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Financing a funeral: All options have pluses, minuses

Comparison shop and plan in advance if you want to save

By Amy Buttell Crane

No one likes talking about funerals. However, if you're willing to think ahead and have some potentially uncomfortable conversations now, you can save yourself countless headaches -- and even thousands of dollars -- during one of life's most stressful events.

What a funeral costs

Financing a funeral slideshow

(Click to view.)

Whether you're planning for one or paying for one, many aspects of a funeral can be arranged ahead of time. While it may seem morbid, it makes it easier to honor the deceased's wishes, and it allows more time to find just the right location for the event. It also opens up new possibilities for financing, which can save you a great deal of anxiety about money during an already emotional time.

Funeral costs can easily run into five figures, according to the AARP, though the average cost for a funeral was $6,500 in 2004, the most recent year figures are available from the National Funeral Directors Association. Costs include caskets, obituaries and gravesites, and there is little transparency in this predominately family-owned industry.

Worse, since grief-stricken family members usually have little time or inclination to shop around, they often end up quickly settling on a local funeral home and paying for a traditional funeral with wake, religious and graveside services. That can mean paying more than if they'd been given a bit of time to plan. Also, unless the deceased bought a prepayment plan, insurance or made other arrangements, the funeral usually has to be paid for on the spot, though some funeral homes and financing companies do offer funeral financing.

All funeral homes come with a mandatory basic services fee, which is allowed by the Federal Trade Commission. These fees include funeral planning, permits and death certificates, the services of the director and staff, sheltering the remains and coordinating arrangements among the cemetery, crematory, church and other third parties. The slideshow accompanying this article details the options involved in funeral planning along with approximate costs.

Sam Jernigan, a widow in Grass Valley, Calif., calls herself a "still-traumatized consumer" a year after her husband passed away. "I felt so broadsided by the horrific costs and am only glad the Lord provided some out-of-the-ordinary money for my use at the time," she says. "These high costs would be devastating to most families, and I still shudder to think what my frugal hubby would have thought of the approximately $11,000 I've now spent, all told."

Options and financing
Funerals don't have to be so pricey. There are a number of potential costs involved in a funeral and to a great extent, the more options you choose, the more expensive the funeral will be. Even your preference of burial or cremation for the remains will influence your costs.

Fortunately, there are also a number of financing options in advance of a death. Afterward, however, there are fewer. "Most funeral homes won't let you defer payment because they don't want to have to try to collect later," says Gary Altman, an estate-planning attorney with Altman and Associates in Rockville, Md.

A term or whole-life insurance policy is one popular financing option that can be purchased years ahead of the actual event. A $10,000 level term insurance policy on a healthy male runs from $12 to $20 a month or $28 to $40 for whole life. For a healthy woman, term insurance would be $12 to $15 a month, while whole life would cost $25 to $35. However, many insurance companies won't sell policies this small, and others won't sell long-term term policies to older people, offering them only time-limited policies, says Bill Wade, head of claims for Combined Insurance, a unit of Aon. To get the right price, you may have to shop around.

Other options for paying for a funeral in advance include:

  • A prepaid funeral plan, known as an irrevocable funeral trust, which you generally buy from a particular funeral home.
  • A Totten trust, which is payable to a beneficiary without going through probate.
  • A joint bank account, in which you deposit a sum of money in a bank, savings and loan or credit union with one of your beneficiaries with the intention that he or she will use the money to pay for your funeral.

Upon bereavement, financing options are limited to using your credit card or getting a signature loan through a funeral home or financing company. For a rundown on the pros and cons of each option, see the table below.

Cutting costs
By federal law, funeral homes must provide you with their general price list at the beginning of any discussion of funeral planning. Using that as a starting point, you can pick apart the list and only purchase the pieces that you want, says Mark Duffey, CEO of Everest Funeral Planning and Concierge Services, a nationwide funeral planning company.

Still, when you are planning a funeral directly after bereavement, it's difficult to even think about prices or comparison shopping. "You've got two things working against you in terms of making an informed decision," Duffy says. "First, you are under duress, doing something that you don't want to do, and second, you are under time pressure because the funeral has to be planned quickly."

If you have the luxury of planning in advance, you can visit several funeral homes and let them know you are shopping around, says Norman Perlmutter, an accountant in Morganville, N.J. "I did this when my mother was dying, and I bet I saved $2,000 to $3,000 over what I paid when my father died suddenly and we had to plan the funeral and pay for it on the spot," he says.

Generally, any option that doesn't include the remains of the deceased will be cheaper than those that include them, because you'll have to use the services of a funeral home, Duffey says. So by having direct cremation and no service at the funeral home, you can save thousands of dollars and have a memorial service elsewhere. If you want a more traditional funeral, you can buy a casket from someplace other than the funeral home; many funeral services' websites and other vendors offer overnight delivery, directly to a funeral home, of a variety of caskets at one-third to one-half the cost you'll pay at a funeral home.

Donating the body to a medical school, mortuary school or anatomical firm can also save you money. In exchange, most will cremate the remains of the body after use and return the ashes to you. Most schools and firms require that you register before you die; contact medical or mortuary schools in your area for more information.

The Funeral Consumers Alliance is a nonprofit, educational association that provides information and education about funerals. Members have access to local chapters that provide community-based information -- and discounts, in some cases -- about local funeral planning options. The association also offers a variety of literature about planning and paying for a funeral.

 

METHODS FOR FINANCING A FUNERAL


Time frame

Pros

Cons

Credit card

After death

Immediately available

May exceed card limit (which can hurt your credit score); will incur interest charges 

Funeral home / financing company loan

After death

Immediately available

Need to fill out application and get financing company approval; interest rate may be high

Joint bank account

Before death

No interest or finance charges; money is usually available to joint account holder despite probate

Interest rate earned is low, joint account holder could spend the money on something else

Life insurance

Before death

Can assign policy to funeral home; receiving payment for smaller policies is fairly quick

Must make regular premium payments; can’t cash out term policy for any expenses prior to death

Totten trust

Before death

Specifically set up to pay for a funeral

Money isn’t available for other purposes; interest rate earned is low

Irrevocable funeral trust (prepaid funeral)

Before death

All or most of the expenses are paid in advance

Today’s prices may exceed the original value of the trust; if funeral home goes out of business, you may lose your money

 

Published: July 31, 2008


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