There are many good reasons for planning a funeral in advance. The key advantage is that you (or the person you are helping to plan) get to make your own decisions about the type of funeral you want. One other big reason for preplanning is that you can better control the cost of the funeral.
The way you control costs is by choosing the services and products that mean the most to you at a cost which you think is fair and affordable. For example, the type of casket may not be a big concern for you so you select a simple wood version rather than an expensive bronze style.
An important aspect of preplanning can be making sure there are funds set aside to cover the cost of your funeral or burial. The question is, what is the best way to do that? There are a number of popular methods but one you see a lot about are pre-need funeral contracts.
What’s the difference between Pre-need and Preplanning?
When you see the term pre-need, it means a type of arrangement where you pay for funeral products and services ahead of time, or long before death has occurred. You enter into a legal agreement to fund the arrangements. You commit to a particular funeral provider and make monthly or quarterly payments to a third party such as a funeral insurance company over a set period of time. Before deciding to commit to a pre-need contract you should make sure that this type of tool is the best for your particular financial situation. Sometimes the term “funeral plan” refers to this type of contract.
When you do preplanning you make decisions about the type of funeral or burial you want, what type of ceremony you prefer, and the products you would like. Your planning can be as simple or as detailed as you like. You leave the instructions with your loved ones and they take care of the details when the time comes. There is no payment required to preplan. Of course, it is best to have funds set aside for your family to use but you don’t have to do this through an irrevocable financial arrangement. You can simply set aside cash in a bank account, take out an insurance policy, set up some other method of payment.
Many people find pre-need funeral contracts appealing because they lock in the price of the funeral products and services they select. To lock in the price though, you are required to commit to a contract and fund the contract. Many people choose to prefund only their cemetery property—a plot or crypt. Others contract in advance for full funeral and burial services along with merchandise. Even though one of the main goals is to control the price of these items, not all contracts provide a price guarantee. You should read the fine print carefully.
Two popular methods of funding pre-need funeral contracts are funeral trusts and funeral insurance. By establishing a funeral trust or purchasing funeral insurance, you are placing the funds with a third-party (i.e., a trustee or an insurance company) who will manage the money and use it to pay the designated providers at the time of your funeral.
Pre-need funeral contracts can work well for many people but they do come with some risk. You should weigh the contract carefully before you sign and do your homework to make sure this tool is right for you.
Minimizing the Risk of Pre-need Funeral Contracts
Before you commit to a pre-need contract you should research the providers that are specified in the arrangement. Among the questions you should ask are:
- How long have they been in business?
- Do they have a sound financial outlook?
- How likely is it that they will still be in business when you need them?
- Do they have a good reputation?
- Is the prepayment refundable if you ultimately decide not to use them?
Are you confident they will still be in business when you need their services? Do they have a good reputation? Check on them with the Better Business Bureau. Is the prepayment refundable if you or your family ultimately decides not to use them?
Keep in mind that regulations governing the sale of pre-need funeral and burial agreements vary by state and there can be significant differences in these state laws. You should consult with a reputable funeral director or cemetery owner regarding the applicable laws in your state.
Read the fine print!
The most important thing you can do to minimize the risk of entering into a pre-need funeral contract is to make sure that you understand all the terms before you commit. If you are not comfortable that you understand your obligations, consult with an attorney or financial advisor. Here are some key questions that you should ask before signing the contract:
- Is the contract flexible?
- Can you change the products and services?
- What happens if you move and want the funeral held in another city?
- Can it be transferred to another funeral director?
- What if the merchandise you have selected is no longer available at the time of the funeral?
- Will the products be delivered now or at the time of the funeral?
- Since caskets and vaults are large items, where will they be stored if they’re delivered in advance?
- What happens if the provider sells or goes out of business?
- To what extent is the price guaranteed?
- Can the contract be canceled?
Pros and Cons of Pre-need Funeral Contracts
There are many good reasons to enter into a prepaid contract for funeral goods and services in advance:
- If you have already selected a funeral home or cemetery it may make sense to pay in advance. If, for example, you plan to be buried where other family members are buried, it may make sense to pre-purchase an adjoining grave or mausoleum space. Buying in advance ensures you get the location you want and may lock in the price.
- Many providers will guarantee to deliver services and merchandise at today’s prices if you enter into a pre-need funeral or burial agreement and pay for it in advance.
- Pre-paying ensures that an amount you consider appropriate will be earmarked for the funeral.
- Depending on your financial situation, pre-funding can help you manage the value of your assets. For example, funeral insurance is not considered to be a personal asset in determining eligibility for assistance from social service programs, such as Medicaid.
- Most states have laws requiring that providers set aside a certain percentage of prepayments received in a trust account. However, the trusting requirement can vary from 30% to 100% and the provider manages the trust. You should be cautious about making prepayments directly to your provider if the purchased items are not immediately delivered.
On the downside, you assume a degree of risk when entering into a pre-need contract.
- You may lose control of some of your assets when entering into a funeral trust. If you should need the cash for an emergency you may not be able to access it.
- The provider you contract with may no longer be in business when you need them. You can minimize the danger of this by making sure your contract allows you to transfer the contract to other providers.
- Pre-need funeral contracts may require that goods are delivered in advance. Larger items, particularly items such as caskets, will need to be warehoused. Over time, they may be subject to deterioration.
- Your needs may change over time and locking yourself into a contract can make it difficult to adjust your plans for your funeral. Making sure your agreement has a degree of flexibility can help avoid difficulties down the road.
- Market conditions can change over time. It is possible that new options become available in the future which are actually more economical than what you have selected. This is especially true for items that are becoming easier to purchase online.
Only you can decide if entering into a pre-need contract is right for your financial situation. With careful research you’ll be able to make the wise choice and get the peace of mind that comes from knowing your loved ones will have everything they need to fulfill your final wishes.