Saturday, June 10, 2000

Prepaying funeral expenses saves money, relieves burden




By Amy Higgins
The Cincinnati Enquirer

        Her children thought she was morbid and didn't want to talk about it. But Rita Wessel said she did it for them — and wishes she had done it years ago.

        She planned and paid for her own funeral. She and her husband, John, picked out caskets, planned ceremonies and bought a burial plot. Mr. Wessel decided to put a bronze truck on the top of his to commemorate his career as a truck driver.

CONSUMER TIPS
  • Choose a licensed funeral director who has a good reputation in the community.
  • Make sure your funds are secured. Ask your funeral director how the funds are invested and check over time to ensure that the funds are keeping pace with inflation.
  • Make sure your plan is flexible and you can alter plans if you wish and/or can be transferred to a funeral director in another state in case you move.
  • Consider carefully before accepting an irrevocable agreement. Irrevocable agreements are fine when eligibility for Supplemental Social Security Income (SSI), Medicaid or other public benefits are being determined but may limit your flexibility.
  • Have a family member sit in during arrangements to help plan.
  • Like any contract, before signing, reread it carefully and make sure you understand all the provisions. Ask questions.
  • Keep a copy of your plan in a safe place. Inform a close family member or friend that you have made arrangements and where the documents are kept.
  • Make sure everything you talk about is put in writing. Get copies for you and your family.
  Source: National Funeral Directors Association
        In the end, the Bridgetown couple spent about $4,000 each — a sizeable sum, but with funeral costs expected to increase 3 percent to 5 percent a year, the Wessels are happy to have locked in today's prices.

        “The cost of funerals just seem to be going up and up and up,” Mrs. Wessel said.

        Indeed, the National Funeral Directors Association reports that the average U.S. funeral service costs $5,778.16, including a casket but not including cemetery fees. That total was increasing about 5 percent annually a few years ago but has dropped to about a 2 percent annual gain.

        Still, further increases are predicted, said Kelly Smith, NFDA spokesman. The biggest increases in a funeral's cost will likely be in the services area, instead of a casket or other merchandise, because of customer demand.

        “Consumers today are more interested in putting more emphasis on personal, meaningful services that celebrate life than they are in a good-looking casket,” Mr. Smith said.

        Therefore, more and more people like the Wessels are planning just exactly how they want their life celebrated and how much that is going to cost. The American Association of Retired Persons estimates that more than $25 billion in funeral expenses was prepaid in 1999, increasing from $15 billion in 1994.

        The benefits are more than financial — they relieve the burden on children or other family members to make important decisions in the midst of their grief.

        “I remember when my parents died, there wasn't anything like that,” said Mrs. Wessel, who has six children ranging in age from 38 to 28. “I didn't want my children to have to go through that. I didn't want them to have to worry about that stuff.”

        Financial planners, however, say prepaying funeral expenses might not be the wisest use of your money. In the plans, you invest in a regulated trust or open a life insurance policy. The plans are designed to earn interest at a rate higher than inflation, leaving no expenses for the family and possibly having money left over.

        However, the plan's yield typically is much, much lower than other investments, said Ken Weiss, senior vice president of investments at Prudential Securities.

        “It's the uncertainty of the inflationary costs of funerals vs. what's the rate of return in the market,” Mr. Weiss said. “It's a better investment put in the market.”

        But there are considerations beyond the numbers crunching, he said. Customers should make sure a preneed contract has provisions for what happens to your money if the funeral home goes out of business or if funeral costs increase faster than inflation.

        And with the amount of money being relatively small in comparison to other financial decisions, customers should weigh how much of a burden will be relieved by having everything prearranged and prepaid.

        “There are times you have to let the psychological aspect of financial planning override the quantitative,” Mr. Weiss said.

        Mr. Kelly also said prepaid arrangements bring convenience in addition to relief, especially to your heirs more concerned about grieving your loss than making financial decisions.

        “Calling up your stockbroker is not going to be high up on your priority list,” he said. “The convenience might outweigh the investment advantage of the another vehicle. ... A tremendous burden is lifted off everybody — and it's just not a financial one.”

       



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