Organizing a funeral can be a daunting task, especially for those who have to deal with the emotional loss of a loved one. The process can be stressful, time-consuming, and expensive, which is why some individuals may consider prepaying for their own funeral. While this may seem like a good idea at first, it's important to understand the potential drawbacks of prepaying for funeral expenses and explore alternative options.

How Does Prepaying Work?

Prepaying for funeral expenses involves an agreement between the individual and a Funeral Home where an upfront payment is made to cover all the arrangements for the funeral when the day comes. This can be a significant amount of money, depending on the type of service and arrangements that have been selected. The idea behind prepaying is to protect loved ones from the burden of arranging and paying for the funeral after the individual has passed away.

Why Should You Not Prepay?

While prepaying for funeral expenses may seem like a good idea, there are several potential drawbacks to consider before making a decision.

• No Access to Money. Once the individual has paid the Funeral Home, their money is tied up, meaning they cannot get it back even if they change their mind. Only the Funeral Home has access to the money, and the family will not be able to get it back for other purposes. This can be problematic if unexpected expenses arise, such as medical bills or emergency repairs, which may require access to the funds.

• Not Interest Bearing. Even if the individual puts their money in a savings account, that's always going to earn some interest versus sitting in the pocket of a Funeral Home Director. You also get guaranteed security, as your deposits are protected by FDIC insurance. It's important to consider the long-term implications of not earning interest on the money that has been prepaid.

• Bankruptcy Risk. If the Funeral Home were to go bankrupt, there is no guarantee that the individual will ever recover their money, and they'll probably be standing in a long line of creditors. Keep in mind that there isn't much regulatory oversight for prepaid funerals, and there have been instances of state and federal investigations because of the number of issues that happen due to the funeral home misspending or embezzling money. This can be a significant risk to consider before prepaying for funeral expenses.

• No Relocation Provision. In the event the individual and their family were to move elsewhere, having prepaid for the funeral will become a burden to the family as they'll have to coordinate everything from a distance. It's essential to check if the Funeral Home has a provision for relocation, although that's quite rare. If they don't, the family won't be able to recuperate those funds in the event of a move as they are tied to a single Funeral Home.

• Final Sale. If the individual changes their mind about the services, they often don't have the option to ask for a partial or full refund. It's essential to understand the details of refund policies before signing a contract.

What Are Your Alternatives?

We highly recommend thinking about the type of funeral service you would like and communicating those preferences to your family. This is an important discussion to have with your loved ones and you'll be surprised how liberated everyone feels once you've made up your mind. When it comes to paying for the funeral, here are some alternatives to consider:

• Life Insurance. If the individual has a life insurance policy, they can ensure that their beneficiaries have access to the funds after they pass away. It's important to make sure that the correct beneficiary information is listed on the policy and to let the beneficiaries know that they are on the life insurance policy.

• Certificate of Deposit. A Certificate of Deposit (CD) is a low-risk savings tool that can boost the amount the individual earns in interest while keeping their money invested in a relatively safe way. If the individual has cash in a CD, they can tag that particular CD for funeral expense purposes and make sure that the beneficiary is correct

• Payable on Death Account (POD). This type of bank account gives you the option to deposit and withdraw funds at any time, before the money goes to a beneficiary after you die. The bank will generally distribute the money when your beneficiaries present identification and an official copy of the death certificate.

• Tax implications. Leave instructions to pay funeral expenses once you have passed directly from your estate as they are usually tax deductible.

About Memoria

Our platform helps families with the challenges immediately following a family member’s death. By combining technology with human support, our platform offers personalized guidance, on-demand support, and a curated marketplace where you can arrange a unique farewell from the comfort of your homes – one that saves time, costs and headspace.