Disadvantages of Prepaid Funerals Listed & Explained

There are a lot of disadvantages of prepaid funerals in fact even Dave Ramsey says you should “preplan, not prepay”. Prepaying a funeral is not a good idea and definitely not worth it considering all the disadvantages we are going to discuss.

It is not smart to pay a funeral in advance because the disadvantages would be not being able to deduct the prepaid funeral costs on your taxes, the inflexibility of prepaid plans, all funeral expenses not being covered in the plan, the plan not being transferable, little to no refunds(funeral home going out of business), requiring a loan(more debt) to cover the cost of prepaid funerals, state laws may not favor you legally for the prepaid burial contract obligations and much more.

Disadvantages of Prepaid Funerals Listed & Described

The cons of prepaid funerals are concerning considering they can really hurt your family at the time of your death. Keep in mind that a prepaid funeral plan does not pay for other final expenses left behind when you die.

If you have other debts like credit cards or medical debts these fall on your estate which then becomes a problem for your family to deal with.

Now we are going to list each disadvantage of prepaid funerals and describe them.

  • Not Flexible – It is very difficult to make changes to the funeral plan.
  • Does not Cover Everything for a Funeral – Flowers, catering, burial plots, headstones and other expenses may not even be covered.
  • Cannot be Transferred When You Move – Typically your funeral plan only pertains to the local funeral home you set it up with. If you move to a different state the plan will not move with you to that state. This requires canceling and finding a new plan in your new city and state.
  • Not Many Loan Options for Funding a Prepaid Funeral Plan – It is difficult to secure a loan from a bank to fund the funeral plan. This is because banks consider this an unsecured type of loan.
  • Stability of the Funeral Home You Purchased From – If the funeral home you got your prepaid burial policy from goes out of business you wasted your money. They will not honor their agreement due to lack of funds.
  • State Laws May Not Favor You When it Comes to Prepaid Funeral Contracts – The laws protecting seniors regarding these types of contracts vary. Depending on your state they may favor the funeral homes more than you regarding issues with the plan.
  • Cash Advance Clauses Burden the Family – This essentially states that rate increases from a vendor can fall on the family to pay.
  • Poor Record Keeping and Losing the Funeral Contract – A funeral home may not have good record keeping. This will result in them not honoring the contract if it is lost.
  • Not All Prepaid Plans Locking Current Pricing – Not all prepaid funeral plans lock in the current pricing of services. This means pricing can increase over time and fall on your family to pay when you die.
  • Family Not Being Informed of Prepaid Funeral Plan – If your family is not informed of your plan they could wind up not using it. This results in them paying out of pocket for the funeral with a slim chance of reimbursement.
  • Funeral Home can Refuse to Honor The Contract Terms – A funeral home can refuse to honor their contracts. This can happen for many different reasons.
  • Funds Tied up Due to Prepayment Not Usable – Investing your money into these plans makes it unusable. If you experience unexpected financial loss you cannot get your money out of this plan.
  • No Legal Protection for Direct Transactions with The Funeral Home for Prepaid Funeral – There are no formal protections in place for these plans on government level. Funeral homes are not regulated by the state like life insurance products.

Lawyers Warning About These Plans

Elderlawanswers.com had this to say about prepaid funerals

“consumers lose millions of dollars every year when pre-need funeral funds are misspent or misappropriated. A funeral provider could mishandle, mismanage or embezzle the funds. Some go out of business before the need for the pre-paid funeral arises. Others sell policies that are virtually worthless.


As you can see a prepaid funeral plan is risky compared to other means of paying for a funeral. In fact there was a massive prepaid funeral Ponzi scheme victimizing over 97000 people in 16 states. You can read more about it here https://www.fbi.gov/news/stories/prepaid-funeral-scam.

As you can see these plans are unsafe for seniors considering lawyers warning against them and schemes being developed using them.

Prepaid Funeral Plans Not Worth it Considering Disadvantages

Prepaid funeral plans for covering funeral costs are not a good option for you at all. The contract obligations and potential pitfalls put you and your family at high risk for the plan not covering your funeral.

There should be peace of mind having plans like this but instead there can be Ponzi schemes or mismanagement for your funds. In addition to this there is the issue of getting a loan to use the money to pre-pay the burial.

Securing a Loan for Prepaid Funeral Leads to More Debt

The purpose of paying for your funeral in advance is relieving the financial burden for your family. Now getting a loan to pre-pay for the burial costs will spare your family but it will be deducted from your estate. This makes it another disadvantage of prepaid funerals.

This means you may be sparing your family the burden of a funeral but you are taking money away from their inheritance of your estate. In reality your family is still paying for that funeral one way or the other if you did not pay back the loan you took out.

The point of paying funeral expenses and other final expenses when you die should be to spare your family from funeral expenses and your debts. Leaving behind unsettled debts takes some or all of your families possible inheritance when you die.

To solve one problem for your family you created another for them in the process. Nobody knows when they are going to die which means you cannot count living long enough to pay that loan.

Burial Insurance is Better for Paying a Funeral

You should consider final expense life insurance for paying your funeral and end of life expenses. Burial insurance does not have all of the disadvantages that a prepaid funeral plan has. Instead you get a proper legal contract between you and the insurance company.

The contract obligates the life insurance company to payout the policy proceeds when you die to your beneficiary. In addition to this the policy builds extra cash value that adds onto your life insurance and can be borrowed against if you need it.

You don’t have to take out loans or worry about poor record keeping. Life insurance companies have great record keeping because they are state regulated and required to have it. In addition to this their contracts are stored digitally in their archives. This means you never have to worry about your policy being misplaced.

Burial policies from life insurance companies also do not care where you die they will pay the claim regardless of your location. Compare this to a funeral home that requires you to be in their state. They want you buried at their funeral home in order for your contract to be honored.

Burial Insurance is Better Than Prepaid Funerals

Its no contest which product is better than the other. You are also not tied up with paying high lump sums into the policy that are difficult to get back. For life insurance you pay a premium monthly. It is by the month which does mean you can cancel at any time.

Prepaid funeral plans do not function like that instead they want you to pay them a lump sum. There is also no interest gained on your lump sum payment. This means there is no protection against inflation. Compared to a life insurance policy that builds cash value on top of your lump sum.

This could be between $5,000 – $50,000 in coverage depending on how much you purchased. If you bought a $10,000 policy with the cash value building. Inflation should never catch up to you.

Losing a Prepaid Funeral Contract vs Losing a Final Expense Policy

As we mentioned about the disadvantages of prepaid funerals there is a chance the funeral home can lose your policy. This is because funeral homes are not regulated by the state or government like life insurance companies are.

Life insurance companies are obligated to keep full records of life insurance policies on file. You can always access a life insurance policy digitally if need be. A funeral home is one central small business that could easily lose your contract.

They simply do not have the same resources life insurance companies do to keep and maintain contracts and records. A funeral home can be in the high 6 – 7 figure income range while life insurance companies are worth Billions.

It is obvious who has more financial backing for accurate record keeping and honoring contractual obligations.

Disadvantages of Prepaid Funerals Conclusion

The cons of prepaid funerals are very alarming and troublesome. We highly recommend against these types of funeral plans and believe strongly you should opt for life insurance instead. Life insurance does not have the same types of disadvantages talked about in this article.

Dave Ramsey, Lawyers and us as life insurance agents all agree that prepaid funeral plans are not worth it for seniors. You run the risk of locking up and potentially losing a large sum of money that could be put to better use to protect your family.