More than 40 years ago, a woman purchased a policy from a funeral home that intended to cover the expenses of her burial. According to the American Association of Retired Persons, the woman died in 2008.

Unaware of the prepaid policy, her children paid the same funeral home more than $8,000 for the costs associated with the service. Upon finding the policy later, the children asked the funeral director to refund the costs, which he initially denied.

While the woman’s children initially recouped the cost, it was a battle. Purchasing these policies can be a good idea for Illinois people who are doing estate planning, but there are some factors to take into consideration in order to make the process a smooth one.

Why some people prepay

According to the National Funeral Directors Association, the median cost of a funeral, which is often left to someone’s heirs, was $7,045 in 2012. However, that number could be substantially higher, as it does not factor in a grave marker, cemetery fees, obituaries or other factors.

The AARP estimates that roughly 20 million people who are 50 or older have chosen to pay in advance for their services to take the burden off their families. Funeral homes typically offer a few different choices for buyers to peruse, such as the following:

• A guaranteed plan that will ensure buyers get the services no matter how much costs rise
• A non-guaranteed plan that could leave survivors on the hook for costs
• Plans that, if they appreciate in value, will return any gains to heirs

Additionally, people can either buy the funeral as an insurance policy or through putting the money into a trust run by either the statewide funeral directors association or a financial institution.

Words of warning

As the family of the woman mentioned above learned the hard way, prepaid funerals can present certain challenges. In addition to families not knowing about policies, The Wall Street Journal reports that scams have long plagued the industry. In order ensure that funds are used appropriately, the Illinois Funeral Directors Association suggests that people should only make arrangements with firms that have been licensed, and the funds should be placed in a trust that clearly articulates the owner’s wishes.

Additionally, the IFDA states that the funeral home should have a contract available for people to read regarding the pre-arrangements to ensure their wishes are met. Lastly, policyholders should let family know about their accounts as soon as they are in place. Following the proper precautions will help people establish their plans for a funeral or burial, and it takes the burden of planning and payment off families.