Prepaying for Funeral Expenses

Many Americans have entered into contracts to prepay some or all of their expected funeral expenses before they day. Sometimes this is at the advice of a funeral director; sometimes out of the desire to minimize stress for next of kin. Is prepaying for your funeral a smart move? Here are some considerations.

  • Laws of individual states govern the prepayment of funeral goods and services. Some states have laws to help ensure that advance payments are available to pay for the funeral products and services when they’re needed, such as requiring the funeral home or cemetery to place a percentage of the prepayment in a state-regulated trust or to purchase a life insurance policy with the death benefits assigned to the funeral home or cemetery. But protections vary widely from state to state, and some state laws offer little or no effective protection. Even states with strict regulations may lack the funds to enforce the rules.
  • Signing up may seem like a low-risk proposition, since providers usually promise you can transfer your contract to another facility. But some states don’t guarantee the right to transfer your contract, and some others allow it only if you relocate — you can’t just change your mind. You may also have to pay fees to make the switch. And providers may be allowed to keep funds paid for merchandise if they can show they’ve delivered it, such as sending an urn to your home or storing a casket for you in a warehouse, and inflating the value of the merchandise to reduce what must be refunded is not uncommon.
  • It’s also possible to shell out thousands more on a prepaid contract than the funeral costs. That can happen when you buy an insurance policy and pay over time instead of in a lump sum. Other policies are actually savings accounts that grow over time and don’t fully cover final costs if death occurs sooner than expected. Anyone who pays over time can expect to pay 40% more than the arrangements’ actual price.
  • Finally, regulators report frequent and rising instances of mismanagement and fraud with prepaid contracts. Paying in advance for funerals has proven so problematic that the FTC, AARP, and the Consumer Federation of America all recommend against it. You don’t need to buy a special product to set aside money for final arrangements. You may have enough life insurance to cover the bills. Or, set up a “payable on death” account at the bank, making funds available once there’s a death certificate to reimburse funeral expenses. If you don’t want your family to have to put up the money in advance, create a joint savings account with someone you trust to pay the bills.

If you DO enter a prepayment agreement, it’s absolutely essential to get all details in writing. Be sure to tell your family about the plans and give them copies of all documentation, including keeping a copy with your Will. You may wish to consult an attorney on the best way to ensure that your wishes are followed. Ensure that your documentation includes:

  • A clear explanation from the Funeral Home about how your money will be held/invested and how any interest income is treated.
  • What the payment covers and what it does NOT cover.
  • Whether the pre-payment locks in the total cost so that your next of kin has a guarantee that everything will be covered, no matter when you die?
  • Whether you are protected if the firm you dealt with goes out of business, is bought out by another entity, or is temporarily closed (for example due to fire or flood) at time of your death.
  • Whether the contract can be cancelled if you change your mind, and whether you can get a full refund or are there fees.

• Whether the contract can be transferred if you move to a different area or die while away from home, and if so is there an additional cost.