Prefunding Made Simple

By Laura Landes

There are many ways you can take care of the financial aspects of a funeral in advance. However, not all payment methods are equal. Each has risks and benefits, so it is up to you to decide which payment method is right for you.

Paying for funeral expenses with a “preneed” contract, offers several benefits. Lake Ridge Chapel and Memorial Designers provides a guarantee that “locks in” the selected funeral goods and services cost at the current rate. If you expect to live another 10, 15, 20, or even 30 years, this type of contract could save your family hundreds, if not thousands of dollars.

Preneed policies or annuities can be funded by a single, upfront payment or an installment plan with scheduled payments that work within your budget. A specialized insurance company protects the funds until they are needed. Because an insurance company keeps these plans, the plans are entirely transferrable to another funeral home if you should move away from home. Most insurance policies and annuities offer one to ten-year payment plans, depending on whether they are Dollar for Dollar, Fully-Insured, or Graded Benefit plans:

• Dollar for Dollar plans are annuities, or increasing benefit plans, that are as they sound: if you put a dollar in, a dollar will be applied to your plan. These plans are easier to qualify for health-wise, but they offer no insurance protection. Upon your death, your beneficiary will receive the amount paid into the policy, plus any growth accumulated. If your policy is current, this should not pose any problems; however, if death occurs before your payment plan is complete, the cost of your funeral may not be completely covered, and your loved ones would have to pay the difference.
• If you can meet a few basic health qualifications, Fully-Insured plans offer your family the most protection. You pay a small premium that offers extra coverage if death occurs before you are finished making payments. This ensures that the full cost of your plan will be covered from day one by insurance. However, if you cancel the plan, you will only receive the cash value of the plan back.
• Graded Benefit plans offer a blend for those who cannot qualify for a Fully- Insured policy because of health complications but want to be covered by some insurance protection. The benefit starts with accidental coverage only, but after one to two years the policy converts to a Fully-Insured plan covering the full cost of your funeral should you die before the policy is paid up.

With any option you choose, it is important to weigh the risks and benefits of each option. Even stashing your money under the mattress has risks other than inflation (flood, fire, theft, etc.). On one end of the spectrum, you have a fully insured prepaid funeral plan that offers you the highest amount of protection, but that costs a bit more in premium payments. It would be best if you also considered whether you are likely to lapse on your policy while making payments. If that is the case, then a Dollar for Dollar plan may be a better option, which is very similar to a savings account with growth applied.

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