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.
Watch the following video, and you’ll pick up some valuable info. Or, if you prefer, scroll down to read the full transcript and find out what I said.
You also can learn how to send in a question of your own below.
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.
Got a question of your own to ask? Scroll down past the transcript.
Don’t want to watch? Here’s what I said in the video
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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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.
I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.
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