The Risks of a Prepaid Funeral

The usual story regarding issues with prepaid funerals is similar to this – one person purchases a prepaid funeral plan and does not inform her family. Years later, she passes away and the documentation for the prepaid funeral plan is nowhere to be found nor does anyone know that it even exists. The family pays for the funeral, and only afterwards is the paperwork discovered. However, at that point the funeral has already occurred, and the home refuses to refund the family for the costs.

On the outset, prepaid funerals sound like a good idea to include in estate planning. It appears to be a way to reduce the stress and costs of planning a funeral on your family; however, many issues can arise with the incorporation of a prepaid funeral into an estate. Other options are available in estate planning that can solve the same problems without the potential pitfalls of a prepaid funeral.

Common Problems with Prepaid Funerals

One big issue with prepaid funerals is cost. The average price of a funeral is around $8,000 according to the National Funeral Directors Association, but some prepaid plans can end up costing more in payments than the payout in the end. This has a detrimental effect on the rest of your estate that you want to leave to your loved ones.

Another issue with some prepaid funeral plans is a “redemption clause.” Because so many prepaid funeral documents are lost or plans were never told to the families some less scrupulous prepaid funeral companies have instituted a redemption clause. It states that a prepaid plan claim must be submitted to the company within a certain time period (usually 30 days) in order to be accepted and a payout to be made.

Alternatives to Prepaid Funerals

Research has found that the majority of Americans do not shop around for funeral planning services or a funeral home. Most people either choose the funeral home closest to them or the home that other members of their family have used. By comparing various funeral homes, prepaid and otherwise, you can see the options and services that are provided by each and choose the one that is right for you.

If you want to provide something for your family that will take some of the stress out of planning and paying for your funeral consider creating a “payable upon death” account. These types of bank accounts earn interest, provide money in case of an emergency, and can provide financial support for your funeral after you have passed away.

Another way to relieve the stress and problems that come with planning for your funeral is to simply talk with your family and loved ones about your wishes. Most people do not want to talk about their funeral because the topic makes them uncomfortable, but by explaining what you want it reduces the guesswork, and most likely some cost, for your family later on.

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