Planning ahead is key in life. Many of us worry that when we go, what we leave behind in terms of assets may not be enough to cover our funeral. So, getting a pre-paid funeral plan sees a good idea to many people.
However, what if things change and your finances improve. Can you actually cancel the plan and get a full refund?
You can cancel a funeral plan before your death or someone can do it after your death if it’s intended for a spouse. You will either lose out on the money you have already put into the plan and/or have to pay a one-time fee to cancel the plan. A full refund is extremely unlikely.
In America, it is becoming less common to use and get a funeral plan than in the past.
There are many reasons why this is occurring, but since they are less common the contracts now tend to be more airtight.
Below I will go over the details of having and canceling a funeral plan if it suits you and your family.
What is a funeral plan?
There are two types of funeral plans prepaid, and a regular one. A prepaid funeral plan is simple, you pay for your funeral in advance. A regular funeral plan is the same thing, you just haven’t paid for it yet.
It is more of a preparation strategy and taking steps to have everything covered ahead of time. They are usually done with a single funeral home and paid for in full at the current market rate, but not always.
Depending on what you want to have the funeral plan can include but not limited to the costs of a casket/cremation, headstone, service, obituary information, photos, music, and sometimes your medical costs at the end of your life.
Where does the money go that I pay to the funeral home?
This is a tricky question and will vary by law from state to state. You will have to check with the state laws and also with the funeral home.
When you sign the contract for the funeral plan it should state where it is going and how it will be used. For example in Ohio, 80% of the money that is given to funeral homes legally has to and will be put into a Trust.
This money cannot be released to the funeral home until after the service and funeral you have chosen has been provided for you.
The other 20% of the money can be kept by the funeral home and used for whatever they see fit. But at the time of your funeral, 100% of the money you have pre-paid must be used for your funeral by law.
What are the types of pre-paid funeral plans?
There are basically two types of plans when buying a pre-paid funeral plan, you can choose a guaranteed plan which should specify the exact products and services you want you will choose them then and there.
You and the funeral home will also agree that the price you agree to is locked in. This means if prices happen to go up, the spouse or living relatives will not have to pay the difference in costs when the funeral occurs.
The other is a non-guaranteed plan which offers very little protection. You still make the plan and choose what products and services you want. But if you choose a headstone that costs $2,000, and by the time you move on, the least expensive headstone is $4,000 those that are taking care of your service will pay the difference of $2,000 or whatever it may be.
This plan is falling out of favor as more unscrupulous funeral directors have been preying on those in their time of grieving and charging them unfair amounts.
What does and doesn’t a funeral plan cover?
As with most types of plans, it covers whatever you pay for and in the contract. This is where it is advisable to have a professional read over the contract if you decide to purchase a funeral plan.
These plans sometimes don’t cover everything as you may have thought and your loved ones could be stuck with the bill at the time of your death.
As the popularity of these plans was in the past people, people that purchased these are now coming to the end of their lives.
With this families are now thinking that they are covered and going into the funeral to collect on the plan and being shocked that they have a bill and in some cases a large one.
This also goes for canceling a plan, some people realize that they no longer need or want these plans and are incurring different fees for canceling their plans.
Here are a few things that you should look for and make sure that is covered before getting a plan:
Administration costs- This is a common phrasing in a contract that is up to interpretation on both sides. It may have been understood at the time of the signing of what was an “admin fee” but new ownership or family members may have a different idea.
Apparently, some places have been charging up to $1,000 for such things as stationery, paperwork filings, and flowers. These plans with different “admin fees” may only become an issue if you’re canceling the plan as well. These costs could be high but still better than going through with the plan.
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Burial/Cremations- For the actual burial or cremation it is pretty straight forward. There are not many decisions to be made here or any areas that are known to be an issue.
Do think about if you want to have it direct burial or cremation if you want to cut down on costs. Also, if you want to cancel the burial and switch to a cremation, make sure that they do not charge you.
Cremations are much cheaper than a funeral and they are actually making money on it so if anything you should be getting a refund.
Casket/Urn-This is standard for all plans when you choose one of these options. There is not usually any issues with the cremation and the urn as they are relatively inexpensive. When one has chosen a casket some places have been known to say that they do not offer these anymore and may try to charge you for a similar yet more expensive one.
Plot- When you choose a plot the funeral home should contact the cemetery to reserve a plot. They will have a few options to choose from such as your exact plot, general area, or just any plot at the cemetery.
These will also differ if you want to have a double burial plot. All of these will vary in the ability to get a refund if you choose to cancel. Since the cemeteries were holding the spot and not selling it to someone else they tend not to refund you for that.
Headstone- This tends to be the biggest cost after the casket. This is also something that you probably don’t want to be done far in advance unless you are 100% sure that you know what you want on the headstone.
You will not get a refund if you cancel the headstone after it is completed. These also are very hard to transport and relatively fragile even though they are stone. When a casket is put in the ground it takes around 6 months to settle before a headstone is placed. This is enough time to have one created then.
Flowers/Brochure/Extras-You will see these at most services but if you have never planned a funeral before. These are costs can add up quickly and are often overlooked when making a funeral plan. When making a funeral plan the person may think that the family will just take care of the cost and not include this.
Transportation- Similar to the above the costs of transporting the body and family around in some cases can cost hundreds of dollars.
Who should have a funeral plan?
A funeral plan is not recommended now by most professions and usually only brought up by funeral homes. This is not to say they are a bad idea for all but there are just better ways to take it if you have the ability to plan ahead.
Here are four other ideas to choose from if you are considering planning ahead:
- Whole life policy– You pay into the whole life policy like any regular life insurance policy, it is quite simple and there are lots of options. Upon your death, the money will be released to the beneficiary. They will have the power to choose where the money goes. However, Term life insurance may suit you better if you have a higher income.
- Burial insurance- This insurance is a policy covering your costs of all expenses when you die again the beneficiary can use the death benefit however see fit. You usually pay a certain amount to be covered overtime or all at once.
- Revocable trust- You sign a contract to pay for the funeral in installments. The funeral director or whoever you choose puts these into an interest-bearing account and when you die they use the funds to pay for your funeral.
- Irrevocable trust- This is basically the same as a revocable trust and you plan ahead for your funeral but unlike a revocable trust, this one does not have the ability to be changed and is permanent.
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What services do I want to be included?
If you want an extravagant send-off or just a simple one, you need to know exactly what you want to be included before signing on the dotted line.
It is not just about thinking about all the parts, caskets, how many cars, the number of people you want to attend, where it will be, etc. Do thorough research and ask for references.
Is it the same for every funeral home and company?
No, it is not, they are drastically different for each other and very individualized. Also, be wary of the state that you are in. The FTC (Funeral Trade Commission) warns you, buyers, that some states offer no protection to you if something was to happen.
This means that you have no legal recourse and have little to no chance of winning in court if the company was to go out of business or were reneging on a part of the contract.
Are funeral plans countrywide?
For the most part no. As most of us are likely to move before you die, you should give extra thought to your policy and who it is with.
Most of these are through a funeral home and it isn’t flexible, they will almost not cover the costs of flying back or transporting the body. If they do it will be at a very high price.
What do you have to do and how do I cancel a plan?
First off if you are making the plan now, make sure that you are able to cancel it. In case somewhere down the line, you decide you don’t want a prepaid funeral plan you are able to and not lose all of your money.
Depending on the state and funeral home your money could be paid into a trust or they may hold it themselves. If you want to cancel and after reading the contract are able to first contact the issues provider then you usually will pay a one-time fee that could range from a few hundred dollars to a thousand.
Or another common type of refund, if you cancel, is you get a percentage of the money back and they keep the rest. If you are still paying in installments when you stop, the money you’ve already paid is kept and until something is worked out.
Isn’t that the same as a funeral policy?
No. A funeral policy is usually a form of life insurance that pays out a lump sum to your beneficiaries after your death and is not linked to any funeral director or funeral.
There are no opportunities for you to make decisions about the type of funeral you would like and if you cancel the policy or fail to make payments you might end up with no lump sum at all.
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How much will it cost you?
This plan, in theory, should save you some money but not as much as you would think. On average it should “save you” $2,000 to $4,000 for the actual product and services.
This is if you get a fixed price plan and you pay the funeral home in full right away. It will be less if you do installments and possibly none at all if you don’t lock in the prices at the current market rate.
You are also trusting the funeral home and hope that they don’t mismanage your funds or go out of business if they do there may be no way to recover them and you will lose out on all of it.
You are not always entitled to refunds depending on your plan if you want to cancel and some funeral homes sell policies that require additional payments in the fine print.
Who can cancel the plan by law?
This is not clear as it will change state by state and how the contract is worded. This is why you just get the contract reviewed by a lawyer that specializes in this if you choose to get a funeral plan.
In general, only the person who signed the contract can cancel the plan. The spouse or relative can cancel the plan but that would just mean they forfeit all the money to the funeral home and will have to pay for the funeral on their own.
What happens if the plan is not fully paid up when you die?
If you have not paid all the funds toward the funeral plan all the money that you have already paid will be used and the living spouse/ relatives will have to pay the difference.
Again, you will not be able to get the money back in most cases if you choose not to use their services
Can the money be used for any other purpose other than funerals?
In some cases and states, it can be used toward medical expenses or end of life care. This is not always the case and this depends again on states and the type of contract you sign.
What most people do is put money into this account so that they have less money in their accounts and it appears legally that they have less.
Without going too deep into the legal aspects people use funeral plans as exempt assets. These are used like that so that they are not counted when applying for Medicaid coverage. You cannot get Medicaid if you are over a threshold of income and savings.
If you are looking for a better way to access your funds and want to choose a plan that is not risky, a payable on death account. This account is set up with your bank that allows the beneficiaries to receive the money in the account upon your death.
It works just like a regular bank account, you can make deposits as often as you like and it gains interest over time as well and can use it much more freely than any funeral plan.