Written by our preferred partner: Ryan Knight, Attorney at Law.
A funeral is one of the biggest expenses in life and death. In fact, the average cost of a funeral in the U.S. is $7,848.1 If you want to absorb that cost yourself rather than leaving it to your loved ones, you might be considering a preneed funeral plan.
What Is a Preneed Funeral?
A preneed funeral, also known as a prepaid funeral, is a funeral that is planned and paid for in advance. Some people find this appealing because it allows you to lock in the price for funeral expenses—avoiding potential increases in the future, due to inflation or other factors.
A preneed funeral plan may include the pre-purchase of things like your:
- Cemetery plot
- Transportation/hearse rental
- Funeral home services
A prepaid funeral plan is typically paid for in monthly installments over the course of several years. That money is paid directly to the funeral home, which brings up several things you’ll want to consider before signing up for a prepaid funeral plan.
Questions to Ask Before You Buy a Preneed Funeral
You wouldn’t go into any other several-thousand-dollar purchase without doing your research, so a preneed funeral should be no exception. Here are some questions to keep on-hand when you meet with the funeral home.
How long have they been in business?
Hopefully, you won’t pass away for quite some time—and you’ll want to choose a funeral home that is still in business whenever that happens. Knowing how established they are can help give you some faith that you’re not just throwing money into a sinking ship.
What is their rating with the Better Business Bureau?
This is another piece of homework you can do to make sure the funeral provider is trusted and on the up-and-up.
Is the prepaid funeral plan guaranteed, or nonguaranteed?
A guaranteed plan will lock in the exact products and services you want at a specific price today. If prices go up by the time you die, your family won’t have to pay more. But nonguaranteed plans don’t include that same protection. With a nonguaranteed plan, for example: you might choose a casket that costs $4,000 today. But when you pass, if casket prices have jumped up to $6,000—someone will have to pay that extra $2,000.
Interested in learning more about estate planning or wealth management? I’m a guest speaker at some of Beacon’s special in-person events. View their calendar here.
Is the prepayment refundable?
One thing you can count on in life is change, and at some point, you might change your mind about where you want to be buried. A nonrefundable prepayment might not be a deal breaker for you, but it’s important to be aware of on the front end.
Am I really saving money?
A prepaid funeral plan may end up costing you more than you would pay for the funeral after fees have been factored in. For example, there will likely be administration and setup fees that run a couple hundred dollars. And some plans charge monthly and/or yearly maintenance fees.
Alternatives to a Preneed Funeral
At this point, if a prepaid funeral plan feels riskier than it’s worth, I don’t blame you. If you’re worried that—when left to someone else—your final wishes will not be honored, you may want to go ahead and prepay for everything now. But there are plenty of alternatives if you want to keep this really simple for your loved ones and avoid a preneed funeral contract with a funeral home.
Just know that simply earmarking extra money in your will or savings account dedicated to funeral expenses isn’t a great option. Any money set aside in your will has to go through the lengthy probate process, so your family won’t have access to those funds immediately.
Here are three other ways you can set aside money for your funeral in advance:
Final expense insurance
Final expense insurance is, simply, a whole life insurance policy. This policy pays out a relatively small death benefit—around the total cost of a funeral. Because of that, it can be as affordable as a few dollars a week. The payment is made soon after you pass and won’t have to go through probate. Final expense insurance may also be called “burial insurance,” “funeral insurance,” or “modified whole life insurance.”
Payable-on-death account (POD)
A POD account allows you to put aside money for your funeral and name a person you trust to withdraw those funds when you die. It doesn’t have to go through probate—all they have to do is show your death certificate to the bank when you pass. You can withdraw or add to a POD account at any time.
Veterans Burial Benefits
If you were in the military, your gravesite is covered at 100% if you choose to be buried at a national cemetery. You just need to apply using this preneed eligibility form.
And even if you don’t want to be buried in a national cemetery, the Department of Veterans Affairs (VA) offers several valuable death benefits for former service members, like a burial allowance. The amount you’re eligible for depends on a number of factors, so check out the VA’s website for details.
Plan For Your Funeral In Your Overall Estate Plan
Once you put your time, effort, and money into your prepaid funeral plans, make sure you tell your loved ones. After all, you’re making these decisions for their peace of mind just as much as yours. Your will might not be read until after your funeral, and you don’t want your planning to go to waste—so make sure they know you’ve already taken care of everything.
As we’ve discussed, there are many things to consider when planning out your end of life wishes. When it comes to your estate planning, I’d love to help. Hopefully the information in this article helps you start that conversation.
From Beacon Capital Management:
Ryan Knight, Attorney at Law owns Knight Legal and is our preferred partner. His office is jointly located with our headquarters in Franklin, Tennessee.
If you’re ready to talk about the legacy, estate planning options, and your overall financial plan—give our firm a call. Beacon Capital Management is a full-service wealth management firm that takes a comprehensive approach to financial planning. We want to help you cover the most important areas of your life.
1 National Funeral Directors Association. NFDA.org. Dec. 2, 2021. “Statistics.” https://nfda.org/news/statistics. Accessed Mar. 23, 2022.