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More People Paying For Own Funerals, But It Can Be Risky

October 3, 1995

It may be the ultimate in planning ahead.

Arranging and paying for one’s own funeral has become an accepted practice for many Americans. More than 7 million services have been arranged in advance, with $15 billion worth prepaid, according to the American Association of Retired Persons.

While it might seem unsavory to many, contemplating one’s funeral has advantages, consumer advocates and funeral directors say. Not only can you make your wishes clear, the planning process will teach your family about a business that few know anything about until they arrive in a fog at a funeral home.

Yet footing the bill in advance to hedge against inflation can be risky, consumer advocates stress. While most plans work well, money may be lost if you move, if the funeral home closes, or _ in the worst case _ if the funeral director absconds with the money.

Consumers Digest magazine, after a six-month investigation into the growing preneed industry, estimates that $50 million has been stolen or is missing in such funds nationwide. The magazine, in its September-October issue, predicts the situation will worsen, since federal laws don’t monitor the industry and enforcement of state laws is spotty and weak.

Funerals are prepaid in two main ways: state-regulated trusts or insurance policies, both sold by funeral directors.

The trusts, which are regulated by all states except Alabama, Vermont and District of Columbia, involve funds placed in a bank. Most states mandate that 100 percent of the money is placed in the bank, although many allow funeral directors to keep a portion.

Usually, such trusts usually can be canceled with a penalty charge, but normally can’t be transferred if you move, says Lee Norrgard of the AARP.

Funeral directors also sell insurance policies or annuity contracts that allow for death benefits, and usually receive a commission for doing so. These policies are easier to transfer between states.

With any plan, consumers should get a guaranteed agreement that the funeral director assumes the risk that the payments plus interest will pay for the whole funeral, says the Funeral and Memorial Societies of America.

A third and safer alternative is to simply establish a joint savings account with a trustee of your choice, with the aim of providing funds for a funeral without the delay of probate.

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