FAQs About Pre-Paying
If I pre-pay, are the prices guaranteed in the future?
While some funeral providers may tout "price guarantees", "no price increases" and "fixed prices" if you pre-pay, they probably are misstating the facts. The fact is, funeral prices have historically increased annually and will undoubtedly continue to do so.
If funeral prices increase every year, how can they be "guaranteed"?
"Locked-in" would be a more accurate term. Funeral services and merchandise purchased today for future use, sometimes years from now, can be essentially locked in by funding the arrangements now. This is done by placing the money into a financial product that will grow on an annual basis. The growth of the trust fund or insurance policy accrues and this growth is what offsets inflationary increases and is paid to the funeral home only after they provide the services.
Let's say you pay for a funeral now for $7,500 and then live another 20 years. Your family will not get the funeral in 2035 for $7,500 and keep the growth on the funding product. If the contract was guaranteed, the $7,500 plus all growth goes to the funeral home to cover the 2035 costs of the funeral and services. As long as the family does not change the services or merchandise, they would owe no additional money. If the contract was not guaranteed, any funds(if any) in excess of the then current price would be returned to the family or any shortfall would be due to the funeral home.
What are the risks?
There are consumer protection laws designed to protect those pre-paying for funeral services. In fact, state law mandates that 100% of any funds you give a funeral director be placed into an approved account such a trust fund or insurance product. In other words, the funeral home cannot spend prepayments on their current operating expenses.
By agreeing to lock-in today's costs, the funeral director is agreeing to accept most of the risks. The funeral home agrees to provide the contracted funeral goods and services at the then current value of the insurance policy or trust account.
The consumer's risk may be in making arrangements with a funeral home that offers a low price but is unable to be profitable enough to stay in business. The funds should be safe within the insurance policy or trust fund in which they were placed, but there may not be enough funds there to provide the selected services and merchandise.
So, are pre-paid funeral arrangements transferable?
The simple answer to that is YES! Remember that any money you pre-pay is put into a trust account or insurance policy that the funeral director cannot legally obtain until the services are provided. Over time things change, funeral homes may come and go or you may become dissatisfied with your current funeral home. You have the option to revoke a pre-paid funeral agreement with one funeral home and make other arrangements at another. Another funeral home has the option of whether or not to accept the terms of the previous agreement.
Can all costs associated with a funeral be locked-in?
Probably not. There are services and merchandise provided by others that the funeral home has little or control over. For example, cemetery charges, flowers, obituaries, etc. may be included on a funeral purchase agreement as a courtesy but these expenses may unexpectedly rise in the future and the funeral home would have no way of anticipating that.
Funds can be set aside at today's prices for cash advanced items but future increases in these items would not be guaranteed.
Couldn't I pre-fund my funeral expenses myself?
Certainly. Many folks do have the foresight to plan for future life events. Sometimes they do a good job of planning but do a poor job of passing that word along to their family. This leaves the family in a quandary when an unexpected death occurs and they know little or nothing about their loved one's financial affairs. Many times there are funds set aside to cover final expenses but these funds get caught up in the estate leaving the survivors responsible for the expenses until the estate can be settled.
Pre-funding your funeral expenses is one way to take a burden off your survivors that they do not need to deal with when they have just lost the most important person in their life.