In theory, prepaying for your funeral sounds like a good idea, and you likely have good intentions by considering it. Most people consider prepaying for their funeral so that their heirs or children do not have to handle the expenses while going through their grieving process. However, before purchasing a funeral prepayment plan, you must be aware of all of the factors that go into such a decision. Not all funeral prepayment plans will deliver what they promise and so you must consider all facets of such a plan. Here are six things you should know about funeral prepayment plans so that you can make an informed decision on whether or not to obtain one.
1. The Funeral Home May Not Be Around When You Pass Away
Purchasing a funeral prepayment plan is banking on the fact that whatever funeral home you are using will be around when you pass away. However, your prepaid funeral contract may not be able to deliver on its promise if the funeral home goes out of business or even changes hands. Although a funeral home can give you a sense of security when you are purchasing such a plan, this is often false, and so you must take it with a grain of salt.
2. You Must Comparison Shop This Type of Plan
Funerals cost an average of $6,500, which does not include additional cemetery costs such as obituary notices, limousines, and flowers, which can push the price up to over $10,000. However, many people who consider a prepayment plan do not comparison-shop to find the best deals for their funeral or burial. If you are considering going this route, then it is critical to comparison shop multiple prepayment plans and not just purchase one from the funeral home that is nearest to your home. Additionally, you do not have to buy the first policy that a funeral director throws your way. Instead, you can decide on the particular individual services and goods that you want at your funeral and only prepay for those.
3. Funeral Director Has to Disclose Where Your Money is Going
It has been noted that 53 percent of those who prepay for their burial or funeral pay the entire lump sum, whereas 44 percent pay installments over a period. Whichever category you fall into, it is crucial that you know exactly where your money is going if you prepay for your funeral. Funeral homes are required by law to disclose exactly where your money is going. However, one study found that 40 percent of seniors who purchased a prepayment plan had no idea what the funeral director is planning to spend the money on. Usually, the funeral director will put the money into a trust fund account or buy a life insurance policy that all of the expenses will be used for.
4. Cancellations and Refunds of Your Policy
In most states, the funeral director does not have to give you a full refund on your prepayment package if you decide to cancel it. Find out the circumstances that let you cancel the contract and the percentage of the money you paid that will be returned to you if you decide to change plans or go about your funeral in a different manner. You do not have a guarantee that you will receive your funds back or get the same amount of money that you initially put into it.
5. Funeral Prepayment Plans Have Fine Print
Contracts vary widely from plan to plan. It is crucial that you read the fine print on your prepayment agreement. Even if you purchase a guaranteed installment plan that the funeral director says will cover all of your funeral expenses does not mean that it will actually include all of the expenditures when your family attempts to cash out. For instance, if you pass away outside of the funeral’s service area, then your family may have to pay an additional fee to move you to the funeral home.
6. The Medicaid Factor
A benefit of purchasing a funeral prepayment plan is the Medicaid factor that goes with it. Prepaying for your burial or funeral will shelter that money from Medicaid. This is because the money that you set aside for this expense will not be factored into your net assets when considering your eligibility for Medicaid or Supplementary Security Income (SSI). To ensure that this exemption occurs you should make sure that you purchase a legitimate plan that is Medicaid-exempt. Additionally, be aware that if there is any money left over after your funeral expenses, then it will be subject to being recovered by Medicaid.