In addition to making things easier for your family during a difficult time, prepaid funeral plans can also be a good way to spend down money in order to qualify for Medicaid. But the plans come with risks.
Consumers lose millions of dollars every year when prepaid funeral funds are misspent or misappropriated. A funeral provider could mishandle, mismanage or embezzle the funds. Some go out of business before the need for the prepaid funeral arises. Others sell policies that are virtually worthless.
Customers are not always entitled to refunds if they change their minds, and some funeral homes sell policies that require additional payments, or that can’t be transferred if the customer moves.
Prepaid funeral contracts are governed solely by state law, and protections vary widely from state to state. Some states require the funeral home or cemetery to place a percentage of the prepayment in a state-regulated trust or to purchase a life insurance policy with the death benefits assigned to the funeral home or cemetery. Other states offer buyers of prepaid plans little or no effective protection.
If you decide to go ahead with a prepaid funeral plan, consider the following:
- Shop around. It is a good idea to check with a few different funeral homes before settling on the one you want. The Federal Trade Commission’s Funeral Rule requires all funeral homes to supply customers with a general price list for all possible goods or services. The rule also stipulates the kinds of misrepresentations that are prohibited and explains which items consumers cannot be required to purchase, among other things.
- Make sure you have a reputable funeral home. There have been cases of unscrupulous funeral providers taking advantage of customers.
- Read the contract carefully. Can you cancel the plan and get a refund? Is the plan transferrable if you move to another area? Are you paying just for merchandise, or for funeral services as well? If prices for funeral merchandise and services rise, will your estate be responsible for paying additional costs?
- Find out where your money goes. The prepaid plan should provide information on what the funeral home will do with the money you pay. Some states have protections in place to make sure the money is safeguarded, but other states offer no protections. Is the money put into a trust account? What happens to the interest income? Is there a plan if the funeral home goes out of business? What happens to any money left over?
- Make sure the plan won’t affect Medicaid benefits. If you are buying the policy as part of Medicaid planning, you must purchase an irrevocable plan, which means you can’t cancel or change it once it is bought.
If you run into problems or have questions about your state’s laws, most states have a licensing board that regulates the funeral industry.
After purchasing a plan, be sure to tell your family about the plan, and let them know where the documents are. If your family isn’t aware that you’ve obtained a plan, the plan is useless.