In the past two years Americans have been confronted with death and dying more frequently than ever in recent history thanks to the Covid-19 pandemic. Many young people have begun thinking about their own mortality and planning for the unthinkable for the first time. In today’s world, when it comes to pre-planning funeral arrangements, there are a lot of options and questions that might seem overwhelming: Cremation, burial, or natural organic reduction? Cremated remains or solidified remains? What will my family want? What will it cost? Do I need to pre-plan if I’m young and healthy right now? Can I prepay if I have a chronic illness? A terminal diagnosis?
Amid the myriad of options available to death-planners today, the question of pre-paying for a funeral can be a highly debated topic. Many funeral homes advocate for pre-arranging and pre-paying, but the general public can still find our own death difficult to talk about and plan for, especially with people that we love. However, it turns out that pre-planning and pre-paying for a funeral can have emotional and mental health benefits, no matter what your current health status is. We’ve consulted some deathcare experts and are here to tell you what individuals and families need to know to make the best decisions–financial and otherwise– to pre-plan for your own funeral.
Insurance or Trust?
Once you’ve decided to pre-pay and/or pre-plan for your own funeral arrangements, it’s time to figure out the best way to go about it. The two primary ways to pre-pay for a funeral are pre-need funeral insurance policies purchased through a funeral home, and setting up a funeral trust with a bank or financial institution. Each method works a bit differently.
According to Rob Goff, Executive Director of the Washington State Funeral Director Association and Owner of Dignified Assurance Planning,there is one main difference between trusts and insurance policies: insurance will often have a clause allowing for the difference between what you’ve paid in and the total cost of your funeral arrangement to be covered if you haven’t paid your policy out in full at the time of death, whereas a trust will typically allow you to put in whatever amount you want over any length of time, but a trust is more like keeping spare change in a bucket in your living room…whatever is in it at the time of your death is the amount you’ll have for your funeral, period. Rob explains that, “In Washington, like most states, you can’t pay the funeral home directly. You have to put your money into something that’s going to be secure, safe, and available to you when the time comes. I would personally recommend pre-funding into an insurance policy that is transferable, but whatever option is best for your family [is what you should choose.]”
Pre-Need Funeral Insurance
The pre-arrangement insurance policies used by funeral homes to cover the cost of funerals are a bit different than what is generally known as “life insurance.” A life insurance policy is meant to cover unexpected death, but is never guaranteed to pay out benefits because factors like cause of death affect the policy pay out. According to an article on pre-paid funeral plans, funeral insurance, and life insurance from Dignity Memorial, life insurance differs from prepaid funeral plans and funeral insurance in that the funds paid to beneficiaries from life are intended to replace lost income, not funeral costs. A funeral insurance policy made through a funeral home is made specifically to cover the cost of funeral arrangements, regardless of cause of death, and is a guarantee that your funeral will (at least partially, depending on the policy type and contract) be paid for in advance.
One of the benefits of an insurance policy through a funeral home is that you have the option to prepay in full with what is called a single-pay option, locking in prices and guaranteeing full coverage benefits regardless of health or time of death. For those who aren’t ready to drop one large sum, there are also multi-pay options which set up a 3, 5, or 10 year payment plan with varying pay-out policies according to factors like length of contract and health. According to Kasey Scott, Advanced Planner at the Wiefels Group, each payment plan works a bit differently, which offers flexibility and budgeting options for an individual’s specific needs. An extended multi-pay pay policy would require monthly premium payments and an insurance fee, similar to a car insurance policy, again, with the major difference being that unlike car insurance if you’re a good driver, a death insurance policy is 100% guaranteed to be used eventually. For example, if a healthy person makes a 10 year plan, they make their payments regularly, and they die at year 5, that person is covered, and locked in at the prices of the arrangements when she made the plan. If she lives those 10 years and finishes making her premium payments, when she does pass away the funds that were paid into insurance fees and interests above and beyond the cost of the funeral arrangements can actually go back to her estate or be paid out to her loved ones who are listed on the policy.
There are two important terms to understand in the funeral insurance industry, one is first day issue and one is guaranteed issue. Guaranteed issue means that anyone who walks through the door over the age of 18 is guaranteed to get a policy– it doesn’t matter what their health is. First day issue means that the insured is 100% covered if they die during the payment plan, and is a term meant for someone who comes in and answers “no” to a series of health screening questions.
Kasey Scott tells Health that ultimately there are three benefit components to insurance. First, it can often lock in the price of goods and services from the funeral home. Second, all of the paperwork is going to be taken care of for your family ahead of time. Third, there is no interest that accrues, just an insurance fee that, if the plan is paid out in full, can be returned to your beneficiaries. So if you go on a multi-pay 3, 5, or 10 year plan you are paying a premium, plus insurance fee to cover the policy if you should die early before the policy is paid in full. If you do pay the policy in full, those insurance fees are returned to your estate at the time of death.
Many pre-need funeral insurance policies are transferable to different funeral homes in different cities or states, which could be a huge benefit to a young death planner who isn’t sure what the next 10, 20 or 50 years of their life will look like. Transfer stipulations vary by state and insurance company, and sometimes the price guarantee dissolves with a transfer, so talk with your funeral home about the options available to you.
It’s important to note that pre-need funeral insurance does not guarantee a fixed rate for the cost of “cash advance” items like death certificates, clergy fees, permits, sales tax, or any fee determined by the government or an outside party that is not the funeral home, as the home does not have control over the inflation of those items over time like they would for products and services in-house. Insurance can contribute to those costs, but your family might need to pay the difference between pricing at the time the plan was made, and pricing at the time of actual death. Additionally, in most instances, pre-arrangement insurance policies do not count toward assets in Medicare/Medicaid determinations. This is because the majority of funeral homes write pre planning contracts as irrevocable. This means that there is no cash value to the policy until the time of death.
Funeral Trusts
According to a Bank Rate article, the Internal Revenue Service defines a funeral trust as ‘a ‘pooled income fund’ set up by a funeral home/cemetery to which a person transfers property to cover future funeral and burial costs. Trusts are typically set up between three parties, yourself, a bank which holds the assets in the trust, and the funeral home who will receive the funds to cover the cost of the funeral after your death.
There are two types of funeral trusts: revocable and irrevocable. Each type has benefits and drawbacks. An irrevocable trust means that once you place the assets into the trust, they are controlled by the trustee (bank or financial institution) until your time of death when they are paid out to the beneficiary. You cannot touch or retrieve those funds or assets during your lifetime. An irrevocable trust does not count toward asset evaluation in Medicaid determinations. On the other hand, a revocable funeral trust means that you retain control of your own assets, and can withdraw them and make changes to your trust contract, but the trust will count as an asset in Medicaid determinations. Plus, a trust will typically say that you can make payments and make up whatever amount you want over any length of time, and you can stop paying into a trust whenever you want.
According to Rob Goff, the drawback to a trust in many cases is that if you die and it isn’t paid in full or you haven’t put in the full amount that you need to cover your funeral, the amount that’s currently in the trust is all that you will have and your family will be responsible for the difference. An advantage of a trust is that, for example in Washington State, they can be used primarily for people who aren’t insurable because of extreme health conditions, old age, or imminent death.
What About My Health?
The issue of health, age, and wellness could come up for people in any generation who are setting up pre-payment for funeral arrangements. Unlike “life insurance policies,” funeral planning insurance from most major providers is available to any person over the age of 18 who wants a policy. However, depending on the type of policy that’s right for you, and the company you choose, you may have to answer some health screening questions which will affect the terms and benefit pay-outs determined by time of death.
For instance, if you have been given a terminal diagnosis with a short prognosis for life, and you aren’t able to pre-pay in full for the funeral insurance policy that you want, you can still set up a 3 or 5 year insurance plan with most companies and funeral homes. However, for the policy to pay out full benefits and cover the entire cost of the funeral as it is designed to do, you must either a) live long enough to finish paying out the policy, or b) have made a minimum amount of payments determined by the policy. Otherwise, the money that you have paid into the policy at the time of your death goes directly toward the cost of funeral arrangements, and family members are responsible for whatever the difference between what you’ve paid in and the total cost of the funeral is. You could also set up a trust, but keep in mind that whatever is in the trust at your time of death is all that you’ll have toward the cost of your funeral.
Maggie McMillan, Vice President of the Wiefels Group of Companies and All Caring, reveals that pre-arrangement insurance policies do need to be paid in full by age 90, so someone who is near that age and planning for the first time will need to be able to mostly pay in full up front. Also, health factors and policies do differ between insurance companies. Some companies might deem certain diagnosis’ with imminent death disqualifiers for policies, where others will insure individuals with a short life prognosis, but with altered pay-out clauses, or they may require full payment up front. This is a case in which trusts might be a better choice. Keep in mind that companies, policies, and regulations vary greatly by state, and it will be helpful to consult your local funeral home on the options best for you.
Why Pre-Pay?
When it comes to pre-need arrangements and pre-paying, most deathcare professionals agree that there are some valuable benefits of pre-payment for people of all ages and health statuses. First and foremost, the opportunity to involve family in planning and alleviate the financial burden left behind is a major benefit of prepaying and pre-arranging your funeral.
As we age, or see changes in our physical health, avoiding conversations about the inevitable can cause stress, anxiety, and even conditions like anticipatory grief in our loved ones. According to Maggie McMillan, one of the biggest benefits is the emotional support and relief that involving your loved ones in pre-planning and pre-paying can provide. Maggie tells Health, “If and when the unexpected happens you want everyone to already know what your wishes are, because that will make it easier when hard emotions inevitably come up after you are gone.”Knowing that your family is prepared and taken care of with prepayment can also help alleviate your own stress and improve your mental health while you are still here.
Additionally, Larry Stuart of *Cremation Strategies and Consulting* offers another insightful perspective on pre-payment and involving your next-of-kin in your preparations. If an individual makes plans for themselves without consulting the family, and without prepaying, then those plans turn out to be different than what the family wants, pre-arranging alone can actually become a bit of an emotional burden. Involving your family and loved ones in making pre-arrangements and financial decisions together can alleviate that burden.
Larry explains that, “We forget sometimes that funerals are not for the dead, they are for the living. I think it’s very important to think about not just what you might want, but what your family and loved ones will want and more importantly what they will need after you’re gone. Funerals and memorials are an important part of the grieving process and there should be room in your plans for your family’s wishes as well, because let’s face it, you aren’t going to be around for your funeral, and worrying about bills and finances in times of grief isn’t pleasant.”
Another perk of pre-paying for your funeral is that, depending on what method of pre-payment you get, you can often lock in a price guarantee on services and merchandise based on current pricing on the day that you plan. This way, your family is protected from industry inflation and price fluctuation. Kasey Scott tells Health that funeral costs tend to double on average every decade. So, if you are looking at pre-paying for a service that costs $3,000 today, if you were to not pre-pay, and then pre plan or pass away 10 years later, you could be looking at paying upwards of $6,000 for the exact same service.
If pre-planning for your funeral can help alleviate both the financial and emotional burden for your family after you’re gone, it seems like a no-brainer to incorporate a plan to prepay for your funeral arrangements into your estate planning now.
Planning for Your Future
Many experts also suggest finding professional support in your planning, along with keeping family members in the know, depending on your goals and needs. Rob Goff says, “I recommend revisiting your plans periodically throughout life. What you want today in your 20’s may not be what you want in your 30’s or your 50’s or your 80’s…you want to keep that planning program available as a living document so that it can change with your needs and your wants.” He also recommends keeping your family up to date on any changes you make, and being aware that your family members and next-of-kin may change throughout your life. Maybe your spouse changes, or maybe you get to the point where you have a person who has power of attorney. Those are things that you want to pay attention to.
If you still aren’t sure where to start, make an appointment to talk to your local funeral home or deathcare professional. Pre-need arrangements are a big part of funeral home business, and the professionals in your community will be equipped with knowledge about the stipulations, laws, and policies applicable to your state.
Thinking about death, and talking about end of life planning with your loved ones is never easy, but the long-term benefit of knowing that you’ve eased the emotional and financial burden that funeral planning can be in times of grief is ultimately worth it in the long run.
