ISLAND VOICES
Oversight needed for prepaid funeral plans
By David Mitchell
For many consumers, a funeral purchase is the third largest lifetime expenditure, ranking right behind the purchase of a home and an automobile.
An AARP survey found that 47 percent of Americans age 50 and older have been solicited by telephone, mail or in person about purchasing pre-need funeral arrangements. Thirty-nine percent have been solicited about purchasing a burial or other final disposition in advance, or pre-need. Thirty-two percent have prepaid some or all of their funeral or burial expenses.
Those who prepay for funeral or burial goods and services tend to be older (65 plus) and tend to have low to moderate annual household incomes of between $15,000 and $40,000. Today, thanks in part to the growth of the older population, pre-need sales are a booming industry. In 1998, AARP estimated that funds in pre-need agreements exceeded $25 billion.
These statistics indicate the more extensive and effective marketing by pre-need burial sellers. Many people admit not knowing what happens to their prepaid funds. The amount of such unaccountable funds is tremendous. As more people pay for their funeral and burial in advance, it is increasingly important for laws to be in place that regulate this unique consumer purchase.
No federal regulation specifically addresses pre-need contracts, and state-level regulation is inconsistent. Funding options, contract provisions (for example, itemization of goods and services, portability restrictions and handling of escrowed funds), availability of refunds and redress mechanisms such as a state consumer protection fund, applicability of the state Unfair and Deceptive Acts and Practices Law, and a private right of action vary from state to state.
Several characteristics associated with the pre-need industry make strong consumer protections essential. First, there is generally a significant length of time between the signing of the agreement and the need for the goods and services described in the agreement. Trust funds that are mishandled may go undetected for years.
Second, it is often difficult to determine whether specific provisions of the contract were fulfilled (type of casket, for example), since the person who signed the contract is likely the deceased. Survivors rarely have knowledge of specific provisions, and they may unknowingly be charged for products and services originally understood to have been included in the agreement, services not requested by the deceased, or more expensive substitute goods or services.
Last, pre-need agreements are becoming increasingly complex, involving more decisions and more potential for fraudulent activity. Pre-need agreements often include a package of both funeral and burial goods and services that may be sold by funeral directors, cemeterians or third-party sellers who are paid on commission.
Prepaying for funeral and burial plans is like a layaway plan, but in this case, no service or product is delivered until you die. But if you change your mind and cancel the contract, Hawai'i law requires the return of only 70 percent of your funds. In the case of a prepaid plan that costs $9,000, the provider gets to keep $2,700, even though no service or product was ever delivered.
It's time for Hawai'i lawmakers to reform prepaid laws to ensure consumer value for the money invested. AARP's goal is to assure that purchasers of pre-need agreements are protected by strong, comprehensive legislation. Although AARP does not endorse prepaying for these types of products and services, we believe it is imperative to ensure that consumers are afforded the highest protections under the law.
David Mitchell is the state director for the AARP.
