Paying for funeral expenses in advance is not always the more money-savvy way. Funeral Homes can go out of business, may not have relocation provisions, and more. Find out what your alternatives are.
Organizing a funeral can be extremely stressful, time consuming and expensive, which is why some individuals may consider prepaying for their own funeral to protect their loved ones from the burden. While it's always a good idea to figure out some of those high level logistics and have a conversation with family members, paying for funeral expenses in advance is not always the more money-savvy way.
Prepaying for funeral expenses involves an agreement between yourself and a Funeral Home where you'll make an upfront payment covering all the arrangements for your funeral, when the day comes.
No access to money. Once you have paid the Funeral Home, your money is tied up, meaning you can not get it back even if you change your mind. Only the Funeral Home has access to it and your family will not be able to get it back for other purposes.
Not interest bearing. Even if you put your money in a savings account, that's always going to earn some interest versus sitting in the pocket of a Funeral Home Director. You also get guaranteed security, as your deposits are protected by FDIC insurance.
Bankruptcy risk. If the Funeral Home were to go bankrupt, there is no guarantee you will ever recover your money and you'll probably be standing in a long line of creditors. Keep in mind there isn’t much regulatory oversight for prepaid funerals. In fact, there is a history of state and federal investigations because of the number of issues that happen due to the funeral home misspending or embezzling money. You also can't transfer those funds elsewhere because the agreement is between you and that specific Funeral Home.
No relocation provision. In the event you and your family were to move elsewhere, having prepaid for your funeral will become a burden to your family as they'll have to coordinate everything from a distance. You definitely want to check if the Funeral Home has a provision for relocation, although that's quite rare. If they don't, your family wouldn't be able to recuperate those funds in the event of a move as they are tied to a single Funeral Home.
Final sale. If you change your mind about the services, you often don’t have the option to ask for a partial or full refund. Make sure you understand the details of refund policies before signing a contract.
We highly recommend thinking about the type of funeral service you would like and communicating those preferences to your family. This is an important discussion to have with your loved ones and you'll be surprised how liberated everyone feels once you've made up your mind. When it comes to paying for the funeral, here are some alternatives to consider:
Life Insurance. If you do have one, make sure you have the correct beneficiary information and let your beneficiaries know that they are on the life insurance policy.
Certificate of deposit. A CD is a low-risk savings tool that can boost the amount you earn in interest while keeping your money invested in a relatively safe way. If you have the cash in a CD, then tag that particular CD for funeral expense purposes and also be sure that the beneficiary is correct.
Payable on Death Account (POD). This type of bank account gives you the option to deposit and withdraw funds at any time, before the money goes to a beneficiary after you die. The bank will generally distribute the money when your beneficiaries present identification and an official copy of the death certificate.
Tax implications. Leave instructions to pay funeral expenses once you have passed directly from your estate as they are usually tax deductible.
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