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#345 Consumer Rights: Prepaid Funeral Plans

mp3 #345 Should You Buy A Prepaid Funeral Plan? (mp3 file)

Especially if you are an older person, you may be contacted by a salesperson for a mortuary, funeral home, or cemetery, suggesting that you buy a pre-need, prepaid funeral plan. The salesperson or counselor may urge you not to put this off until death occurs, when the financial burden of paying for your funeral might fall upon members of your family. Instead, the sales counselor may suggest that you buy a complete funeral now, with the funeral home guaranteeing to provide the funeral that you pay for now, at whatever time you die in the future, at no increase in price. The plan is that the funeral home will put your money in a trust fund, and the interest earned on your money is supposed to cover any cost increases caused by future inflation.

California's Cemetery and Funeral Board, in the State Department of Consumer Affairs, has publicly warned California consumers that pre-paid funeral plans may be risky for you. The Board’s website is:

There are some laws on the books to regulate prepaid funeral plans in California, but the laws do not give you much protection. California requires funeral directors to put your money in a trust account, but the law permits a funeral director to be a trustee and appoint the other trustees who control your funds. The funeral home may take a fee each year from interest income, for looking after your trust fund.

Although most funeral homes are completely honest and follow state laws to the letter, there are still possible problems for you if you invest in a prepaid funeral plan:

1 - You may be paying a sales commission of 10 to 25% of your total contract price, plus other sales costs.

2 - The funeral home or cemetery that is holding your money may be sold or go out of business before you die, so there may be no one left to honor your contract, or to refund your money.

3 - The funeral home or cemetery that is holding your money may go bankrupt before you die, and your money may be used to pay off its outstanding debts.

4 - If the funeral home or cemetery is still in business when you die, the price of the funeral you paid for may have greatly increased due to inflation, and your prepaid amount plus interest may not be enough to cover the funeral for which you paid, some years ago. The funeral home or cemetery may then not be able to deliver the funeral you thought you had fully paid for. At the time of your death, your family may sadly learn that your so called "prepaid funeral" was merely a small loan to a funeral director, which has earned little or no interest or equity, and which only obligates them to pay even more for your funeral, which now costs much more than it did when you made what you thought were final arrangements.

If buying a prepaid funeral plan has so many risks, would you be better off buying a burial insurance policy instead? Burial insurance policies also have problems, however, because you are usually paying high premiums for a small face value life insurance policy. Some burial insurance sales people may claim that your total funeral price is guaranteed by the policy, but they may fail to inform you that no funeral director is required to provide a funeral for the value of your burial insurance policy.

Are there any good alternatives, if you decide to avoid the risks of prepaid funeral plans, and burial insurance policies?

The State of California's Cemetery and Funeral Board offers the following suggestions, based on the conviction that funeral directors are in the business of providing funerals, and that banks are in the business of providing safe investments:

1 - Go to the funeral home, mortuary, memorial society, or cemetery of your choice, and make arrangements for your funeral, giving written instructions as to your wishes.

2 - Go also to the bank, savings and loan association, or credit union of your choice, and establish a trust account with yourself as the trustee, and with a licensed California funeral director as the beneficiary of the trust account upon your death, for the purpose of setting money aside for your funeral expenses. Let your funeral director know of the location, name, number, and amount in the trust account.

These suggestions avoid all the risks and disadvantages of a prepaid funeral plan where your money is held in trust by a funeral director, and has many advantages for you. In an insured bank account, your funeral money is safe. In higher interest certificate of deposit accounts, you will earn considerably more interest than in a prepaid funeral plan, thus increasing the money in your trust account to allow for inflation in future funeral costs. You will be able to change your mind at any time before you die, and if you move away or if your funeral home goes out of business, you may withdraw all your money, or change the beneficiary of your trust account to another funeral home. The funeral director will have no access to the money in your trust account until after your death. During your lifetime, you will retain complete control. If you are a recipient of SSI (Supplemental Security Income) you will need to set up an irrevocable trust account, which you cannot change. By following these suggestions, you may have the peace of mind that comes from knowing that you have made final arrangements with your funeral director, in accordance with your own wishes, and that you have also arranged with your financial institution that your money will be available for this purpose, whenever it is needed.

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