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From The Lamb Telegram, our email newsletter.
Final Arrangements, the feature report in the May, 2001 issue of Consumer
Reports (CR), challenges the idea that prepaying funeral expenses saves
money and is beneficial for consumers.
Since an estimated 9-11 million Americans have bought over $21 billion worth
of prepaid funerals, according to CR, this is a very important consumer
issue.
Some problems CR cites with prepaying include:
- Misunderstanding about what is included. The contract may or may not
include all the costs involved. Other expenses like cemetery, music,
obituaries, death certificates, etc., can add hundreds or thousands to the
cost, but may not be included in the contract.
- The contract may or may not guarantee the cost of the funeral, depending
on the fine print.
- The most aggressive selling of pre-need contracts is done by the nation’s
three largest funeral chains that charge on average $1,300 more than local
firms for comparable funerals. So you probably won’t save money by
prepaying.
- Portability can be a problem. If you move or the company goes out of
business, you could lose money. Different states have widely different rules
about how much you get back if you change providers or move.
Here are some suggestions to help families make good choices:
- Pre-planning is always good. Even if it consists of one sheet of
paper with basic instructions, it is invariably helpful to those left behind.
Most funeral providers will assist families to do this.
- Check with several providers before making a decision. Service and
merchandise offerings can be quite different and prices can vary 50 to 100%
from company to company, even in the same neighborhood.
- Pre-paying doesn’t guarantee that prices won’t increase; most
contracts only guarantee that the interest earned will cover price increases.
Since funeral prices generally increase in line with inflation, the increase
in the fund usually is more than the price increase. The funeral provider
should give you a refund if there is more in the fund than the current cost at
the time of the funeral.
- If you have adequate insurance and other assets, you probably are better off
not pre-paying. The interest you earn on money you control is probably
higher than what the funeral trust or insurance pays. So there is usually no
real financial incentive to prepay.
- There may be other reasons why you might want to pre-pay funeral expenses.
Family friction or, conversely, lack of family or friends to make decisions,
are reasons why some people want to prepay. Families should encourage loved
ones who anticipate going on Medicaid to prepay funeral expenses during the
‘spend down’ period. (Special regulations apply; ask us how this should be
done).
- If you prepay, there are a variety of alternatives you can do on your own.
You could set up your own ‘payable on death’ account at a local bank.
Annuities usually have good returns and are payable on death. You could take
out term or interest sensitive whole life policies that are usually cheaper
than funeral pre-need policies (assuming reasonable health and age).
- If you are working with a funeral provider, first make sure the contract
spells everything out in detail. Many caskets look alike to the average
consumer, even though the price can vary greatly. You may not need the casket
for 10 years or more, so make sure it is described in detail; a picture is
even better. Know what isn’t included. Sometimes people consciously leave
out certain decisions and expenses so that survivors have some input at the
time. It’s best to spell those out so there is no misunderstanding later on.
- Understand how you are funding the prepayment and get evidence that your
money went where it was supposed to go. Unscrupulous salespeople have pocketed
payments made by vulnerable older people, leaving the funeral home and the
family unaware until the person died . Pay at the funeral service provider’s
location and make sure you see evidence the money was transferred to the trust
or to the insurance company.
- Pre-need funding vehicles vary widely, as do state regulations. Be sure you
understand the pros and cons. Pre-need insurance can give you immediate
coverage and allow you to pay over 5-10 years, but will cost you more than a
single payment. Unless you are sure you won’t cancel, don’t use insurance;
cancellation penalties can be very high. Trust regulations vary by state. In
Illinois if you cancel, move, or change your provider, the maximum charge is
$300 or 10% of the amount in trust, whichever is less. But in some states you
could get a lot less back.
- Don’t let a salesman rush you into a decision. You won’t lose anything
by talking over the proposal with family and comparing it with one or two
others; but you could save yourself and your family a lot of grief by being a
good shopper.
Check out the Consumer Reports May issue or go to www.consumerreports.org
for an online copy of the article.
There are some excellent web sites that provide consumer information on
funeral and cremation planning; see a list of them here.
Feel free to share these ideas any way you wish; in the Chicago area, Richard
Lamb Funeral Service staff members are available to speak to groups on these
important consumer issues. Call us at 1 888/511-5262.
Next issue of the Lamb Telegram: Saving money on funerals.
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