According to the National Funeral Directors Association, the average cost of a funeral is around $7,800 nationally. But the total end-of-life costs can easily rise to $20,000+. And while the assets that you disburse through your estate may be more than adequate to help your family cover those costs, the estate distribution process can be time-consuming or even contested, which could mean those assets aren’t immediately available. One thing that can make that all a little easier is considering prepaid funeral expenses.
Thinking about the financial obligations involving you or a loved one passing away can be particularly uncomfortable. Still, the uncomfortable subjects are some of the most important to prepare for. Prepaid funeral expenses can go a long way in making this process easier for you or the ones you leave behind.
A prepaid funeral plan is part of your estate plan that allows you to make your funeral arrangements ahead of time (and pay for them) to remove the added burden when the time comes. When losing a loved one, a prepaid funeral plan can be extremely valuable, as there is already so much to take care of. Any tasks that can be taken off their hands will make the weight of loss a little easier to manage.
[text_ad]
Plans for Prepaid Funeral Expenses
There are four primary plans for prepaid funeral expenses:
- Whole-life policy
- Burial insurance
- Funeral Trusts
A whole-life policy is essentially the same as a standard life insurance policy. You pay premiums until the death of the insured person, at which point the beneficiary receives a death benefit for the predetermined amount. To cover funeral expenses, you’ll need an assignable plan that the beneficiary can use with the funeral home where arrangements have been made, or you’ll need to designate the funeral home itself as a beneficiary. If you’re considering this route, contact the home’s funeral director.
Burial insurance works similarly. Burial insurance covers the costs and expenses related to death and burial. But you’ll need to designate a family member or close friend as a beneficiary and trust them to act in accordance with your final wishes.
A funeral trust is a legal arrangement (like all trusts) that holds funds for final expenses, allowing a person to set aside money to cover funeral, burial, or cremation costs according to their wishes, often through an irrevocable trust. You can fund these trusts with various assets like cash or life insurance, choose a trustee to manage the funds, and decide on a wide range of funeral services and products to be covered.
Trustees can be friends, family, or (less commonly) attorneys.
There are some drawbacks to planning ahead with prepaid funeral expenses. If death happens sooner than expected or if the funeral home goes out of business, you could be in for legal or financial difficulties. If you’re setting aside funds over time via a trust, an early death will leave a gap for survivors to cover. If the funeral home goes out of business, but funds have already been given to them, you may not have a path to getting them back.
Prepaid funeral expenses are a small step that you can take during life to help your friends and family after your passing, at a time when the last thing anyone wants to think about is money.
[author_ad]
*This post has been updated from a previously published version.
