Before you buy
When you're pre-planning a funeral , you may feel that it's best for your loved ones if you pre-pay for it as well. Paying for a funeral in advance can be risky and most in the funeral industry will recommend proceeding with caution. Some examples of problems with pre-need pay arrangements include:
- Funeral home bankruptcy. For example, in June of 2005, Alabama paper Decatur Daily carried the story of a defunct funeral home, where complainants were required to file a claim for reimbursement with the state Department of Insurance. The Department expressly stated there was "no guarantee you will get your money back."
- Outright fraud. In the same month, the Rapid City Journal carried the story of a class action lawsuit filed against an insurance company that allegedly conned people "into paying higher costs for prearranged funerals." In other states, there are similar cases.
- Other refund issues. After a long wait, in March of 2004 the state of Michigan passed a consumer protection act (Senate Bill 512 and 513, Public Acts 21 and 22). The Act instates consumer refunds for funeral prepayment at a minimum of 80 percent.
Be sure that your pre-need trust contract includes a cancellation clause. There are some things that can happen to significantly alter your funeral plans:
- You might move
- You might live much longer than you think
- Your financial situation might change
- You may experience a significant loss of assets
- You might simply change your mind
Laws vary from state to state, and some states offer very little protection for the consumer. In California , for example, all the money you paid into the trust must be refunded to you, but there may be a revocation fee of up to ten percent. As noted with Michigan , this fee can be as high as 20 percent and other states have no laws at all.
Some states have far worse records: Mississippi law (as of early 2005) allows funeral directors to pocket half of prepaid money. People in Florida have lost two thirds of their prepaid investments when trying to cancel the prepayment deal, while the courts ruled it legal.