Personal & Financial Strategies

Revisiting Pre-Planned vs. Pre-Funded Funerals

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Do you currently have pre-planned, or pre-funded funeral arrangements? Scott Olson, of Olson Funeral & Cremation Services, points out some of the benefits and challenges that come with planning ahead.

The poor economy has caused many people to consider, or reconsider, long-term investment strategies like Long Term Care Insurance and Pre-Paid Funeral Plans. Long Term Care Insurance can be difficult to understand, but there are many “A-Rated” insurance providers to help you navigate the labyrinth. This isn’t necessarily the case with funeral service providers.

Funeral homes traditionally are “rated” by word-of-mouth and personal experience. Along with speaking to friends or clergy members, the general public can utilize sources such as the Better Business Bureau and the Illinois Department of Financial and Professional Regulation, because now, more than ever, it’s important to understand with whom you are working and why, when it comes to pre-paid funeral plans.

Many people don’t understand the difference between pre-planned and pre-funded funeral services, both of which have merits. Pre-planned funeral services are simply an individual’s wishes, plans and information, stored in a location known to other family members, usually at the funeral home. It’s not a good idea to store this information in a safe deposit box, as it may take too long to access, when needed.

Pre-funded funerals are the same as pre-planned, with the addition of funds invested in either an insurance policy or a trust account. Pre-funded funerals take on two different forms: guaranteed and non-guaranteed.

With guaranteed plans, the funeral home assumes the risk of the contract, if the investment doesn’t grow at the same rate as the funeral home’s inflation. If the investment grows faster than inflation, the funeral home has the right to retain or return the balance. Your local funeral service provider should be able to tell you what its policy is on this matter.
On a non-guaranteed policy, the investment is not guaranteed to cover the costs of the funeral at the time of need, and additional funds may be necessary.

Research conducted in 2009 by Homesteaders Life Insurance Company found that, on average, 65 percent of survey respondents have informed others about their funeral service preferences, while only 22 percent have actually pre-arranged with a funeral home. Of those who pre-arranged, more than 96 percent said they’re satisfied with their decision.

Other surveys have shown that the elimination of both emotional burdens and financial burdens are the two main reasons people pre-plan or pre-fund a funeral. By eliminating the emotional burden, family members are spared from thinking about funeral service logistics and searching for pertinent information. In addition, the possibility of emotional overspending is eliminated. A recent focus group found that family members who have been involved with a pre-arranged funeral considered the deceased to be organized, competent, intelligent, loving and thoughtful.

This research also has shed light on why people don’t pre-arrange funeral services. Individuals fear that a funeral home may sell or go out of business. They also fear what happens if they relocate. Not all funeral homes or pre-arranged funerals are the same. While most pre-arranged policies are portable, in the event that a funeral home goes out of business, not all are portable if the investor moves or elects to use a different funeral home. Even when portable, it’s important to know if there are any charges associated with this portability.

Funeral homes have the right to take an administrative fee from the pre-arranged funeral fund, prior to investing it, and an administrative fee for transferring it later. This may impact future portable dollars, so be sure to ask your funeral professionals about their policy on this.

The old adage says that if something sounds too good to be true, it probably is. This is good advice to follow when contemplating pre-funding a funeral service. Find out as much as you can about the company with whom you are working.

Be aware of the vast differences in payment plans that are offered. With some funeral homes, if you fall behind on payments, large penalties may be assessed. Others may cancel the policy, leaving the client with nothing. The most reputable firms simply reduce the amount of the benefit.

Know where and how the funeral home is investing the funds, how long it has been in business and what other people think about the firm. Most importantly, do you feel comfortable with the people at a particular funeral home? Take the time to do your research and discuss your options with a financial planner. ❚

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