What Are the Disadvantages of Prepaid Funerals?

Experts Cite Valid Concerns, But There Are Alternative Solutions

Prepaid funeral plans can offer peace of mind, and can be a good idea for some families. There can be financial relief by locking in current prices and by handling arrangements in advance, but prepaid funeral plans also come with potential disadvantages.

These include a lack of flexibility, financial risks like the potential loss of funds if the funeral provider goes out of business, and the possibility of overpaying or being locked into arrangements that don't fully cover future needs.

Consumer finance experts like Dave Ramsey, Suze Orman, and Clark Howard unanimously advise against prepaying a funeral home for your funeral plan citing these same disadvantages. "If you prepay, it's a gift to the funeral home," according to Ramsey.

Here's a more detailed look at the disadvantages they identify and alternative solutions you get from Legacy of Love:

Flexibility Issues

Limited Choices: Prepaid plans often restrict your options for funeral homes, locations, and even specific services like flowers or catering.

Changing Circumstances: If you move to a different area, your plan may not be transferable, or it might be difficult and expensive to adjust the arrangements.

Inability to Change Your Mind: Once you've prepaid, you may not be able to make significant changes to the plan, even if your preferences or circumstances change.

Legacy Of Love's Alternative Solution Your Legacy of Love's funeral plan can be used at ANY funeral home in the U.S. Instead of prepaying that funeral home, you pre-fund your funeral plan with affordable pre-need or burial insurance. The policy beneficiary is NOT the funeral home, it's typically a spouse or family member. This gives you the flexibility to use any funeral home and the portability needed if you relocate to another town after making your plan.

Financial Risks

Potential Loss of Funds: If the funeral home goes out of business, you could lose your prepaid money, especially if the funds aren't held in a secure trust or insurance product.

Inflation and Investment Risks: Some plans may not adjust for inflation, meaning the money you prepaid might not cover the full cost of services when they are needed.

Limited Access to Funds: Prepaid funds are typically tied up and not accessible for other needs that might arise, like unexpected medical expenses or other financial emergencies.

Overpaying: You might end up paying more than necessary, especially if you prepay for services that don't keep pace with inflation or if you buy unnecessary options.

Legacy Of Love's Alternative Solution Your Legacy of Love pre-funded funeral plan doesn't prepay your selected funeral home. The policy beneficiary is typically a spouse or family member, helping you avoid loss of funds if the provider goes out of business. Our pre-need insurance plans do adjust for inflation. Instead of tying up funds by fully prepaying a funeral home, you make monthly payments over a period of time that is comfortable to you: 1, 3, 5, or 10 years. You can avoid overpaying by pre-planning your funeral since industry data shows that people who do pre-plan their funeral spend 20% - 40% less than people who don't plan. Your Legacy of Love local counselor can collaborate with you as you develop your funeral plan to be the "designated skeptic" recommended by consumer advocate Clark Howard. Lastly, you can add-on a funeral concierge to your plan who can review your cost for services and offer industry discounts available to them.

Other Potential Problems

Complexity and Hidden Costs: Prepaid contracts can be complicated, with hidden fees and clauses that are difficult to understand. It's crucial to review them carefully with a professional before signing.

Impact on Government Assistance: Prepaid funeral plans can affect eligibility for Medicaid or other government assistance, as they may be considered assets.

Reliance on Provider: You're relying on the funeral home to fulfill the agreement, and their financial stability and service quality are important factors to consider.

Lack of Portability: Plans are often tied to a specific funeral home, and if you move, you might not be able to transfer the plan easily.

Legacy Of Love's Alternative Solution You can collaborate with a Legacy of Love expert counselor while developing your plan and deciding on how to pre-fund it. Their job is to remove complexity and ensure there aren't any "gotcha" hidden fees. Adding on a funeral concierge service can be another layer of advocacy and cost transparency. Legacy of Love funeral plans pre-funded with pre-need insurance help avoid loss of Medicaid eligibility since they are not considered assets. And, as mentioned before, the policy benefit goes to your spouse or chosen beneficiary making it portable and not subject to the financial stability of the funeral provider.

Alternatives to Prepaid Funeral Plans

Besides prepaying a local funeral home, here is a list of options for you to review:

• Life Insurance: A life insurance policy can provide funds for funeral expenses and other needs, offering more flexibility than a prepaid plan. If you are young and relatively healthy, a term life insurance policy that replaces your income and funds your funeral could be affordable and economical.
• Final Expense Insurance: If your age, health condition, or financial situation make term life insurance impractical, then pre-need or final expense insurance give you affordable options to pre-fund your funeral. This type of insurance is specifically designed to cover funeral costs and can be a good option for those who don't qualify for traditional life insurance.
• Savings Account: You can set aside funds in a savings account to cover funeral expenses, allowing for greater flexibility and control. To avoid probate delays, consider setting up a Payable-on-Death (POD) savings account. There's no cost to do this. The account has a beneficiary designation and the money transfers to the beneficiary upon your death. The beneficiary has no rights to the account while you are alive.
• Preplanning without Prepaying: You can preplan your funeral arrangements with Legacy of Love without prepaying. Without needing to visit a funeral home, you can go online to compare and choose the specific services you want. That plan and your instructions for your family are preserved in a leather-like binder and also in our secure online portal.

Summary

Consider your individual age and health circumstances, financial situation, and preferences when deciding whether a prepaid funeral plan is right for you. If you choose to prepay, carefully research the funeral home, and understand the terms of the contract. Instead of prepaying a funeral home and encountering the disadvantages identified, consider pre-funding your funeral plan with an affordable, flexible Legacy of Love insurance solution.

Worried about the disadvantages of prepaid funeral plans and need solutions? Call Legacy of Love now at 833-888-0355 or fill out our online form and we'll respond right away.

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