Exactly. A prepaid funeral is just exactly that. Prepaid. If you take out and pay for a burial policy the funeral home is obligated to provide a funeral service as stipulated in the contract. Also, burial policies are not tied to a specific funeral home. A burial policy is simply an insurance policy that is sold by the funeral home employees but is actually underwritten by an insurance company. For example, I took out a burial policy with a funeral home in my hometown where I intend for my funeral to be and to be buried (already have the grave site staked out and the tombstone paid for and installed). Should something happen that I need to use a different funeral home the funeral costs are covered. The only cost to my  family would be the opening and closing of the grave and whatever (if anything) they decide to pay the preacher. The policy also stipulates that the funeral home will pick up my body from as much as 200 miles away at no extra charge. Anything beyond 200 miles does cost extra. A burial policy is just like any other insurance policy. Almost any kind of stipulation can be written into it and it will be priced accordingly.

Other than grave opening, flowers, and a few other miscellaneous items there shouldn't be any cost beyond that provided by the policy.

Now, an important caveat. Was the policy paid up or was your wife's grandma still paying on it? If she was still paying on it that could be why there was extra charges. I set mine up on monthly payments so that it was paid off in five years. Conversely, when my dad died he and mom had only taken out the policy a few years earlier so they still owed some on it. As a result mom had to pay some extra but not a lot. Of course, his was a rather simple funeral and the whole thing was just a bit over $5,000. But that was 24 years ago. Funeral people tell me that costs increase, on average, by about 7%/year. That's why I advise people to get a prepaid policy. It locks in the cost.