Why Pre-Plan Your Funeral?

How does funeral pre-funding work?

Is funeral pre-funding safe?

What is the difference between final expenses and funeral expenses and why does it matter?

How do you know if you’re too young or too old to consider making practical funeral arrangements?

How can you partner with a funeral director to ease the financial burden on your family?

Why Pre-Plan Your Funeral?

Pre-Planning lessens the financial burden on family members, a burden that our loved ones may not be able to handle. By pre-planning, you assume the costs of the funeral while locking in today's prices.
 
Discussing arrangements with your family is important, as the funeral affects them most directly. You may wish to leave your requests flexible to allow survivors to make appropriate arrangements for the fulfillment of their own emotional needs.
 
We do not know when our death will occur. Most of us have been planning for our lives and important events for a long time. Pre-planning a funeral is the logical thing to do, and here are some good reasons to do this now: 

  Express your own wishes.
  Avoid emotional over-spending by your loved ones.
  Avoid Medicaid "spend-down" that can deplete the money in your estate.
   Avoid conflicts among your loved ones.
  Relieve loved ones of financial burden during a troubling time.

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How does funeral pre-funding work?

When you pre-fund your funeral you are paying in advance for the “goods and services” that are part of your funeral plan. That means you are paying in “today’s dollars” for items to be provided and services to be rendered in the future. 

Your payment is then held in insurance or annuity certificates; deposited in a bank CD; or deposited in a trust (which may hold life insurance, annuities or bank CD’s as the trust funding investment). By law in most states, your funeral director cannot (and should not) hold or manage your money. He or she simply selects the vehicle they feel will offer the highest return in the safest manner possible to ensure that your money grows at a rate that matches or exceeds inflation until needed. Some funeral homes will offer guarantees on some or all the goods and services  you’ve selected as an extra incentive to do business with them.

When using “pre-need” life insurance or annuities to fund your pre-arrangements, it is common to assign some ownership rights to your funeral home in many states.  In other states (most notably New Jersey) the owner of the policy.  In this arrangement, the funeral home is also usually named as the beneficiary of the policy.   Certain states (most notably New Jersey) do not allow the funeral home to be assigned ownership or to be named as beneficiary.  In these cases an assignment to the extent of the funeral costs (similar to a collateral assignment or lien) is placed on the policy.  The beneficiary remains the individual (usually a family  member) so they receive any excess funds over and above the cost of the funeral goods and services.  In no instance should the company providing your “pre-need” life insurance or annuity be designated as the owner and/or beneficiary of your policy.

While it is tempting to “overfund” a funeral pre-arrangement to try to shelter money from Medicaid, most states have mechanisms to deal with such attempts.  In most states, if money is returned to the family of a person who had been receiving Medicaid or other state welfare benefits, the state has the right to recover that money as reimbursement for the benefits paid out on behalf of that person.  In New Jersey, any excess monies left after the funeral goods and services are paid for are required to be sent to the state if the pre-funding arrangement was made irrevocable to protect it from what is commonly referred to as “Medicaid spend-down”.

The main advantages of “pre-need” life insurance or annuity products are:

Tax Exemption: Life insurance and annuity products grow tax deferred. These products do not require a 1099 form every year.

Flexibility: LCBA funding plans include life insurance and annuity options that offer payment plans up to 10 years.

Portability: If you move, you can fill out a goods and services contract with another funeral home and re-assign your pre-arrangement funding benefits to that new funeral home.

Simplified Issue: Designed specifically for funeral pre-funding, there are very few medical questions asked and no medical exam is required to purchase these products.

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Is funeral pre-funding safe?

The vast majority of funeral services professionals are highly conscientious about the agreements into which you enter to fund your funeral. They know that making and following through on your decision to pre-plan and pre-fund your funeral involves a degree of vulnerability. That’s why they are so concerned about making sure they select the right financial options to carry out your wishes.

Are there a few unscrupulous funeral practitioners out there? You bet. But with the right amount of homework it’s fairly easy to detect and avoid those who may take advantage of you.

We’ve already mentioned or inferred several things to be aware of:

1. Make sure that the institution holding and managing your money is never listed as your policy or account owner and/or beneficiary.
2. Be certain that your money will not be placed in an account dependent on stocks or other volatile equities.
3. Make sure you get a copy of the goods and services you’ve selected with the agreed prices listed. This is required under the Federal Funeral Rule.
4. If guarantees are offered, make sure you are clear on what these are and how they affect your plans and funding.

You should also learn about the strength and reputation of the company your funeral home plans to use to deposit your monies for future growth.  LCBA has been providing “pre-need” life insurance and annuity options since 1995 (with plans now available through funeral homes across PA, OH and NJ). In addition to being independently audited annually and PA-state audited every five years, we rely on Standard Analytical Services to compare us to the top 25 companies in the insurance industry in areas that everyone can understand: solvency and liquidity. We currently have $103.93 of assets for every $100 of liabilities. But just because a company is “solvent” doesn’t mean they can pay their bills. That’s where liquidity comes into play. LCBA has $101.72 of short term (easily converted into cash) assets for every $100 of liabilities. The average of the top 25 companies has $46.41 for every $100.

For more financial information on LCBA, click here

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What is the difference between final expenses and funeral expenses and why does it matter?

One of the most common funeral pre-arrangement mistakes is that of equating burial or final expense plans with pre-arrangement funding. The Federal Funeral Rule is very clear about the costs included in a funeral pre-arrangement.*

Burial or Final Expense Plans include money to address expenses OTHER THAN funeral pre-arrangements, like final bills or other outstanding personal financial obligations. Funeral Expenses average between $6,000 and $10,000 varying by your location, according to the National Association of Funeral Directors.

While it’s common for people to think they have included enough coverage to pay for their funeral in existing insurance or investment vehicles, often these plans do not stand the test of time and are not in place when needed most.  Relying on someone other than a funeral services professional to help you pre-fund your funeral could mean that your family will be left without the funds needed to pay for your final wishes. 

* Order your Tomorrow Together Partnership free information kit to receive an 8-page guide to “Buying Funeral Goods and Services” containing a list of items funeral homes are mandated to provide for you as part of a detailed price list.

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How do you know if you’re too young or too old to consider making practical funeral arrangements?

The time to pre-arrange a funeral is earlier than most people think. LCBA “pre-need” life insurance options are available to persons as young as age 36. Individuals over age 85 will find flexible and affordable options using LCBA “pre-need” annuity plans. (See below for “How Funeral Pre-Funding Works”.) The optimum age for funeral pre-arrangement is about 55.

Why so young? Because your need is NOT immediate!  But by the time most children are grown and move away, most term life insurance has expired or become unaffordable and you’re approaching retirement.  The longer you wait,  the more likely it is that  other factors may start to intervene to make funeral planning and funding more challenging.  One of the primary goals of pre-arranging funerals is to protect your family from the burden of a financial loss by securing tomorrow’s services at today’s prices in a way that protects those funds from being lost should you require care in a nursing home or suffer some other unplanned catastrophic expense.

Many younger persons who plan well in advance for their funerals not only receive the financial benefit of doing so, but also gain valuable knowledge to share with aging parents who may themselves be thinking of pre-arranging their funerals but are intimidated by what they don’t know about the process. Many older planners find ways to encourage their adult children to plan ahead as well. In fact, funeral pre-planning is a process that is worth considering doing together.

What if You plan to move before or after retirement?

Any good funeral pre-funding option is portable. If you move, you can fill out a goods and services contract with another funeral home and simply re-assign your LCBA “pre-need” funding arrangement benefits to that new home.

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How can you partner with a funeral director to ease the financial burden on your family?

It’s easier than you imagined to prepare for one of the most difficult transitions your family will face.

First, call your funeral director and ask for a funeral pre-arrangement appointment. A typical appointment takes about one hour. Then sit down with your spouse or significant other and fill out your planning document (linked here for you as a printable document) to the best of your ability to take to your appointment. These planning documents prompt you to think about the different decisions you will need to make, and information you will need to provide to your funeral director

You will also want to capture biographical information about your life, career and family. In short, all of the things you want others to know and remember. Things like hobbies, sports, church, social and service organizations you belonged to and enjoyed, awards, or special achievements.

When you arrive at your funeral home, expect to meet someone who truly cares for you and your family. That’s one trait all funeral directors share. They recognize that you have taken a huge step and are there to discuss a topic that we all tend to avoid – the fact that all of us will need their services at some time.

What making arrangements means

Your funeral director will help you make choices about products and services. You will decide whether you will be having a traditional burial or cremation, what type of casket or urn, the services you’ll want, and other details about your funeral. Your funeral director will explain all of the options, outline the costs and make helpful suggestions. You will also receive a detailed price list for your traditional full-service burial or cremation plans.

What your funeral director will do for your family in their time of need depends in large part on your wishes and desires.  Your funeral director will make sure all legal and reasonable requests regarding your funeral are fulfilled. Typically, they provide a couple of functions that we are all pretty familiar with: preparing the deceased for viewing at a funeral home, church or other appropriate facility, and conducting the funeral service itself. But beyond these things, they provide many services that are “below the radar”. Here is a list of services they must provide as part of their job that are often taken for granted:

• They pick up the deceased from the home, hospital, nursing home, or wherever they are located and transport them to the funeral home – most often within a very short period of time after they are notified: 24-hours-a-day, 7-days-a-week.
• If the person dies away from home, the funeral home acts as an intermediary coordinating arrangements with a funeral home where the person died to ship the body back home and take care of any other necessary services.
• They meet with the family to either plan the funeral or, if pre-arrangements have been made, to review those plans with the family. This is the stage that is often the most difficult for surviving family members if pre-arrangements have not been made. Many decisions have to be made quickly at a time when the individuals responsible for those decisions may still be reeling from the news that their loved one has died.
• They prepare the body for viewing by embalming – for health reasons, most state laws require either embalming or refrigeration of the body within 24 hours of the person’s death. If cremation is elected by the individual or their family, this rule still applies.
• They obtain the desired casket or cremation urn and make arrangements for a burial vault if required or desired.
• They make arrangements with the cemetery for the opening and closing of the grave, or make arrangements with a crematory for their services.
• They make arrangements with the appropriate clergy and/or church.
• They make their staff and facilities available for the friends and relatives of the deceased and their family during scheduled calling hours.
• They make grief counseling resources available when appropriate and necessary.
• They make a number of resources on death and dying available to friends and family to help them.
• They transport the body or urn to the church and/or graveside services.
• They transport floral arrangements to the church and/or graveside and make arrangements to distribute them in accordance with the family’s wishes after all services are completed.
• They obtain certified copies of the death certificate.
• They arrange for and place the obituary notice in the local paper, and can notify other appropriate publications.

Once you understand and agree on what all of your funeral plans are, don’t neglect to follow through with funding them. Too many people with well-thought-out plans wait until medical issues erode their finances and affect their ability to consider all of the pre-funding options available.

With a Tomorrow Together Partnership free information kit, you’ll be prepared to ask the right questions, determine the answers that suit your needs and fund your funeral plans with confidence. If you haven’t selected funeral home, we encourage you to “shop around” for one.  Often times funeral homes tend to specialize in serving a specific religion or ethnic group.  If you’re not sure where to start, you  might want to check with your priest or pastor on where they officiate most often, ask your friends, or consult the Yellow Pages.  Make sure that you feel comfortable with the home you select.  Don’t feel pressured to make a commitment the first time you visit a home.  Ask for a tour of the facility, and ask questions. Here are some suggestions:

Do they have adequate parking? 
How many funeral directors are on their staff? 
How long have they been in business? 
If you anticipate young children will need to be taken into consideration, do they have a separate place in the funeral home where children can play or be left?