Prepaid Funeral Plans in Texas: Funding, Cancellation, and Transfers

Prepaid funeral plans in Texas let you choose and pay for funeral arrangements in advance under contracts regulated by the Texas Department of Banking through Finance Code Chapter 154. Every seller must hold a state permit, your money must sit in either a trust account or an insurance policy, and the contract itself must separate what’s price-guaranteed from what isn’t.¹ Knowing how those pieces fit together before you sign is what protects your family from paying twice.

Confirm the Seller’s Permit Before You Pay

No funeral home, cemetery, or third party can sell prepaid funeral benefits in Texas without a permit from the Department of Banking. The statute covers direct sales and situations where someone solicits you to designate an insurance policy or investment for future funeral costs.² Verify the permit on the department’s prepaid funerals website or by calling (877) 276-5554 before handing over any money.³

Trust Funding vs. Insurance Funding

Texas gives you two ways to fund a prepaid contract. The method affects how your money grows, what you can get back if you cancel, and how the plan looks for Medicaid purposes.

Trust-Funded Plans

With a trust-funded contract, the seller must deposit your payments into an interest-bearing restricted account that is federally insured and held at a financial institution with a main office or branch in Texas, or sent to a Texas financial institution authorized to act as trustee.⁴ The deposit must happen within 30 days of when the seller collects your payment.³

Not every dollar goes into the trust. Texas law lets the seller keep up to half of each payment, continuing until the retained amount reaches 10 percent of the contract’s face value.⁵ That retained portion covers administrative costs and is not refundable if you cancel. On a $10,000 contract, the seller can ultimately hold back up to $1,000.

Trust plans have no age or health restrictions, which makes them accessible to buyers who might not qualify for life insurance. Funds also earn interest, which can help offset inflation on items that aren’t price-locked.

Insurance-Funded Plans

An insurance-funded contract works through a life insurance policy or annuity purchased to cover the funeral. You pay premiums to a life insurer authorized in Texas, and the policy is typically assigned to the funeral provider so proceeds pay for your arrangements at death. The Texas Department of Insurance regulates the insurer, while the Department of Banking oversees the prepaid contract itself.¹

These plans suit buyers who prefer spreading cost through regular premiums. The policy may involve health questions or age restrictions during underwriting, and it typically pays a fixed benefit rather than growing with investment returns the way a trust can.

What’s Price-Guaranteed and What Isn’t

This is where buyers get caught off guard. Your contract will separate items into two categories, and only one of them is actually locked in.

Guaranteed items are services and merchandise the funeral provider delivers directly: the casket, embalming, use of facilities, professional fees. No matter how much prices rise before your family needs the services, the funeral home must deliver these at no additional cost.⁶ That price lock is the core value of prepaying.

Non-guaranteed items are cash advance charges for goods and services from third parties: cemetery fees, flowers, obituary notices, police escorts, crematory charges. Your contract funds and a proportionate share of earnings are applied toward these costs at the time of need, but if prices have gone up, your family pays the difference. If the proceeds exceed the current price, the funeral provider must refund the surplus.⁶

When you review a contract, check how much of the total sits in each column. A contract loaded with non-guaranteed cash advance charges gives your family much weaker inflation protection than one weighted toward guaranteed services.

What the Contract Must Say

Every prepaid funeral contract must be in writing and name the funeral provider responsible for delivering the services. It must describe what you’re buying in detail, including descriptions and material specifications for caskets or burial vaults.⁷ The seller’s name and permit number should appear on the first page, and a standard disclosure must explain what is and isn’t covered and whether the contract can be modified after the beneficiary dies.³

Read the itemized list carefully. Every professional service (transportation, preparation, use of facilities) and every piece of merchandise (casket, urn, outer burial container) should be separately identified with its price. That itemization is what tells you which costs are guaranteed and which aren’t.

Canceling the Contract

You can cancel at any time before the beneficiary’s death by sending written notice to the seller on forms the Department of Banking prescribes. Partial cancellation isn’t allowed. It’s all or nothing.⁸

Trust-Funded Cancellations

For a trust-funded contract, the seller has 30 days from your cancellation notice to send the refund. You’re entitled to the actual amount you paid, plus half the earnings those funds generated, minus whatever the seller already retained under the 10 percent administrative allowance.⁸ The Department of Banking describes the typical payout as the amount paid minus 10 percent of the contract’s face value.³

One exception works in your favor. If the seller asks you to cancel rather than the reverse, you get back every dollar you paid plus all earnings, with no retention deducted. If the seller then moves you into a new contract, that contract must protect you at least as well as the original, and the price for the same services cannot go up.⁸

Insurance-Funded Cancellations

If your contract is insurance-funded, cancellation follows the terms of the underlying policy. Your refund will typically be limited to the policy’s cash surrender value at the time you cancel, which may be well below what you paid in premiums, especially in the early years when surrender charges are highest.

Transferring to a Different Funeral Home

If you move or change your mind about the provider, you can transfer your contract to another funeral home that holds a valid Texas permit. Notify both the original seller and the new provider that you want to make the switch. The Department of Banking oversees these transfers to make sure your funding stays intact.³ The receiving provider has to agree to accept the contract, so confirm their willingness before starting the paperwork.

Medicaid and Irrevocable Contracts

Prepaid funeral contracts are a common Medicaid planning tool in Texas because, structured correctly, they sit outside the asset calculation that determines eligibility. The Texas Health and Human Services handbook treats burial spaces — plots, crypts, mausoleums, urns — as excluded resources regardless of value.⁹

For other burial expenses like caskets, services, and headstones, Medicaid allows a separate burial fund exclusion of up to $1,500 per person. That figure is reduced by the face value of any excluded life insurance, burial insurance, or irrevocable funeral arrangements you already have.⁹

To get the Medicaid treatment, the contract usually has to be irrevocable. Texas law lets you waive your right to cancel, but the waiver is permanent. Once you sign it, you cannot get your money back under any circumstances. If Medicaid eligibility is part of why you’re buying the plan, talk with an elder law attorney first. Getting the structure wrong can cost you both the eligibility and the ability to undo the contract.

Federal Rights Under the FTC Funeral Rule

Federal rules add another layer on top of state law. The FTC’s Funeral Rule requires every funeral provider to give you an itemized General Price List when you ask about arrangements, whether you’re planning ahead or making decisions at the time of death.¹⁰ The list must disclose that you can choose individual items instead of a package, that embalming is not always legally required, that alternative containers are available for direct cremation, and that the only mandatory charge is the provider’s non-declinable basic services fee.

These protections apply to prepaid arrangements just as they do to at-need purchases. If a provider tells you state law requires a specific item, they must identify the law on the price list. A provider who refuses itemized pricing or pressures you into a bundle is violating federal law.

Filing a Complaint

If a provider won’t honor your contract, won’t process a cancellation refund within 30 days, or otherwise violates the rules, file a complaint with the Texas Department of Banking’s Non-Depository Supervision Division. You can send it by mail, fax, or email at Pfcpcc@dob.texas.gov. Include the seller’s name and location, a dated chronological account of the problem with the names of people involved, and copies of your contract and any correspondence. The department will not intervene if the dispute is already in litigation or a court has issued a ruling.¹¹

1
Texas Department of Banking. Cemetery and Prepaid Funeral Businesses
2
State of Texas. Texas Finance Code 154.101 – Permit Requirement
3
Texas Department of Banking. FAQs – Texas DOB Prepaid Funerals
4
Texas Public Law. Texas Finance Code 154.253 – Deposit of Money Paid or Collected
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State of Texas. Texas Finance Code 154.252 – Retention of Money for Expenses
6
Texas Department of Banking. Services and Merchandise – Texas DOB Prepaid Funerals
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State of Texas. Texas Finance Code 154.151 – Form of Contract
8
State of Texas. Texas Finance Code 154.155 – Cancellation of Contract
9
Texas Health and Human Services. F-4200 Nonliquid Resources – Medicaid for the Elderly and People with Disabilities Handbook
10
Federal Trade Commission. Funeral Industry Practices Rule
11
Texas Department of Banking. How to File a Complaint