The following are other items you may want to consider as you preplan your funeral arrangements:
When prices of the funeral goods and services being purchased are not guaranteed in the contract with the funeral home, it is very important for you to know whether funds planned to be available at the time of death will be sufficient to pay off the total cost of the funeral (your available funds may include trust or insurance proceeds and/or other funds).
A guaranteed price contract means that the funeral home accepts your payment as payment in full at time of death for the goods and services you selected in your contract. Your survivors or estate will not have to pay additional funds for guaranteed contracts. Certain items that the funeral home has no control over, such as cemetery costs and clergy honorariums, are typically not included in the price guarantee. State laws vary.
A non-guaranteed price contract means that if the payment option you have chose is insufficient at time of death to cover the total cost of the funeral you have selected, your survivors or estate must pay any difference. Preneed funds in excess of the actual cost of the funeral at the time of need are usually refundable to the estate, but not in all states. Be sure to ask your funeral provider for details.
Revocable contracts usually allow the purchaser to cancel a contract and withdraw the trust principal and any accrued interest at any time or to transfer an insurance-funded contract to another funeral home. Some states allow the seller to collect a trust cancellation or transfer fee.
An irrevocable contract is an agreement that cannot be cancelled (you may, however, be able to transfer or reassign the contract to another funeral home). Most states permit an insurance assignment to be made irrevocably if the consumer anticipates a later need to qualify for a public-assistance program (see Medicaid/SSI).
Many states provide an initial cancellation period when the purchaser may cancel the preneed contract and receive a complete refund (state laws vary). Preneed contracts entered into at a place other than the funeral home may be subject to the FTC’s 3-Day Cooling-Off Rule that allows consumers to cancel certain types of contracts at any time prior to midnight of the third business day after the date of the transaction. The FTC rule does not preempt state cancellation laws. Check with your state or local consumer office for more information about your cancellation rights. With insurance-funded contracts, the purchaser generally has cancellation and refund rights under the policy that exceed the rights mentioned above.
If a preneed contract funded by an insurance policy is revoked and the purchaser cancels the insurance policy, he or she will receive only the cash surrender value of the policy, which typically is significantly less than the face amount of the insurance policy.
Many preneed plans offer portability (the ability to move a plan with you to another state or to transfer it to another funeral home). Again, state laws vary. Ask about the specific portability and transfer features of trust and life insurance options for funeral agreements and any impact such changes may have on price guarantees. Some funding options have more transfer flexibility than others.
When making a preneed agreement, identify the effect on the agreement if you ever need to qualify for Medicaid or SSI benefits. Under Medicaid law, irrevocable funding and some revocable funding of a preneed contract are recognized as excludable assets that do not affect an individual’s Medicaid or SSI eligibility. States place specific dollar limits on the amount of a preneed contract that is excludable.