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How To Guard Your Loved Ones Against Final Expenses With Funeral Prepayment

10 July 2018

Stacy Carpenter

With the high cost of funerals, many are searching for ways to reduce the financial burden that their loved ones will experience after they pass away. Prepaying for your final expenses gives you peace of mind, knowing that you're doing your best to relieve your loved ones of the financial burden of paying for a funeral while also going through the grieving process. If you're interested in prepaying for your funeral, here's some information about the different types of funeral prepayment available to you.

Pre-Need Insurance

This type of prepayment is an insurance arrangement between you and a funeral home. Once you have selected your desired funeral package and received a total quote for your final expenses, you are given a monthly premium amount to pay until you pass away. After making enough on-time payments, the pre-need plan will activate and pay a benefit amount to help cover your final expenses. Because of this, pre-need insurance does carry a certain level of risk. You may pass away before the pre-need plan agrees to pay out a death benefit, leaving your loved ones liable for the whole cost of your funeral.

Some funeral homes guarantee pricing – the benefit amount will rise each year to fully cover your desired funeral package. Other funeral homes maintain the benefit at the funeral package price when you first signed up for pre-need insurance. If the funeral home's prices rise between the time you enrolled in the policy and the time you pass away, your loved ones will have to pay the difference between the benefit amount and the cost of the funeral.

Funeral Trusts

There are two types of funeral trusts that can be arranged with either a funeral home or a financial planner: an irrevocable funeral trust and a revocable funeral trust. When you initially create a funeral trust, you place enough money in the trust to cover your final expenses. When you pass away, the money in the trust will be disbursed to your chosen funeral home. Most states allow you to move the trust to another funeral home, but some don't – be careful that you don't get locked in to a single funeral home, as you may end up moving across the country and making it difficult for your loved ones to use your original choice.

Revocable trusts can be revoked at any time to dissolve the trust and reclaim the money you placed in the trust. Irrevocable trusts can never be dissolved – they're permanent until you pass away and the money becomes available to use for your final expenses. Revocable trusts are more convenient because you can recover your money for emergency expenses, such as medical bills, at any time. However, irrevocable trusts have one major bonus: Medicaid and Social Security don't count the money placed in the trust as an asset. If you're trying to lower your assets in order to qualify for long-term care with Medicaid, an irrevocable trust is a good way to accomplish this.

Payable-On-Death Accounts

Payable-on-death (POD) accounts are arranged with your financial institution. They essentially operate like one-way savings accounts – you can deposit money into the account and it will accrue interest, just like a normal savings account. However, you cannot withdraw money from a POD account. Instead, you name a beneficiary for the account, who receives the full balance once you pass away. While you have to place a large amount of trust in your beneficiary (there are no regulations that require the money to be spent on final expenses), POD accounts offer the most flexibility to your loved ones in deciding how to conduct your memorial services.

Note that you don't need to prepay for your funeral in order to make prior arrangements with a funeral home. You can contact a funeral director and arrange your desired funeral package to be put on file at the funeral home. This gives you a better idea of what your funeral will cost. You can also contact the funeral home at any time to see if the price of your funeral package has increased. This is useful if you're using a payable-on-death account to cover your final expenses, as you can deposit more money into the account in order to cover the entirety of your funeral costs.

With all the different types of funeral prepayment available, which is the best option? Irrevocable trusts are the best all-around option if you have enough cash on-hand to form the trust, as the money in the trust is required to be spent on final expenses and the trust can usually be transferred to a different funeral home. If you don't have enough assets to form a trust, then pre-need insurance allows you to make monthly premium payments until you are covered by the funeral home. For help in navigating the process of setting up a trust or pre-need insurance plan, speak to the director of a funeral home like Brinsfield-Echols Funeral Home.

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