Funeral Pre-Pay Pros and Cons

Sep 25, 2009 | 1 comment

Funeral Director Tom Belford points out funeral costs in the film, "About Schmidt"

Funeral Director Tom Belford points out funeral costs in the film, “About Schmidt”

Pre-planning a funeral does not necessarily mean it’s pre-paid. There are arguments to be made both for and against pre-payment.

On the plus side, pre-paying guarantees the wishes of the deceased are honored, as they themselves select what they want and pay for it. It saves the family or legal representative the cost and anxiety of last-minute decision-making in the midst of grief. Pre-payments offer built-in inflation protection, as providers assure the cost of the funeral will not increase, whether death occurs in three months or 30 years.

Basic ways to pay for a funeral are with a life insurance policy that includes funds for a funeral, money set aside in a joint account that can be accessed to pay for a funeral, or a Totten trust account, a separate insured and dedicated bank account set up specifically for funeral and burial costs, keeping assets out of probate and available with a minimum of formalities.

A funeral insurance policy, also called burial or pre-need insurance, designed specifically to cover final arrangements, is another route. It names the selected funeral provider as the recipient of the funds, as opposed to a life insurance policy that provides funds to the family to use for final expenses and more.

If a loved one dies with no financial support in place for a funeral, there’s the option of putting expenses on a credit card and use the airline miles to take a much-needed vacation. That’s what Jackie Speier did, detailed in her book This Is Not the Life I Ordered. Before she became a U.S. Congressional Representative, her husband unexpectedly died, and she put funeral expenses, including the headstone, on a credit card that gives airline rewards. She got enough mileage credit to take her two children to Hawaii, enabling her to de-stress from the shock.

Whatever financial road is taken, the family must be made aware of what arrangements and payments have been made – don’t assume the funeral home staff will know.

On the minus side, people have been burned by pre-paying for a funeral to a specific provider and to some funeral insurance companies. If the person moves to another state, the services that have been paid for may not be transferable. The money can be lost if a corporation buys up the funeral home and then doesn’t honor the contract.

Buying a funeral insurance contract is supposed to prevent the problems of pre-paying to one provider. But, buyer beware. Some funeral insurance outfits have taken people’s money and not provided paid-for services. In 2008, National Prearranged Services, Inc., a St. Louis-based seller of prepaid funeral plans, went into receivership when its financial reserves fell short of covering the costs of the funeral packages it had sold. Hundreds of funeral homes in at least 19 states were affected by the financial meltdown.

Funeral director Glenn Taylor commented, “The only reason they won’t make good is if they simply cannot afford to stay open, and that’s not something we see very often. I would be most disappointed and frankly surprised if most funeral homes didn’t honor their responsibility.”

Allan Levine has seen many emotional, panicked, last minute funeral arrangements during 50-plus years’ experience running temple cemeteries in Massachusetts and New Mexico. His advice on preparing for the inevitable if you’re going to be buried is to buy a plot before you need it, but not necessarily paying for a funeral on a pre-need basis. He recommends writing down instructions that can be given in advance to clergy and the funeral director with all the information needed to prepare and implement a funeral.

“I’m definitely in favor of pre-need understanding, and it makes a lot of sense if there are children involved, Levine said. “I know of cases where families have stopped talking to each other because of disagreement over how to face death or how to face a funeral.”

Glenn Taylor agrees. “It’s really important people understand that pre-arrangement is just that. It can be pre-funded as well, but it does not have to be,” he says.

You can learn more about funeral pre-planning in Gail Rubin’s book, A Good Goodbye: Funeral Planning for Those Who Don’t Plan to Die.

A Good Goodbye