Prepaying Funeral Costs: Good or Bad Idea?

May 5, 2017 12:45 pm

Daniel R. Legault, CFP®

Senior Financial Advisor

I’ve been asked in the past for my opinion on prepaying for funeral expenses. First of all, this is not a fun topic for any of us to discuss. It is much more enjoyable to talk with clients about how they plan on travelling across the country in an RV, or how they will plan a small trip for each month in retirement. But the reality is we will all be faced with dying, so let’s tackle this subject, put together a plan and save some money in the process.

What’s Your Plan?
You can prearrange your plans without having to prepay a funeral home directly. Your surviving loved ones will be very thankful that you have written down your specific plans when it comes to cremation, burial plans, organ consideration, etc. These details should not be hidden in a place such as your safety deposit box, or buried in your will. While these might be acceptable locations for safety purposes, many times loved ones do not find these documents until after the ceremony is complete. Perhaps you can keep your wishes in a sealed envelope at home and tell your loved ones where it is located. Local funeral homes can be a great resource to help you put together these arrangements.

What to do?
Very simply, my research shows that utilizing any sort of prepayment method offered by funeral homes or insurance company’s is not a good idea. Better to set up your own “burial expense” fund. This is very easy, and it can be done at your bank or credit union, by opening an account with a “pay on death” designation. The person you list should be someone you trust, and when you die they can pay the funeral expenses with this account. Call your local funeral home and ask for an itemized expense list to get an idea of how much you will need; my research suggests an average need of $12,000. If interest rates are not keeping up with funeral arrangement increases, you can always add more in the account at a future date.

Why not purchase a prepaid plan through the funeral home or insurance company?
Consider the following:

  • What happens if the funeral home goes out of business?
  • Will you get your money back if you move or change funeral homes?
  • Are price increases covered?
  • Who keeps the money if you do not spend the full amount you paid?
  • Will your money actually end up in the “trust” account required by state law?

Conclusion
Signing up for a prepaid plan will require you sign a contract. Contracts tend to be complex as are the state laws that govern them. Do you really want your loved ones having to make sure each letter of the contract is followed when it comes time for service? Do you really want to make sure you have thought through all possible negative consequences? Ironically, most of the Funeral Home websites I visited advocated that a prepaid solution is the best choice, while consumer advocacy groups seemed to think differently. I utilized information from the Funeral Consumers Alliance, Kiplinger’s, and US News & World Report, along with visiting several funeral home websites.

Dan Legault, CFP® serves as Senior Financial Advisor at StrategicPoint Investment Advisors in Providence and East Greenwich. You can e-mail him at dlegault@strategicpoint.com.

 

The information contained in this post is not intended as investment, tax or legal advice. StrategicPoint Investment Advisors assumes no responsibility for any action or inaction resulting from the contents herein. Dan’s opinions and comments expressed on this site are his own and may not accurately reflect those of the firm. Third party content does not reflect the view of the firm and is not reviewed for completeness or accuracy. It is provided for ease of reference.