What is the Difference Between Insurance and Trust Pre-Payments?

Andy Walker

Pre-planning your end-of-life care can be a wonderful gift to your family. There’s no guessing whether you want burial or cremation, a viewing or service. Everything you want is all laid out on paper, so the guesswork is taken out of it.

It’s not required, but it can be a kind gesture for your family as they don’t have to worry about the financial aspects of funeral planning. There are two ways to invest your money for funeral expenses: insurance and trust.

Trusts vs. Insurance

When you pre-plan your end-of-life care, the establishment will work out a contract with you for the services you’d like to have. From there, you have two options for pre-payment: you can pay the full amount, and the funeral establishment puts it in an interest-bearing trust account, or you can make smaller monthly payments for an insurance policy.

An insurance policy is the most flexible payment structure, as you can stretch it out over a certain time period. You pay on a schedule that fits your finances. You can also choose to put a down payment on the insurance policy, which would lower your monthly cost. When you pass away, the insurance company transfers the money to the funeral provider. All that’s required from your family is a signature authorizing the transfer of funds. The funeral provider takes care of everything else.

Trust is another secure way to pre-pay for your end-of-life care. This is generally when someone is ready to make the full payment for the cost of the services and supplies outlined in the contract. The amount is placed into an interest-bearing trust account where it stays until your passing, and then the money is transferred to the funeral home.

Note: The money you pay to a provider for future supplies and services is still your money. You are free to cancel at any time, and that money doesn’t become the funeral providers until your death.

Trust and insurance share the same goal - to ensure your funeral wishes are met, and you’ve protected your family from unexpected expenses. The decision is yours to make, based on what medium you are most comfortable with. If you want to speak to a licensed funeral director about Eirene’s prepaid services, give us a call at 647-424-3408.

Frequently Asked Questions

What happens to the interest in the trust account?
Interest earned on invested money will pay for future inflation. For example, you’ve paid $5000 for supplies and services from a funeral provider when you’re 55. If you die 40 years later, inflation will have driven up the costs of your funeral provider. To ensure your family doesn’t pay another penny for the services and supplies you selected, the interest on the account covers the cost of inflation.

What happens if there’s not enough money in the trust account to cover inflation?
While rare, this can happen. In this case, the family is not required to pay any more money for the services and supplies selected. This is only valid on pre-paid contracts with a date after July 1, 2012, due to new legislation that came into effect. The funeral provider will simply absorb the cost of inflation.

Can I change my pre-arrangement?
Absolutely! You can add or remove services and supplies from your contract whenever you’d like. Additionally, your executor or next of kin can also make changes to the contract after your death, so it’s imperative to trust the person you put in charge of your affairs.

What if I want to cancel or transfer my pre-arrangement?
You always have the opportunity to cancel your pre-arrangement at any time. Legislation does allow the provider to keep a portion of the funds (10% up to a maximum of $350) for administration fees, but the rest should be returned to you within 30 days.

What if there’s money left over after the contract has been paid?
If there is money left over after all the services and supplies have been paid for, that money is returned to the executor or next of kin. Please note that there may be tax implications on any money your family receives back from the funeral home.

What happens if my provider goes out of business?
Bereavement consumers in Ontario who pre-pay their end-of-life care are protected by the Bereavement Authority of Ontario’s Compensation Fund. The purpose of this is to compensate anyone who suffered a financial loss due to a failure on the part of a provider.

For example, if you enter a contract and pre-pay with an establishment, and then your provider goes out of business, you may be entitled to compensation from the Bereavement Authority of Ontario. For more information, please ask one of our licensed funeral directors.

Is there a cooling-off period after signing the contract?
You have 30 days in which to cancel your contract with your provider to receive a full refund. If you cancel after the 30 days are over, the provider may keep 10% of the total cost of the contract to a maximum of $350 for administration costs. Please note that cancelling the contract with the funeral provider may not cancel an insurance policy that has been taken out. The insurance company may have their own cancellation fees; generally, how much you receive depends on the terms of your insurance contract.