relieve your loved ones of some of this expense and effort, you can pay for your funeral in advance with a pre-paid funeral plan purchased through a funeral home. In addition to making things easier for your family during a difficult time, pre-paid plans allow you to lock in the costs of your funeral against inflation. Pre-paying for a funeral can also be a good way to spend down money in order to qualify for Medicaid.

However, you must also be extremely cautious when pre-paying for a funeral. Unfortunately, many consumers lose money every year when funeral homes go out of business before the need for the funeral arises. If the funeral home mismanages your funds, there may be no way to recover them. In addition, customers are not always entitled to refunds if they change their minds, and some funeral homes sell policies that require additional payments or that can't be transferred if the customer moves. 

If you decide to go ahead with a pre-paid funeral plan, the following are things to consider:

  • Shop around. Prices among funeral homes can vary greatly, so it is a good idea to check with a few different ones before settling on the one you want. The Federal Trade Commission's Funeral Rule requires all funeral homes to supply customers with a general price list that details prices for all possible goods or services. The rule also stipulates what kinds of misrepresentations are prohibited and explains what items consumers cannot be required to purchase, among other things. 
  • Make sure you have a reputable funeral home. There have been cases of unscrupulous funeral providers taking advantage of customers, so make sure you choose a funeral home with a solid reputation. 
  • Read the contract carefully. Before signing, it is important to know what you are agreeing to. Can you cancel the plan and get a refund? Is the plan transferrable if you move to another area? Are you paying just for merchandise or for funeral services as well? If prices for funeral merchandise and services rise, will your estate be responsible for paying additional costs? 
  • Find out where your money goes. The pre-paid plan should provide information on what the funeral home will do with the money you pay them. Some states have protections in place to make sure the money is safeguarded, but other states offer no protections. Is the money put into a trust account? What happens to the interest income? Is there a plan if the funeral home goes out of business? What happens to any money left over?
  • Make sure the plan won't affect Medicaid benefits. If you are buying the policy as part of Medicaid planning, you must purchase an irrevocable plan, which means you can't cancel or change it once it is bought. 

Once you've purchased a plan, be sure to tell your family about the plan you've made and let them know where the documents are filed. If your family isn't aware that you've obtained a plan, then the plan is useless.

Written by Brad Sperr
Brad focuses on explaining complex topics in Estate Planning, Elder Law, Special Needs, and Probate matters in a way that is approachable and understandable.
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