Some well-meaning people purchase prepaid-funeral contracts so that when they die, their heirs won’t have to pay their funeral expenses. The contracts might cover everything from the burial or cremation to the casket, embalming, death notices, use of the funeral home, limousines and flowers. But these contracts sometimes don’t work as well as expected.
Example: National Prearranged Services, which sold prepaid-funeral service contracts for up to $10,000 to about 150,000 customers from 1992 to 2008, failed to place its customers’ payments in insurance policies or trusts as required by law, according to federal prosecutors. This left the company without enough money to fund the agreements they sold.
This was hardly the first prepaid-funeral contract problem. Scammers have disappeared with prepaid-funeral customers’ money or taken advantage of grieving heirs by delivering lower-quality funeral services than promised, such as cheaper caskets and smaller flower arrangements.
In fact, prepaid-funeral contracts are almost always a bad idea, even if you manage to avoid the outright scams. As much as 30% of your prepayment might go to the salesperson and/or the prepayment-services company rather than toward your funeral costs. Some or all of the money you prepay is likely to be lost if you die in a different part of the country than anticipated. And the money you prepay won’t earn interest for your heirs.
Better: If you don’t want your heirs to have to pay for your funeral, instead put sufficient money to finance this expense into a bank payable-on-death account or another savings or investment account. Name a trusted heir as this account’s beneficiary so that the money doesn’t become tied up in probate. Instruct this heir to use the money to pay your funeral costs—you also might offer guidance about the kind of funeral you want—and let other heirs know of this arrangement as well. (Expect a simple cremation without ceremony to start at $1,000. A full funeral with a casket burial can run as high as $10,000, though prices vary.) Exception: It might be worth buying a prepaid-funeral contract if you must spend down your assets to qualify for Medicaid.