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5 Alternatives to Prepaid Funeral Plans

Prepaid funeral plans are a popular way to cover the costs of a funeral in advance. However, there are several potential drawbacks to this type of plan that you should be aware of before you make your decision. In this article, you can expect to learn about prepaid funeral plans and what some alternatives are in case you decide a prepaid funeral plan isn't for you.

What is a prepaid funeral plan?

A prepaid funeral plan is a contract between you and a funeral home that allows you to pay for your funeral services in advance. This type of plan can be beneficial because it can help relieve your loved ones of the financial burden of your funeral costs, and it can also lock in today's prices for services that will be used at a later date.

How do prepaid funeral plans work?

Prepaid funeral plans work by you paying for your funeral services in advance. The money that you pay into the plan is placed into a trust fund or an insurance policy. When you die, the funeral home will use the money from the trust fund or insurance policy to pay for your funeral expenses.

With a funeral trust, the money that you pay into the plan is placed into a trust fund. The funeral home will hold onto the money until you die. When you die, the funeral home will use the money from the trust fund to pay for your funeral expenses.

What are the disadvantages of prepaid funerals?

There are several disadvantages of prepaid funerals that you should be aware of before you make your decision.

One of the main disadvantages of a prepaid funeral is that it can be difficult to get your money back if you change your mind. Once you pay into a prepaid funeral plan, you may not be able to get a refund if you decide you don't want the services.

Another disadvantage of a prepaid funeral is that many prepaid funeral plans assume that the funeral home you're working with will still be in business when the funds are eventually needed. If the funeral home goes out of business, you may not be able to get your money back. If the funeral home is bought out by another funeral home, you may not be able to get your money back.

Finally, if you move out of state or no longer want to work with the funeral home you have a prepaid funeral plan with, you'll likely be out of luck and will not be able to get your money back. (Keep in mind that the average cost of a traditional funeral is $9,000 -- this is no small sum of money that could potentially be lost.)

Alternatives to prepaid funeral plans

There are several alternatives to prepaid funeral plans that you can consider if you decide a prepaid funeral plan isn't right for you.

1. Set up a separate bank account

Setting up a separate bank account with the intention of having it as a funeral expense bank account is a great way to make sure you have the money saved up when the time comes. You can automate your savings by setting up a recurring transfer from your checking account into your funeral fund savings account. This way, you can make saving for your funeral expenses a hands-off process. Having a standard savings account with funds set aside for funeral expenses means you'll be able to have services at any funeral home of your choice. You won't be locked in to working with a specific funeral home and your money is protected if the funeral home you would've worked with eventually goes out of business.

An exception to this is to set up a Transfer-on-Death (TOD) Account, setting up a savings account as a TOD account makes it so that the funds are immediately transferred to the named beneficiary on the account at the time of passing. This makes it so the funds escape the probate process so that they can be used immediately.

2. Purchase a life insurance policy

Purchasing a life insurance policy is another great way to make sure your loved ones are taken care of financially after you die. You can name your beneficiaries and have the death benefit from the policy used to pay for your funeral expenses. This is a great option if you're worried about what would happen to your funeral expenses if the funeral home you're working with goes out of business.

Life insurance can be a great option for those who are worried about having their funds be subject to probate. If you were to set up a savings account, those funds may be subject to probate and not be accessible or useable for immediate final expenses. Life insurance policies are not subject to probate, meaning your beneficiaries will receive the death benefit from your life insurance policy without having to go through the probate process.

If you're interested in a life insurance policy that's specifically targeted towards final expenses, final expense insurance (also known as burial insurance is something to look into. Final expense insurance is a type of life insurance policy that is designed to cover just end-of-life expenses, such as funeral arrangements, medical expenses, and other final expenses, so it’s generally more affordable than larger life insurance policies. When researching final expense insurance, it's useful to compare final expense insurance quotes against other whole life insurance policy quotes to ensure you're getting a fair deal.

How much does final expense insurance cost?
Final expense insurance policies can be very affordable. Many people are surprised at how little they have to pay for a final expense insurance policy. The cost of a final expense insurance policy will depend on factors such as your age, health, and the death benefit amount you want. Average final expense policies typically cost between $30-$70 a month.

3. Assign funds in the will

Assigning funds in your will for the purpose of covering funeral expenses is another way to make sure your loved ones are taken care of after you die. This can be a great option if you're worried about what would happen to your funeral expenses if the funeral home you're working with goes out of business or if you move out of state and can no longer use the services of the funeral home you have a prepaid funeral plan with.

Like setting up a savings account, designating funds in your will for funeral expenses means those funds may be subject to probate and not be accessible or usable for immediate final expenses. If you're looking for an option that will allow your loved ones to access the funds right away without having to go through probate, designating the funds in a life insurance policy may be a better option for you.

4. Pre-purchase specific funeral items instead of entire policies

If you're set on the idea of prepaying for your funeral, you may want to consider only pre-purchasing specific funeral items rather than an entire policy. This could include items like caskets, urns, or headstones. Purchasing these items ahead of time can help relieve some of the financial burden on your loved ones after you die. This can also include pre-purchasing cremation and burial plots, which can cost thousands of dollars for your loved ones unless you prepare for it.

One thing to keep in mind if you decide to go this route is that funeral homes generally have a markup on the items they sell. You will likely be able to save a lot of money (often thousands) by purchasing directly from the retailer or from online marketplaces like Ever Loved. Pre-purchasing items instead of prepaying an entire funeral plan is a great option for covering some of the funeral expenses.

Browse funeral products

5. Share your final wishes with your loved ones

If you don't want to or can't prepay for your funeral, be sure to share your final wishes with your loved ones. This includes things like what kind of service you would like (traditional, non-traditional, cremation, burial), any specific music or readings you would like, and any other special requests.

Prepaying for your funeral can be a great way to take care of the financial burden on your loved ones after you die, but it's not the only way to reduce stress for those you love when the time comes. Recording key information and letting your loved ones know what your preferences are removes the burden of choice from them and makes it clear what you'd like to happen. (It's useful to keep price in mind when recording your final wishes, as your loved ones will be financially responsible for the funeral costs unless you have planned ahead.)

Share your final wishes

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Last updated June 28, 2022
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