PrePayment – Is It the Right Choice?

How many times have you thought about prepaying for your funeral? After all, if you have money set aside and funeral plans all set, then your loved ones won’t need to worry about how to pay for your passing. While this willingness to prepay is gallant, you may be entering risky territory with a prepayment plan option. In fact, it may be money flushed down the toilet.

While prepayment funeral options (also known as pre-need) are regulated, a number of abuses have been reported. And, pre-need funeral options vary from state to state as well. Here are some examples:

  • In Mississippi, the state’s Pre-Need Act stipulated that 50 percent of funds prepaid for burial and related services had to be deposited in a trust fund when this plan was developed in 2001. In 2006, it was amended to 85 percent. Changes in 2009 will include directing $10 from each customer’s contract to build a fund geared to protect consumers against future reported contract problems.
  • In Illinois, Merrill Lynch & Co. has agreed to pay $18 million to end a State of Illinois investigation into its role in the erosion of a trust that was supposed to safeguard consumer deposits meant to pay for their funerals. The trust, however, has a $50 million deficit, which regulators blame on the trade group’s investment strategies.
  • In Georgia, the IRS closed down a funeral home for neglect to pay back taxes and confiscated papers. No one knows who has prepaid for funerals at this funeral home, but the owner states that a friend “would honor their contracts.”
  • In Missouri, lawmakers felt it necessary to pass a pre-need funeral service bill that would require that all pre-need sellers be registered and licensed with the state. It also provides the state Board of Embalmers and Funeral Directors authority to audit the finances of pre-need funeral contract sellers to ensure they are at least 85 percent funded to meet their obligations to consumers.

Those news articles listed above are from 2009, so you can see that the pre-need funeral industry remains shaky at best in some states. Plus, prepayment isn’t a good deal for you financially – if it weren’t a good deal for funeral homes, then they wouldn’t take your money. Finally, a price set in 1990 is no longer viable today. The casket your mother picked out might not be available, and you would be stuck with the difference in cost between 1990 and now.

How do you overcome this problem?

Instead of providing a pre-need salesman with your hard-earned money, think about setting aside funds in a special account that you control and that helps you earn interest. Depending upon the funeral you want, it wouldn’t take long to save up the money you’d need, especially if you opt for a low-cost option. Check with a trusted banker or broker to learn about options available to you today.

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