Prepaid Funeral Plans – What Are They, How They Work, & How to Save

A prepaid funeral plan allows you to choose your services and details of the ceremony from the kind of celebration, types of flowers, and more. You then can pay in installments that fit your current budget, relieving your loved ones of having to make complex decisions during this time.  

It is becoming much more common for people to plan their funerals. They are interested in choosing how they would like the service to look and feel or want to relieve the financial burden from their loved ones. An additional consideration is saving money by purchasing a prepaid funeral plan. 

Whatever the reason for inquiring about a prepaid funeral plan, Referah can help you understand what they are, how they work, and the best ways to save. In this article, we will discuss the pros and cons of prepaid funeral plans, how plans affect Medicaid, prepaid funeral plans vs. life insurance, and more. 

Pros and Cons of Prepaid Funeral Plans  

Are prepaid funeral plans a good idea? To answer this question and find out what is best for you, one must understand the pros and cons of having one. While it may sound beneficial to pay in advance so you may save some money, it is essential to read the plan details before making any final decisions.  

Below is a list of potential pros and cons of prepaid funeral plans: 

Pros of Prepaid Funeral Plans  

• Guaranteed fixed prices that will not be affected by inflation. 
• You can choose how much to spend and the payment rate that works for you. 
• You have control of the details of your service and ensure your wishes are honored. 
• Your family will not be left with 100 percent of the financial cost burden. 

Cons of Prepaid Funeral Plans  

• If you relocate, you may not be able to use the plan as they are not transferable from one funeral home to another. 
• Unexpected costs and fees will have your family financially responsible, such as third-party vendors like police escorts, musicians, etc.  
• Never pay the home or funeral director directly in case the funeral home goes out of business. Instead, it is required that prepaid funeral plan payments be securely invested with an independent entity such as an insurance provider or trust. 
• Not every funeral home works with the cemeteries to cover cemetery costs, which may need to be planned separately. 

Prepaid Funeral Plans and Medicaid  

Suppose you are trying to qualify for Medicaid but have too many assets to be considered eligible. Prepaid funeral plans can be used to “spend down” on your assets. Assets like a prearranged funeral plan and cemetery property are exempt from Medicaid qualification. 

Medicaid laws can be quite different from state to state. There may be limits to how much you can spend and how you set this money aside. Most states will allow you to prearrange your funeral for any desired amount if you use an irrevocable trust or funeral contract. 

Or you can choose a revocable account or a life insurance policy to pay for funeral expenses. But in this case, it is more common for states to potentially limit this amount to $1,500 to qualify for Medicaid. For more information, review our article on Medicaid look-back rules.

Prepaid Funeral Plans vs. Life Insurance 

Prepaid funeral plans work differently than life insurance in that money will be paid to beneficiaries through a life insurance policy to replace lost income after your beneficiary pays for the funeral. Unfortunately, due to the time lapse between insurance payouts, the financial burden can go onto your family in the meantime. 

Referah has a number of resources for families who need to plan for every scenario. If senior living in a community setting is of interest (and it likely should be for every senior at some point) then consider reading our next article, “What Are Resident Rights in Senior Living?” 

Find Senior Care Near You 

Consider your current financial options when deciding if a prepaid funeral plan is best for you. Prepaid funeral plans can protect you and your family from soaring funeral costs and the emotional pressures of making decisions during a challenging time. 

Let Referah's team of experts help you with the process. Our Family Connection Agents work directly with seniors, their families, (and by extension) medical advisors to identify the best forms of support. Talk to one of our experts about finding professional care for your loved one today!