You pay for your vacation and your kid's education in
advance. So, why not prepay your funeral? Well, here's why.
Stacy Johnson • September
9, 2019
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Welcome
to the “2-Minute Money Manager,” a short video feature answering money
questions submitted by readers and viewers.
Today’s
question is about funerals; specifically, whether you should prepay your
funeral expenses. It’s a topic I’ve covered many times over the years, and has
both pros and cons.
For
more information, check out “11 Ways to Make
a Funeral Affordable but Not Cheap” and “8 Documents That
Are Essential to Planning Your Estate.” You can also go to the
search at the top of this page, put in the words “funeral” or “estate planning”
and find plenty of information on just about everything relating to this topic.
Hello,
and welcome to your “2-Minute Money Manager.” I’m your host, Stacy Johnson, and
this answer is brought to you by Money Talks News,
serving up the best in personal finance news and advice since 1991.
Our
question today comes to us from Anonymous:
“Is
prepaying your funeral a good idea?”
What’s prepaying a funeral?
You
might have heard of prepaid tuition programs. That’s when you pay college
tuition when your kids are young, thereby locking in the rate. That way, when
they get to college, their tuition’s already paid and there are no unpleasant
surprises.
Prepaying
your funeral is the same idea, albeit a little creepier. You’re paying for your
funeral in today’s dollars. So, when your time comes around, it’s already paid
for and there are no surprises.
Here
are three things to consider:
Thing No. 1: Prepaying pros
The
chief advantage of prepaying your funeral is that your loved ones — who will
(hopefully) be distressed by your demise — won’t have to deal with costly
decisions when they are least mentally and emotionally prepared to do so.
In
addition, you’ll be getting the exact send-off you expect. Finally, you’ll lock
in today’s prices, thus potentially saving some money for those you leave
behind.
Thing No. 2: Prepaying cons
Unfortunately,
there are drawbacks to prepaying.
First,
contracts vary from funeral parlor to funeral parlor. What if the one you
contract with goes bankrupt? Will you be able to get your money back? You might
or you might not, depending on your state’s laws and the contract you sign.
Can you
cancel and get a refund? If so, will you get interest on the money you’ve paid?
What if you change your mind? What if you move? What if you no longer want to
be buried, and want to be cremated instead?
There
are a lot of things that can happen, which means there’s a lot of fine print to
understand.
Thing No. 3: What should you do?
As far
as I’m concerned, there are more cons to prepaid funerals than there are pros.
After all, you can preplan a funeral without prepaying it, which will also
serve to alleviate stress for your loved ones.
If you
have life insurance, you may have already taken care of the financial costs of
your funeral. Just make sure you’ve got the right beneficiary on the policy.
(In other words, make sure it’s not your ex-wife.)
Another
option to meet these kinds of expenses is a pay-on-death (POD) bank account,
which automatically goes to your named heir upon your death. Of course, that
doesn’t mean the heir will be forced to use it to pay for your funeral.
Bottom
line? My advice is to skip the prepaid funeral. Invest your money elsewhere and
make sure your loved ones know what you want.
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