Pitfalls can abound if you decide to buy

By Christine Dugas
USA Today

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Planning Tips Before investing in funeral plans, be sure you and your family know what you are purchasing and that the plan is with a reputable company. Some questions to ask: What's included in the plan? There are no standard elements. You can tailor the service and burial to make it simple or elaborate, traditional or unorthodox. Make sure you don't pay for things you don't want. Can you get your money back if you change your mind? If the answer is yes, ask if you get all your money, or just the principal. It's possible the funeral home will refund all the money, except for a fee. Some states regulate the fee that the funeral home can charge. But if you purchase an insurance policy to pay for your funeral, there might be penalty fees for canceling it. What happens if you move to another state? Most prepaid plans from reputable funeral homes are portable.

Instead, she was buried in her hospital gown in a flimsy casket that looked as if it was made of Styrofoam. Her family and AARP sued the funeral home.

Though Bohn's experience is not the norm, it illustrates the risks you might be taking when you prepay for a funeral — especially if you don't carefully examine the contract you are signing and find out what, if any, state laws protect you.

To many people, the idea of prepaying for a funeral makes a lot of sense. It can remove a big financial burden from your loved ones, make a stressful time easier for them and ensure that you will get the kind of funeral you want.

But prepaying for a funeral is a large financial commitment, so it shouldn't be made on the spur of the moment. A traditional funeral costs about $6,000, according to the Federal Trade Commission. That doesn't include extras like flowers and the obituary notice — not to mention the cost of a cemetery plot and monument.

Talk to your family

You can prearrange your funeral without paying for it in advance. Planning is always a good idea. Parents should sit down with their adult children and discuss funeral plans, as well as their instructions in case they become terminally ill or incapacitated. "It can be difficult to talk about these things, so there should be one conversation about them all," says Kathleen Day, a financial planner at The Enrichment Group in Miami.

Many planners suggest writing your preferences, setting aside money to pay for a funeral in a particular bank account and notifying the executor of your estate. But don't put the only copy of your instructions in a safe-deposit box, because your family might be unable to get into the box on short notice. And don't put the instructions for your funeral in your will, because that doesn't usually get read until after the funeral.

If you decide to buy a prepaid plan from a funeral home, you still should discuss it with your family and let them know where the documents are stored, the FTC says. Otherwise, they might end up shelling out for something you've already paid for.

"Funerals are also for the living — to help the survivors cope with the death of a loved one," says George Clarke, executive director of Selected Independent Funeral Homes, a trade association.

Check state laws

Despite the popularity of prepaid funerals, they are not regulated by federal law. Most states regulate prepaid plans, but the type of oversight varies considerably, according to a General Accounting Office report released last month.

"Not only do state regulations vary, but in different states, different agencies regulate the funeral industry," says Deborah Zuckerman, a senior attorney for the AARP Foundation Litigation.

Before you buy a prepaid plan, find out what kind of consumer protection your state provides.

Many states now require the money to be held in a trust.

Make sure that 100 percent of the money is held in trust at a bank or other reputable financial institution, says John Carmon, president of Carmon Community Funeral Homes in Hartford, Conn. You should know the name of the institution and receive an annual statement. The money should be invested in FDIC-insured bank accounts or in government-backed securities so there is no risk of losing the money.

Know what you're buying

One reason some people opt to prepay for a funeral is to lock in the price. But prepaid funerals don't necessarily guarantee that your payment will cover all costs at the time you die. The cost of some items are not controlled by the funeral home. If the price of flower arrangements or newspaper death notices, for example, outpaces the rate of return on money in trust, your family could get hit with additional costs.

It's also possible there could be money left over. Carmon says that about 20 percent of the prepaid funerals he handles have excess money. The person who buys the plan usually specifies that the surplus should go to their church or family.

If you are considering a prepaid plan, be sure you go to a reputable funeral home that has been in your community for many years.

Find out if it is a member of an association with a code of ethics, such as the Selected Independent Funeral Homes and the National Funeral Directors Association. Check the funeral home with the Better Business Bureau to see if it has a history of complaints.

Sometimes problems can occur when a funeral home goes out of business or is acquired by another funeral home. Your prepaid funeral contract should be honored by the successor firm. But in practice, that doesn't always happen.