As part of the coverage couple’s FAQ series, we’ll be answering the question “Is it better if I just save my own money or pre-pay for a funeral?”
Save own Money or pre-pay for a funeral?
Although most people are aware of the funeral homes’ shakedown, this is worth addressing because it highlights some of the biggest benefits of life insurance compared to ANY other tactic. When it comes to using your savings or any other deposit fund, we can’t say it loud or often enough this is a terrible solution to a terrible situation. While no one considers this a smart strategy, oftentimes this is the natural forced result of someone dying without life insurance protection. Since it’s too late once that happens, personal savings or desperate firesales of personal property and liquidation of partially funded retirement accounts become the only options. Life insurance is the perfect rescue device because it’s guaranteed, tax-free, lump sum, and best of all…you’re using the insurer’s money, not yours. Draining the hard-earned savings your loved one worked to build to cover final arrangements is a lot of salt in a fresh wound!
As far as the second-half of this question concerning funeral home prepayment…even before our career as insurance and investment consultants, there wasn’t much that got us as angry as this funeral home “pre-arrangement” scheme. I won’t go into the details, but a friend of ours once explained to us how their grandpa’s funeral arrangements weren’t honored because the funeral company went out of business and the director embezzled all the money. Worse yet, throughout the years I’ve discovered this is so commonplace that even financial advisory sites like the Motley Fool, Kiplinger, AARP, the Consumerist and even several government websites warn consumers to avoid this trap!
Forfeiting large sums of your money to cover the cost of death, when it would be better used focusing on enjoying life, isn’t just a big sacrifice…it’s a big risk! Since the very beginning of thecoveragecouple.com, one of the biggest tips we’ve always shared with clients was NOT to reveal how much coverage (or death benefit) you have to the funeral home salesperson. Funeral homes, like any business in existence, are structured with the sole purpose to make maximum revenue. If you were to disclose your loved one’s policy death benefit to the salesperson, guess how much of it they’ll try to spend? The truth is, while it’s not a pleasant thought, funeral homes are corporate juggernauts in the 21st century that are plagued with financial misconduct and outright consumer fraud.
PITFALLS OF PRE-ARRANGEMENT: First, your money’s better off in the bank where it’s FDIC insured, and earns at least some interest. Second, funeral homes can (and often do) go out of business. In some rare cases your funds can be recovered, but the legal battle is confusing and expensive once you factor in attorney fees and court costs. Thirdly, there’s no provision for relocation. This isn’t something we often think about, but no matter the amount of time that passes between your pre-payment and your death, there’s a greater and greater chance you could move or die out-of-state. What this means is that your funeral pre-payment will be eaten up by the cost of transporting your dead body back to where it must be buried. Crossing state lines with a dead body, for whatever reason is enormously expensive. You lose all the freedom to be buried with your family and are tied to one funeral plot at one funeral home. Having limited choices is never a good thing!
Fourth, with funeral home plans their estimate is always based on, well, estimates. What that means is that one of 2 things will definitely happen: (1) You’ll either part with too much of your money now due to an overestimate, or, (2) your family and friends will part with too much of their money later, due to an underestimate. In either scenario, everyone loses but the funeral home! Remember: They won’t put a shovel in the dirt before they’re paid. Pre-pay your funeral is such a blunder by consumers who’ve been duped, there’s even a phrase for it the AARP uses to describe it — A “grave” mistake. Research uncovered by Kiplinger’s investigative report revealed even if you overpay for a funeral’s true cost, in every documented incident the funeral home found “ways” to absorb the remaining balance so they pocketed the full profit, rather than returning it to the grieving family.
Fifth, funeral home pre-payment has become such a raging deception, the Federal Trade Commission (FTC) compiled a list of states offering NO buyer protection. The list is long. Not only can your prepaid plan fall short of even covering the costs you’re planning on, but you’re unable to make any changes to it once the contract is in place. They got cha’!
Sixth, did we mention the funeral home becomes your beneficiary!? This is something slipped into funeral home contracts like a thief in the night. On the other side, life insurance gives you the freedom to choose anyone and any portion of funds for your beneficiary(ies)…so you’ll NEVER be cornered or blindsider into having your money confiscated.
In a shocking article, a Forbes author published an expose recently going in-depth on even more dangers of funeral home pre-payment than we’ve scratched the surface of. The best advice I can offer would be to pre-PARE with life insurance, don’t pre-PAY with a funeral home!
We commit to conducting deep investigative research for you, and would like for you to reserve time with us, without any cost or obligation. We’ll carefully listen, and then follow up with a proven, practical, custom proposal for your review. HERE is our official invitation to take part in The Coverage Couple Challenge, where EVERYONE WINS. Visit the Scheduling Page at thecoveragecouple.com to see how much we can save you on your existing coverage, or provide a financial risk assessment and needs analysis for your review if you’re unprotected and univested. We hope to hear from you soon, because your life is worth the investment! -Aaron & Sarah, The Coverage Couple