Should I Buy a Prepaid Funeral Plan?

james_g_hoffman_cfp.pngA recent survey by the American Association of Retired Persons (AARP) showed that over twenty percent of Americans age 50 and older have prepaid for funeral or burial services. In Texas, the Texas Funeral Service Commission reports that thirty percent of funerals involve a prepaid contract, and consumers in Texas have outstanding contracts worth $3 billion.

These prepaid contracts are viewed as a hedge against inflation, because most come with price guarantees.

In Texas, prepaid services can be bought through a funeral home or an insurance company. If purchased through a funeral home, the money is deposited by the funeral home in a trust fund at a financial institution approved by the Texas Department of Banking. At the time of death, the money and interest are used for the funeral.

These plans can be subject to misunderstandings or, worse, fraud by unscrupulous funeral directors or insurers. Some consumer advocates say these plans are more appropriate for people who wish to spend down assets in order to qualify for Medicaid coverage.

What to Consider

There has been a lot of consolidation in the funeral home industry. Many independent funeral homes have been purchased by large funeral home operators. There is also the possibility that the funeral home from which you purchased the contract could go out of business entirely.

The biggest problem with prepaid funeral contracts is that funeral homes, especially those that have changed owners, do not always honor the prepaid plans or the price set out in the agreedupon plan.

If a person dies in a different geographical location other than where the prepaid funeral contract was purchased, the family will need to pay the cost of transportation of the deceased to the funeral home where the contract was purchased.

A purchaser of a prepaid funeral contract cannot modify selected goods and services once a prepaid funeral contract has been signed and executed. If the purchaser wishes to change any previously selected goods and services, the original contract must be canceled and a new contract entered into.

Sometimes consumers don’t know what they have and have not purchased with the prepaid contract. Upon their deaths, their children are surprised to find that they owe something.

Prospective buyers of prepaid contracts are required to be given a pamphlet explaining the possible pitfalls of the transaction. Also, make sure you are dealing with a reputable funeral home or insurer.

Anyone considering purchasing a prepaid funeral plan should ask these questions: What is covered, and what is not covered? Can the contract be transferred to another funeral home? What happens if the funeral home changes owners or goes out of business? All of these would need to be covered in the written prepaid plan contract.

If the contract does not answer these questions, do not sign it.

What We Recommend

Due to the problems associated with prepaid funeral plan contracts, we would not recommend that these be purchased. However, we strongly recommend that clients pre-plan.

Pre-planning could involve writing out detailed instructions about your wishes regarding your funeral and burial. Then, let your heirs know where these instructions can be found.

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