Profitt Report: How pre-arranging your funeral works
It’s difficult to think about end-of-life expenses, but avoiding the topic won’t keep the inevitable at bay. An average funeral will cost you around $8,000 according to the National Funeral Directors Association. Some people choose to pre-arrange their funeral in order to take the burden off their families.
That’s a lot of money to give someone for a service that might not take place for months, even years. That’s why knowing your rights, and what you’re agreeing to, is critical.
Here’s how pre-paying a funeral works in some cases:
“Anything you purchase here through the funeral home is guaranteed, we then need to place that money into an insurance policy or a trust/escrow account. That money is earning interest for you,” said Libby Peterson of Martin Funeral Homes.
Then, when death happens, that money pays for funeral expenses. Here’s how Peterson explains it: say you pay for a funeral that today, costs $5,000. Death takes place 10 years from now. Due to inflation, that same funeral costs $10,000 and due to interest, you have $12,000 in that account. $10,000 of your pre-payment goes to the funeral home and your family receives the extra $2,000.
“At the same time, if you spend $5,000 and now it cots $10,000 and there's only $8,000 in the account, then we as the funeral home have to accept that loss because we've guaranteed those goods and service to you,” Peterson said.
However, each pre-payment contract is going to be specific to you and what you agree to. Your contract might have a guaranteed price or a non-guaranteed price.
Sellers or prearranged funerals must be registered with the state. The Department of Licensing and
Regulatory Affairs said you should always know who you are dealing with, make sure they are registered and know exactly where your money is going.
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Here are questions the Department of Licensing and Regulatory Affairs said you should ask:
? Know who you are dealing with -- a funeral director, a cemetery salesperson or a commissioned pre-need seller. Are they reputable?
? Always verify with CSCL that the pre-need seller of funeral or cemetery goods and services is currently registered, and the funeral home or cemetery which is to provide the goods and services is licensed with the state. Check the license status of any funeral home at: www.mi.gov/licenselookup.
? Know what you are paying for (a casket and vault only, and/or funeral services?)
? Know if the prepaid contract you are considering is either guaranteed or non-guaranteed. A guaranteed contract ensures there will be no future additional costs charged for goods and services contained in the contract. However, any excess funds in escrow that are not used will not be refunded. A non-guaranteed contract provides that additional future costs may be charged to provide for the goods and services contained in the contract. Any excess monies in escrow, which were not needed to provide the contract’s items, will be refunded.
? Shop and compare prices offered by several funeral providers and cemeteries.
? Know what happens to the money you’ve prepaid and know what happens to the interest on that money.
? Know in advance who the escrow agent will be before purchasing a prepaid contract. All funds received in connection with a prepaid contract must be held in escrow by an escrow agent for your benefit, the contract beneficiary.
? Know your cancellation rights. Know if you can get a full refund if you cancel the contract, or if there’s a penalty and how much that penalty will cost you.
? Is the prepaid contract transferable if the funeral home or cemetery goes out of business or if you move or die while away from home?
? Read the prepaid contract carefully and have a clear understanding of it before you sign it.
? Get a copy of the prepaid contract you’ve signed. This is the only document that lists exactly what you have purchased. It is your right to receive a copy.
? Get confirmation from the escrow agent that your prepaid contract funds were deposited with them within the required 30-day timeframe. (This is not required when a non-guaranteed contract is purchased and the seller elects to be the escrow agent.)
? Make sure you receive a yearly statement from the escrow agent/financial institution holding your funds.
? Inform your family or designee that you’ve purchased a prepaid contract for your funeral or cemetery arrangements and where the documents are filed.