Prepaid burial plans are frequently discussed as a proactive way to plan for the inevitable and alleviate your family from the financial and logistical burdens of funerals.
However, is this option the most suitable for you and your family?
Let’s delve into what prepaid burial plans entail and how they can assist in managing your final expenses.
A prepaid funeral plan involves entering into a contract with a chosen funeral home. An upfront payment is made to the funeral home, and in return, the funeral home commits that the paid amount covers all your funeral costs.
It is crucial to ensure that the agreed-upon price covers all the desired aspects for you and your family.
One significant drawback of prepaid burial plans is their lack of flexibility. These contracts offer little room for changes of heart.
There are two types of prepaid funeral contracts:
• Revocable: Allows cancellation, though not all money may be refundable.
• Irrevocable: Cannot be canceled, but some may allow transfer to a different funeral home.
Furthermore, unless a single substantial payment covers all final expenses, your family may still be responsible for some funeral costs. Additionally, burial plots, costing $500 or more, are not included and are non-transferable, incurring an additional expense if you choose a different cemetery.
The funds invested in a prepaid burial plan are often subject to investment. However, the potential for significant growth is limited, typically earning less interest than an average savings account.
If the funeral home mismanages the investment and the remaining funds fall short of covering the agreed-upon funeral expenses, retrieving the investment can become a challenging process. In most cases, recovering the full investment may not be possible.
In the event of the funeral home going out of business or declaring bankruptcy, reclaiming the investment is usually unattainable. If there is any recovery, it is often substantially less than the initial investment, given the numerous claimants seeking reimbursement.
Burial insurance, or final expense insurance, emerges as a significantly safer alternative to prepaid burial plans. It operates as a form of life insurance, ensuring that even if the premiums paid do not match the coverage amount selected, the agreed-upon death benefit is paid out.
While a waiting period of two to four years may apply for individuals in poor health, beneficiaries are guaranteed to receive all the premiums paid, if not more, if the insured individual passes away during that period.
In the event of an insurance company facing bankruptcy, state insurance regulators safeguard the funds and attempt to transfer the policy to a stable insurance company. If this proves unsuccessful, each state has a central guarantee fund providing coverage.
Burial insurance benefits can be used to cover various final expenses, offering flexibility for beneficiaries to use the funds as outlined in the individual’s will. Changes to preferences can be made as needed.