Members of my Inner Circle can ask me and my investment team financial questions of any kind. Aside from questions on specific investments like stocks and exchange-traded funds, members ask us many other questions about how they should be investing their money.

One intriguing question came from a member who asked whether there is any advantage to investing in a prepaid funeral. I’d like to share this question, and our answer, with you.

Q: At 57 years old, it seems reasonable to me to lock in funeral costs at today’s prices and pay for it now. This makes even more sense since I can reasonably expect to live another 25 years. Funeral costs for any level of funeral have doubled every 10 years over the past 30 years, according to the brochure. Does this make sense to you?

A: This sounds like a consumer decision, but it’s also very much an investment decision. When you prepay a funeral, you are investing money in a highly specialized fixed-return investment. You pay now, and get a fixed return (consisting of preselected funeral services) at an indeterminate point in the future — the few days or weeks after your death.

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Future problems can’t all be foreseen

The one advantage you get with a prepaid funeral is that you fix the cost. However, it’s easy to spot a number of disadvantages.
For instance, you don’t get any return on the money you’ve paid, though the funeral home (or the insurer) may hold your money for decades. Depending on the plan, you may be stuck with your initial choice of funeral home, even if its service has deteriorated. You may also be stuck with your initial funeral plan, even if it’s hopelessly out of date in relation to community standards or the personal circumstances of you or your survivors.

Knowing that you are largely a captive customer, the funeral home may drive a harder bargain on related services than it would if it had to win your business as a new customer.

Don’t count on a predictable pattern of funeral costs

When you’re making a major purchase, it’s best to look beyond what it says in the marketing brochure. Remember, common sense alone can only take you so far. You need to base common-sense decisions on all available common knowledge. For instance, even if funeral costs have doubled every 10 years over the past 30 years, the rise may be due to special factors.

It may partly reflect the rising disposable income of the past 30 years. It may reflect a change in the ethnic mix — some nationalities prefer more elaborate funerals than others. It may reflect rising costs due to environmental regulations, or rising labour costs due to a shortage of qualified personnel. These and other cost-boosting factors may not all apply equally in the future, or at all. Some may reverse.

Before you prepay for a funeral, ask yourself if you’d buy other sorts of fixed-return investments from the same company, such as a long-term bond. If you can’t depend on the company to do something as simple as repay a loan, then why trust it to carry out your last wishes?

COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members

Do you believe in locking in costs ahead of time, or are you willing to look for better conditions as time goes on (as with a variable mortgage, for instance)? What would it take to make you change your approach? Let us know what you think.