11 Reasons To Avoid Prepaid Funeral Plans & What To Do Instead

Written by Choice Mutual | Last updated: March 21, 2018

Prepaid Funeral Plans

We are all going to pass away eventually even though most of us think we are immortal. The truth is that we have a responsibility to our family to make sure they are financially prepared for laying us to rest.

Deciding whether to purchase a prepaid funeral plan, or a traditional life insurance policy like senior burial insurance can be confusing.Prepaid Funeral Plans

They both should give you the same result, in the end; however, they are two completely different products.

But, don’t worry:

Today, we are going to list the reasons why you should avoid prepaid funeral plans altogether. Furthermore, why you should get a final expense insurance policy instead.

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  1. Funeral Directors Can Go Bankrupt Or Embezzle Your Money
  2. You Can’t Move Your Prepaid Funeral Plan
  3. FTC Warns That Some States Offer No Protection
  4. You Can’t Make Any Changes To Your Prepaid Plan
  5. Prepaid Funerals Don’t Guarantee Coverage For Future Costs
  6. You Are Tying Up Funds & The Funeral Home Benefits
  7. The Funeral Home Is Your Beneficiary
  8. Funeral Directors Say Pre-Plan, Don’t Pre-Pay
  9. No Guarantees In The Prepaid Funeral Plan Business
  10. You Might Need A Lawyer To Understand The Contract
  11. Possibility Of No Refunds
  12. Taking Action

 

Funeral Directors Can Go Bankrupt or Embezzle Your Money

The most substantial issue you will run into when dealing with a prepaid funeral plan, is an answer to the question “Will the money be there when I pass away.”

It’s hard to answer that question because you are leaving almost everything in the hands of the Funeral Director or Home.

There have been several incidents where funeral home directors became bankrupt or embezzled escrowed funds for their gains.

In 2016 a Jury awarded $491 Million in damages for fraud by a prepaid funeral company named National Prearranged Services Inc.

This trial lasted for seven years and affected over 97,000 victims.

It’s a great Idea to pre-plan for your burial; however, prepaying could really cost you.

 

You Can’t Move Your Prepaid Funeral Plan

Another reason you should avoid prepaid funeral plans is that some plans can’t be moved.

If you decide you want to move out of state or you want to be buried with a different funeral home, you could be out of luck.Prepaid Funeral Plans

Some plans even require you to be buried in a specific cemetery.

This means if you decide to be buried in a different cemetery, they don’t have to honor the agreement.

For those that allow you to move or transfer your services, you will have to pay an administrative or penalty fee.

Some states like Michigan require that all pre-arrangement plans be transferable, but that leaves 49 states that don’t require it.

 

FTC Warns That Some States Offer No Protection

According to the FTC, “Protections vary widely from state to state, and some state laws offer little or no effective protection.

If someone violates the Funeral Rule, they may be subject to penalties of up to $41,484 per violation.

However, the rules of the funeral industry are so vast and vary from state to state; a violation is almost never discovered without FTC intervention.

We haven’t heard of any cases where someone was charged over $40,000 per violation.

The FTC also mentions that every state has their own set of individual rules for funeral goods and services.

Some states have laws to help ensure that any prepayments are available to pay for the funeral.

Some state laws require 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 beneficiary being the funeral home or cemetery.

 

You Can’t Make Any Changes To Your Prepaid Plan

If you decide to make any changes in your plan, it might shock you to find out that you can’t make any changes.Prepaid Funeral Plans

Some prepaid funeral plans don’t allow you to change specific request once the plan is in place.

Imagine deciding you wanted a different flower arrangement or a more affordable coffin.

You wouldn’t be able to make the change even if you own the contract.

 

Prepaid Funerals Don’t Guarantee Coverage For Future Costs

When you prepay for a funeral, it doesn’t guarantee that all future burial expenses will be covered.

There are third party services outside of the funeral home’s control like:

  • The Cemetery or the crematory charges.
  • The Compensation for clergy or other service officiants.
  • Musicians, including organists, pianists, and soloists.
  • Car rentals, including limousines and police escorts.
  • The Obituary-filing costs.
  • Flowers

Cemetery plots can be very expensive and most cemeteries require you to purchase a grave liner, which will cost several hundred dollars as well.

There are even charges to open a grave and to fill it in, as well as perpetual care on a cemetery plot.

All of these costs and expenses are outside of a prepaid funeral plan and could easily fall into the hands of your loved ones after you have passed.

 

You Are Tying Up Funds & The Funeral Home Benefits

Another drawback to these prepaid funerals is that you are tying up money that you might need between now and then for emergency purposes.

When you prepay, the funeral home may have established with a financial institution a trust designed to hold funds for future funerals.Prepaid Funeral Plans

These usually are state-regulated irrevocable trusts in which all or most of the advance payment is invested.

They are called irrevocable trusts because they can’t be revoked or canceled at any time before the stated event in the trust has happened.

Some states even allow the funeral home to keep ten percent of your payment for “current use”.

You should also find out what happens to the interest the money grows in the trust; will it go you or the funeral home?

 

The Funeral Home Is Your Beneficiary

Usually, when you buy life insurance, your family and loved ones are the beneficiaries.

However, some funeral homes or directors will make themselves the beneficiary of a life insurance policy on your behalf.

What should happen is that any remaining funds from your life insurance policy should go to your family.

This is not what happens all the time. It would be very easy for a funeral home to add additional fees to your services or try to keep the remaining funds to themselves.

This is especially true if your family isn’t aware of a policy and thinks you simply prepaid for your funeral.

 

Funeral Directors Say Pre-Plan, Don’t Pre-Pay

Funeral Director Glenn Taylor of Glenn Funeral home commented, “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.”

Allan Levine, who has helped with operating Temple Burial organizations stated if you’re going to be buried, buy a plot before you need it, but not necessarily paying for a funeral on a pre-need basis.

Prepaid Funeral Plans

He said you should write 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.

Funeral Directors all seem to agree; it’s awesome to Pre-Plan it’s unnecessary to Pre-Pay.

 

No Guarantees In The Prepaid Funeral Plan Business

There aren’t any guaranteed when it comes to prepaid funerals.

You have no guarantee that the funeral home you paid will still be in business when you pass away. You’ve paid for your funeral, but there is no one to provide the service or products.

You have no guarantee that the costs won’t increase.

The FTC’s Funeral Rule does not apply to third-party sellers, such as casket and monument dealers, or to cemeteries that lack an on-site funeral home.

There is no guarantee that the funeral director won’t steal your money.

 

You Might Need A Lawyer To Understand The Contract

Other significant disadvantages of a prepaid funeral plan are the contracts.Prepaid Funeral Plans

You really should look at these contracts with fine detail and with an attorney because they might not live up to your expectations and end up costing your beneficiaries.

Issues like “what happens when an interest-bearing account doesn’t reach maturity or what happens if you pass away before your payment plan is finished?

You must read all the fine print, are there extra fees if you die outside of the country?  What fees are included in the prepaid plan? What fees are not included? Is there a waiting period?

When it comes to issues like these, having an attorney to read over the contract would be your best bet because the funeral home industry is, “in all honesty” poorly regulated.

But… who wants to hire an attorney to shop with them for prepaid funeral plans?

 

Possibility of No Refunds

Did you know that most states don’t require full refunds if you cancel a prepaid funeral plan?

It sucks that this is the case because if you have put in $5,000 into a prepaid funeral and you change your mind, you could lose half or all of your investment.

It’s important, (if you still decide to purchase a prepaid funeral plan) to determine what percentage of your money you will get back if any if you choose to cancel the policy.

You need to know both the refund policy and cancellation policy to be able to navigate the best prepaid funeral plan.

 

Taking Action With A Better Alternative

It’s clear that the risks of purchasing a prepaid funeral plan over a traditional life insurance or final expense policy are much higher.

Prepaid Funeral Plans

Overall, if you are thinking about how you are going to cover your final expenses, the best option for your budget and peace of mind will be purchasing a final expense insurance policy.

Here’s a really good post on how to get your life insurance cheaper that is worth checking out.

Even if you already own a prepaid funeral policy, it wouldn’t hurt to get a small final expense or burial policy just as insurance for the prepaid funeral policy.

If you decide you want to move out of state or you want to be buried with a different funeral home, you could be out of luck.

Some plans even require you to be buried in a specific cemetery.

This means if you decide to be buried in a different cemetery, they don’t have to honor the agreement.

For those that allow you to move or transfer your services, you will have to pay an administrative or penalty fee.

Some states like Michigan require that all pre-arrangement plans be transferable, but that leaves 49 states that don’t require it.

About ChoiceMutual.com
About ChoiceMutual.com

Choice Mutual works with all the top burial insurance companies throughout the nation to secure you the best price possible.

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