There’s no limit to the types of financial questions members of my Inner Circle can ask me and my team of investment experts. 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 very interesting question came from a member who asked whether there is any advantage to investing money in a prepaid funeral. So you can get a sense of how our Inner Circle works, 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 really an investment decision, as well. 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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Investing money: Prepaid funerals can conceal a host of future problems
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 You may also be stuck with your initial funeral plan, even if it’s hopelessly out of date in relation to community standards or the personal circumstances of you or your survivors.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.
COMMENTS PLEASE
Do you think it makes good financial sense for you to prepay for your funeral? Click here
Funeral prices may not rise as much as predicted
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?
If you’re looking for authoritative advice on investment issues, or fundamental analysis of stocks you’re considering buying (or selling), you should join Pat McKeough’s Inner Circle. You will get Pat’s answers to your personal investment questions, full access to our members-only Inner Circle website, and many other membership privileges. Click here to get started right away.
Comments
K.
I am 84 in good health and have a prepaid funeral plan. I chose this mainly to ease the transition to death for the benefit of my family members. I have a basic cremation costing $1100.00. The funeral home holds $180.00 with the balance held in a trust account for the cremation. This trust account can be withdrawn at any time if not used.If not used, the funeral home keeps the $180.00 and the $1100.00 can be withdrawn. I consider this fairly basic insurance to protect my family from what could be a costly and traumatic time.
My parents and grand-parents made pre-paid funeral arrangements and it was the best thing for all involved. They were able to clearly state all of their wishes directly to the funeral home so that I wasn’t left with decisions and questions at a stressful time. Everything was planned and paid for ahead of time so all I had to do was call the funeral home and tell them who it was. I also received money back from them as the original amount had been invested and increased in value to be more than the actual cost would have been today. All around a very good idea from my standpoint.
Since I have no family to worry about, my situation is perhaps a bit unique.
My feeling however is that I won’t care whether I’m turned out in a fancy bronze casket trimmed in teak and ermine, or flushed down the crapper – I’ll be too dead to be capable of objecting or worry about whatever is done.
Also, in the absence myself or family upon whom the task can be downloaded, the government will have to dispose of me. Having acquired a great deal of animosity towards that lot of parasites over the last 63 years, it would afford me great pleasure to stick them with the bill. A small revenge, but very sweet!
I intend to reach 120, which is not unreasonable given that my parents both made it to the very late 90’s, my mother only succumbing to a chance pneumonia so there is a very good chance given her excellent health at that time that she would have gone well over the 100 mark herself. Having the genetic predisposition already, and with the anticipated medical advances expected in the next 50 years, I consider I have a very good chance of hitting my target. My point here is that I believe I also have a very good chance of outliving the funeral home operator with whom I might contract, so my contract might well become worthless before I need it.
I have experienced the add-on costs of my parents prepaid plan. What they believed was prepaid was a down payment to excessive charges for opening the dedicated wall panel, double time costs for the labourers who attended on a Saturday at family request, as they ” had to bring in workers specially for us” . There were four other interments taking place in the hour we were there, no doubt each family paying the exorbedent extra charges. The costs surpassed the original investment a few years previously. Do not do it.
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I am 84 in good health and have a prepaid funeral plan. I chose this mainly to ease the transition to death for the benefit of my family members. I have a basic cremation costing $1100.00. The funeral home holds $180.00 with the balance held in a trust account for the cremation. This trust account can be withdrawn at any time if not used.If not used, the funeral home keeps the $180.00 and the $1100.00 can be withdrawn. I consider this fairly basic insurance to protect my family from what could be a costly and traumatic time.
I would stick to purchasing a plot only and only if you don;t foresee moving.
My parents and grand-parents made pre-paid funeral arrangements and it was the best thing for all involved. They were able to clearly state all of their wishes directly to the funeral home so that I wasn’t left with decisions and questions at a stressful time. Everything was planned and paid for ahead of time so all I had to do was call the funeral home and tell them who it was. I also received money back from them as the original amount had been invested and increased in value to be more than the actual cost would have been today. All around a very good idea from my standpoint.
Since I have no family to worry about, my situation is perhaps a bit unique.
My feeling however is that I won’t care whether I’m turned out in a fancy bronze casket trimmed in teak and ermine, or flushed down the crapper – I’ll be too dead to be capable of objecting or worry about whatever is done.
Also, in the absence myself or family upon whom the task can be downloaded, the government will have to dispose of me. Having acquired a great deal of animosity towards that lot of parasites over the last 63 years, it would afford me great pleasure to stick them with the bill. A small revenge, but very sweet!
I intend to reach 120, which is not unreasonable given that my parents both made it to the very late 90’s, my mother only succumbing to a chance pneumonia so there is a very good chance given her excellent health at that time that she would have gone well over the 100 mark herself. Having the genetic predisposition already, and with the anticipated medical advances expected in the next 50 years, I consider I have a very good chance of hitting my target. My point here is that I believe I also have a very good chance of outliving the funeral home operator with whom I might contract, so my contract might well become worthless before I need it.
I have experienced the add-on costs of my parents prepaid plan. What they believed was prepaid was a down payment to excessive charges for opening the dedicated wall panel, double time costs for the labourers who attended on a Saturday at family request, as they ” had to bring in workers specially for us” . There were four other interments taking place in the hour we were there, no doubt each family paying the exorbedent extra charges. The costs surpassed the original investment a few years previously. Do not do it.