How Does a Prepaid Funeral Work?

Adult daughter hugging her mother while they cook together and discuss a prepaid funeral

Key Takeaways

  • Prepaid funerals involve arranging and paying for funeral expenses in advance with a funeral home, which can help reduce stress during the funeral planning process.
  • Various options are available for prepaying funeral expenses, including using cash, whole life insurance policies, burial or final expense insurance, and trusts.
  • If someone doesn't want to prepay but still wants to plan financially for a funeral, alternatives include using a portion of a life insurance policy, designating funds in a savings or brokerage account, or considering final expense insurance.
  • Prepaid funerals can alleviate the financial burden on families after a person's death, but concerns may arise regarding the future stability of the funeral home or the person's location.

Have you ever considered a prepaid funeral as part of your estate plan? Some people consider setting aside money for a funeral to be an act of kindness toward their family members. Whether a death is sudden or anticipated, it can be a stressful and emotional experience for loved ones. On top of that, funerals can be expensive.

Median Cost for an Adult Funeral

The national median cost for an adult funeral with viewing and burial was $7,848, according to the National Funeral Directors Association.1

For a viewing and cremation, the national median cost was $6,970. These figures don't include the cemetery fees, markers, obituaries or flowers.

To help cover these costs, some people prefer to set up prepaid funerals. Here's an overview of how prepaid funerals work and how you can start setting one up.

What Are Prepaid Funerals?

A prepaid funeral is an arrangement someone makes with a funeral home to pay funeral expenses in advance. It can help reduce some of the stress of funeral planning.

The easiest way to prepay a funeral is with cash, but not everyone has the money on hand for that. Fortunately, there are some other options available. Here are a few examples:

  • Whole life insurance policy: A whole life insurance policy can be used to help cover the cost of a funeral. You pay a premium for the whole life insurance policy, just like any other type of policy, and the funeral provider is generally listed as the beneficiary. Oftentimes, the insurance policy is linked to a contractual funeral pre-arrangement. Consider speaking with a financial representative for more information.
  • Burial or final expense insurance: This is similar to whole life insurance, where the insurance proceeds can be used for funeral and burial expenses.
  • Trust: You may be able to prepay a funeral by setting up a trust with the funeral home. When you die, the assets in the trust help pay for the funeral.

Saving for a Funeral Without Prepayment

Prepaid funerals are one way to help reduce the financial burden on families when a person dies. But not everyone is comfortable with prepaid funerals. There may be concerns about whether a funeral home will be in business when the services are needed, or if the person will still be living in the same area as the funeral home. For those who want to plan for the funeral financially without paying in advance, there are some other options. Here are a couple examples:

  • Life insurance policy: A portion of a life insurance policy can be designated for funeral costs. Some funeral homes allow the beneficiary to assign them proceeds as payment. Final expense insurance proceeds can also be used for funeral costs without tying a person down to a specific funeral home.
  • Savings or brokerage account: A person can earmark money in a savings or brokerage account for funeral costs. If the account is designated as "payable on death," the money will be immediately available without needing to go through probate.

As you or your loved one thinks about estate planning, you may want to consider adding funeral planning in the mix. Whether you decide to prepay or complete some other financial planning for a funeral, your loved ones will likely appreciate avoiding this stress when the time comes. A financial professional can discuss more about how prepaid funerals work and your options with you to help determine what might work best.

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  1. 2021 NFDA general price list study shows funeral costs not rising as fast as rate of inflation.

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