Best Prepaid Funeral Plans: What to Know Before You Buy

A prepaid funeral plan is a contract with a funeral home that lets you pay for your funeral services in advance at today's prices. Families consider them because funeral costs rise 3 to 5 percent annually, and pre-planning removes the most difficult financial decisions from an already overwhelming time.

How Prepaid Funeral Plans Work

You meet with a funeral director, select the services you want (burial or cremation, casket or urn, ceremony type, etc.), and pay the total cost either as a lump sum or in installments. The funeral home guarantees those services at the agreed price, regardless of how much costs have risen by the time they are needed.

Types of Prepaid Plans

Irrevocable vs. revocable: An irrevocable plan cannot be cancelled or refunded once signed. This can be an advantage for Medicaid planning since irrevocable funeral trusts are exempt from asset calculations. A revocable plan can be cancelled for a refund, but the funds count as assets for Medicaid purposes.

Insurance-funded vs. trust-funded: Insurance-funded plans use a life insurance policy assigned to the funeral home. Trust-funded plans deposit your payment into a state-regulated trust account. Both protect the funds, but insurance-funded plans sometimes offer a small growth benefit.

Benefits of Prepaying for a Funeral

• Locks in current prices, protecting against future cost increases.
• Records your exact wishes so your family does not have to guess.
• Removes financial stress during an emotional time.
• May exempt funds from Medicaid asset limits (irrevocable plans).

Risks and Things to Watch Out For

• Locked-in provider: Some plans are not transferable. If you move, you may lose access to your prepaid services.
• Cancellation penalties: Revocable plans may charge a cancellation fee that reduces your refund.
• Funeral home closure: If the funeral home goes out of business and funds were not held in a regulated trust or insurance policy, recovery can be difficult.
• Upselling: Some funeral homes use pre-planning meetings to sell more expensive packages than you need.

Questions to Ask Before Signing Anything

• Is this plan irrevocable or revocable?
• How are the funds held: in a trust, insurance policy, or directly by the funeral home?
• Can I transfer this plan to another funeral home if I move?
• What is the cancellation policy and are there fees?
• What happens if the cost of services exceeds what I prepaid?
• What happens if the funeral home closes or changes ownership?
• Can I make changes to the plan later?

Alternatives to Prepaid Plans

Payable-on-death (POD) bank account: You open a savings account, name a beneficiary, and earmark the funds for funeral expenses. The money remains yours and is fully flexible.

Final expense insurance: A small whole-life insurance policy ($5,000 to $25,000) with simplified underwriting. The payout goes to your beneficiary, who can use it for funeral costs or anything else. More flexible than a prepaid plan but does not lock in funeral home pricing.