An inflation-proof contract is an agreement between the provider and purchaser that the price of services and merchandise is guaranteed to be covered at the time of need, despite any future price increases. It must be paid in full in advance.
An irrevocable contract cannot be changed or dissolved for any reason. Irrevocable funeral contracts are sometimes used to "spend down" in qualifying for Medicaid, as the money does not count as an asset in determining eligibility. Choosing to make pre-funding irrevocable ensures that the money will be there to pay for your funeral in the future.
Irrevocable funds cannot be withdrawn for any reason prior to the death of the person for whom the pre-arrangement was made. Once withdrawn, the money can only be spent on funeral expenses. Any refunds or over-payments cannot be kept by the survivors, but will be returned to the state.
Note that irrevocable funeral trusts are not all the same as pre-paid or pre-need funeral plans. Also, as the name suggests, once you enter into the trust, it can't be dissolved.
A revocable pre-arrangement contract can be cancelled or “un-funded” at any time, and the released funds can be used for any purpose. If the revocable pre-arrangement was funded with a bank trust, your principal plus all interest will be refunded to you.
If your revocable pre-arrangement was funded with an insurance policy or annuity, the cash surrender value, less surrendered charges, will be returned to you.
When preplanning, if you want the flexibility of a revocable contract, be sure sure that's what you're getting from the funeral provider.
Preplanning involves making decisions in advance on the services and burial or cremation plan you want, and choosing a funeral provider. This is done for a number of reasons: to spare your family the stress and cost of making funeral arrangements at the time of need, to share how you wish to be memorialized, and to pay at current prices.
The pre-need contract must be paid in full or in installments you've agreed on with your provider. Contracts can be either revocable or irrevocable, depending on the agreement.
Preplanning your final arrangements has a number of advantages:
- You can document how you'd like to be memorialized, so your loved ones and funeral provider can fulfill your final wishes.
- It relieves your survivors of the responsibility for making financial and logistical decisions during a stressful and emotional time.
- Paying for services at current prices may save money, as prices are likely to rise over time.
If I purchase a pre-paid funeral plan, is there any insurance that will fund my expenses for this plan?
You have a few options to fund your pre-paid plan through insurance.
- Purchase funeral insurance from an insurance company.
You can purchase a policy that typically ranges from $3,000 to $15,000 from an insurance company, made payable to a beneficiary immediately after your death. These funds do not go through probate. The money is intended to cover funeral expenses, but can be used in any way the beneficiary wants.
- Purchase an insurance policy or trust through a funeral provider.
If you purchase a policy or trust through a funeral home, you will have to specify a number of details such as the particular funeral home and the specific products and services you want. This plan will only cover those products and services directly provided by the funeral home, such as the casket, urn, and use of the funeral home chapel. Outside items, such as floral arrangements, clergy fees, and cemetery fees, would not be covered. With this plan, the funeral director acts as an insurance agent and receives a commission on the sale of the policy or a fee for setting up the trust. The beneficiary on the insurance policy and trust is the funeral home.
- Purchase a life insurance policy from an insurance company.
You may use the benefit from any term or life insurance policy to pay for funeral expenses. If you need insurance money only to pay for funeral expenses, you can purchase funeral insurance from an insurance company in smaller amounts than what is typically offered in a term or whole life policy. At your death, the money passes automatically to the named beneficiary without having to go through probate. The money is intended to cover funeral expenses, but can be used in any way the beneficiary wants.
Yes. Most funeral homes offer a pre-payment option, where you select the services and designate your choice of final arrangements.