Pre-planning and pre-paying for your funeral can provide you with peace of mind and save your loved ones from worrying about who will bear the costs. Here’s what you need to know.
Benefits of Pre-planning
Most funeral care professionals agree that pre-paying for funeral costs has valuable benefits for people of all ages and health conditions. One of the largest benefits of pre-planning and pre-paying is the emotional support and relief it offers to family members and others close to you, as explained by Maggie MacMillan, Vice President at Wiefels in Los Angeles.
Larry Stewart Jr., founder of Raven Bloom Consulting in Tulsa, Oklahoma, offers another perspective: if an individual makes plans without consulting family members and without pre-paying, and it turns out those plans differ from what the family wants, then this pre-arrangement can become an emotional burden. Involving family and loved ones in making pre-arrangements and financial decisions together can alleviate this burden.
Another benefit of pre-paying for your funeral is that, depending on the payment method you choose, you can often secure a price guarantee on services and goods based on current pricing at the time you plan. This way, your family is protected from industry inflation and price fluctuations.
Kasey Scott, advanced planner at Wiefels, states that funeral costs double every decade, on average. For example, if you plan to pay for a service that costs $3,000 today, if you don’t pre-pay and pass away in 10 years, you could face charges of up to $6,000 for the same service.
For some individuals, not all aspects of pre-planning and pre-paying may seem suitable. For instance, a plan that is not transferable to different states may not be appropriate for individuals with a more mobile lifestyle. However, in this case, discussing your final wishes with loved ones (such as where you would like to go and how you want to be handled) can relieve them in the event of the unthinkable happening. Experts agree that regardless of your situation, some level of pre-arrangement is a good idea.
How to Pre-pay for Your Funeral
There are two main ways to pre-pay for your funeral: either through pre-purchased funeral insurance from a funeral home or by establishing a funeral trust with a bank or financial institution. Each method works differently.
Start the process of either by scheduling an appointment to speak with a local funeral home or a funeral care professional. Pre-arrangements are a significant part of funeral homes’ business, and professionals in your community will have knowledge of the laws and policies in your state.
Another factor to consider when beginning is your age and current health status. Unlike life insurance policies, funeral planning documents from most major insurance providers are available to anyone aged 18 or older who wishes to obtain a policy. However, depending on the type of policy suitable for you and the company you choose, you may have to answer some health screening questions that will affect the terms and benefits available at the time of death.
For example, if you have been diagnosed with a terminal illness, and cannot afford the full cost of a funeral insurance policy, you can still set up a short-term policy for three or five years with most companies and funeral homes. However, in order for the policy to pay full benefits and cover the entire funeral cost (as it is designed to do), you must live long enough to complete paying for the policy or have paid the minimum amounts specified by the policy.
Otherwise,
The money you paid in the policy at the time of your death goes directly to the cost of funeral arrangements, and family members bear the difference between what you paid and the total cost of the funeral. You can also set up a trust, but remember that the amount in the trust at the time of your death is all you will have for your funeral costs.
Macmillan explains that prepaid plans must be fully funded by age 90, so someone close to that age planning for the first time will likely have to pay the full amount upfront. Additionally, health factors and policies vary among insurance companies.
Some companies may consider certain diagnoses as qualifications for the policies. Other companies may insure individuals with a potential short-term life diagnosis, but with different payment terms or may require full payment upfront. This is a situation where a trust may be a better option. Keep in mind that companies, policies, and regulations vary greatly from state to state, and it will be helpful to consult with a local funeral home about the best options for you.
Many experts also suggest finding professional support in your planning, along with keeping family members informed, depending on your goals and needs. If you have a financial advisor or estate planner, they will be able to guide you on whether insurance or a trust is the right choice for you, and how much you should set aside for the arrangements.
Rob Goff, executive director of the Washington State Funeral Directors Association and owner of Dignity Planning, recommends periodically reviewing your plans throughout your life. “What you want today in your twenties may not be what you want in your thirties, fifties, or eighties… you want to keep this planned program available as a living document so it can change with your needs and desires.”
He also recommends keeping family members informed of any changes you make, and being aware that family members and close relatives may change throughout your life. You may have a different spouse, or reach a point where someone has the power of attorney. These are matters you want to pay attention to.
Knowing Your Options: Insurance or Trust
There’s one major difference between trusts and insurance policies, according to Goff: insurance often allows for a clause that covers the difference between what you paid and the cost of your funeral arrangements if the policy is not fully paid at the time of death. While a trust will typically allow you to put any amount t
Source: https://www.realsimple.com/work-life/money/money-planning/funeral-estate-planning
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