The Prepaid Funeral: Advantages & Disadvantages

There is one guarantee in life and that is we’ll all die. One hundred and fifty years from now the earth will be filled with all new people. That’s a lot of funerals! The funeral industry has huge potential for profit in the next fifty years with a rapidly aging baby-boomer generation. Prepaid funerals are just one of the services funeral homes offer. The question remains, are prepaid funerals worth it?

If you had asked me 10 years ago, I would have said “absolutely not”. In the last several years, having watched a number of people close to us arrange funerals both before and after death, I’ve softened my stance a bit. Let’s consider some of the advantages and disadvantages of the prepaid funeral.

Advantages of a Prepaid Funeral

  1. Growth isn’t taxable – As long as the expenses incurred are for eligible funeral expenses as defined by section 148.1 of the Canada Tax Act, the growth is non-taxable.
  2. Easier to think rationally when not grieving –  It’s difficult to think rationally while making so many decisions within days of losing someone. The deluxe weather treated hand carved maple upholstered casket? You bet! Nothing but the best for Granny. The ninety-five dollar guest book? Not a problem! Being frugal is often the furthest thing on someone’s mind in the aftermath of death. Yet if Granny was frugal herself, is it fair to her and her estate to be caught up in the moment of funeral spending? It’s simply easier to make those difficult decisions while not under so much stress.
  3. The desire of client – Conversely if Granny is worried that you would be too frugal and not give her the send off of a lifetime, this is the opportunity for her to choose what she wants and pay for things just as she’d like them. Many older people worry whether they will have enough in their estate to cover funeral costs. They don’t want to burden their families. For some, even if they have plenty of money, preplanning and prepaying a funeral can give them a great deal of peace of mind.
  4. Easy to get – Buying life insurance for someone in their 80s with major health issues is a challenge. Prepaid funerals, either as an insurance vehicle or as a trust fund don’t require a health screening or age limit to qualify.

Disadvantages of a Prepaid Funeral

  1. They aren’t a good investment – Prepaid funerals make very little financial sense. The interest they generate is minimal. The plan contributor has little control over where or how the money is invested. From a psychological perceptive prepaid funerals have some merit but from a purely financial perspective, they aren’t the wisest choice.
  2. There are scams out there – You will need to:
    • Ensure the funds are held either in an income trust or as a part of an insurance policy at a recognized Canadian Financial Institution covered under the CDIC (Canada Deposit Insurance Corporation).
    • Ensure the funeral home is a licensed funeral provider and is licensed under the Prearranged Funeral Act.
    • Confirm with the funeral home that you can transfer your prepaid arrangement anywhere in Canada.
    • Keep track of the policy and let your family know where it is.

Final Thoughts

Do I think prepaid funerals are a good idea? I still don’t. If you’re looking for tax free growth and think you have a few years, the money would best be put in a TFSA. At least that way, you still have the control over how the money is invested and it’s there when needed. You can still prearrange your funeral so that your wishes are carried out how you’d like.

Yet for many people, prepaying a funeral is a gift to their family. Having the funeral fully paid for and prearranged in the days following a death is one less thing the family needs to worry about in the midst of their grief. Knowing all this, if someone asks about prepaid funerals, I will no longer try to talk them out of it.

What are your thoughts on prepaid funerals?

Kathryn works in public relations and training for a non profit. In her off hours, she volunteers as a financial coach helping ordinary Canadians with the basics of money management. Her passions include personal finance and adult education. Kathryn, along with her husband and two children live in Ontario

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Kathryn

Kathryn

Kathryn has been a staff writer for MDJ since January 2009. During the day she works in an office. In her off hours, she volunteers as a financial coach helping ordinary Canadians with the basics of money management. Kathryn, along with her husband and two children live in Ontario.
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Carol
6 years ago

Well I checked what my dad paid for a 4 casket funeral plot nowadays. He paid $400 years ago now it’s a fortune. Just goes to show real estate is a good investment.
I thought maybe the growing costs of funeral services could offset the smaller financial growth while the money’s in trust.

Lynn
7 years ago

Be careful & aware…I prepaid for my funeral with instructions plus separate clause, and gave extra to go to daughter to spread ashes where I requested.
I then moved and transferred my prepaid to a funeral home in New town. Recently, through the funeral Home, I learnt that if policy is 1 3 or even 5 years since purchased the cost could have risen 5 – 20 times what I paid, and even though clause in it states the amount to go to daughter for my disbursement of ashes, I was told they could keep any or all of it to cover the risen cost. I do not know the laws on this but believe as it is a separate clause that that portion amount stated plus interest on it should not be touched by funeral home but given to my daughter, as stated. Any higher cost yearly I feel ( increased costs for what I require ) should be in writing sent to myself so I may cover costs now and not leave any burden to my daughter, who cannot afford this herself. Is this a possibility as funeral home would not discuss it with myself instead opting out saying had another appointment to deal with brushing me aside. Please advise & thank you

Brian Poncelet,CFP
8 years ago

Assuming we are going to die at some point why not permanent life insurance.
There is no real limit like the TFSA It grows tax free and is guaranteed.

If you get the good stuff it grows so extra money can be left to children partner etc.

One can also spend an enjoy the the money using the insured annuity idea I wrote a few years ago.

https://milliondollarjourney.com/how-annuities-work.htm

Cheers,

Brian

Lynn
8 years ago

That is indeed distressing, chrissy. However, if the funeral home and cemetery are two separate entities (with different ownership), then it could be that the prepaid, prearranged portion only covers the services provided by the funeral home (which is why the other listed costs are only “estimates”).

Are you sure that the pre-payment actually covers the burial?

chrissy
8 years ago

Just found out today for myself, That a prepaid funeral means…. NOTHING! the costs are not frozen….for example, my grandma paid $450 to have the hole dug for her casket…todays cost is $1050.00… which we are responsible for the difference after any “Interest” has been appied to it… the only “guarantee” is the Casket and service are paid for. All through the paper work is the word..”ESTIMATED COST”… which of course means… no guarantee. Cpp is applied to any outstanding balance… I brought up the fact of this being a “contract” signed by my grandmother in 2004… why is not Binding? Answer….”the word ESTIMATE!!!!!!! what a croc.

Trisha
8 years ago

Also .. to clarify some of the comments above. One does NOT have to on CPP benefits to receive the ‘Death’ Benefit. One receives it when a spouse or next of kin passes. Anyone who is a Canadia Citizen and who has paid CPP benefits is awarded the basic Death Benefit and it is paid to their next of kin. Some funeral homes will still bury a person for that ‘amount’, ensuring that those less fortunate are always given a decent funeral and burial.

Trisha
8 years ago

Great topic.
I’ve had to arrange 2 funerals in my life. Sadly, both came as total surprises, leaving a lot of very important desisions to be made, at a time when no one was in any condition to do that.
First – I will confirm, there is an automatic CPP death benefit and most funeral homes will assure you of that and then require that you sign an ‘Assignment of Benefits’, signing that cheque over to them. They then bill you for the amount over and above the benefit, but be prepared. The costs are so atrocious, they border on offensive, but really, who wants to ‘dicker’ with a funeral home? Even if you’re emotionally up for it, it just doesn’t feel right.

Everyone, regardless of age, should think about this topic and have the conversation to make sure their loved ones know their wishes. It could save a lot of discomfort and even family disputes. Imagine your loved ones arguing about funeral arrangements. Or as happened to me, we found a document several weeks later, which would have significantly changed how the arrangements were set up, but no one knew it existed and so we now live with the memory of not having provided what they wanted.

If you think about it, you only get 1 funeral and it really should be a refection of the life you’ve led and the person you were, not whatever the funeral director on duty at the time, thought to suggest.

Lynn
8 years ago

Note to Charlie (#26) – The TFSA was launched in 2009 — not quite 7 years yet, so it may not be performing as badly as you think.

Prepaid funerals are fine if one is sure that there will be someone left to administer same. When an elderly relative passed away, she was on the “outs” with her immediate family (daughter-in-law and grandkids), and her one remaining sibling was himself at death’s doorstep. Although she had prepaid her funeral, with provisions for viewing, an organist and service, the burial was a streamlined affair. The executor approached the funeral home for a refund on the unused portion; I am unaware of the outcome.

That said, I believe that pre-arrangement with at least an outline of one’s obit (it’s amazing how relatives and in-laws can take offense if they are left out), family ties, life’s achievements, as well as burial preference (cremation or casket), visitation, in order to relieve the stress associated with the death of a loved one.

lifeline
9 years ago

Is the prepaid amount and cost actually frozen, as one person states in June 11, 2009? As I understand it, the costs increase due to inflation, therefore the funeral home can charge you whatever they feel their costs are, and I feel that area becomes the ‘black hole’ of overcharging clients.
Also, as funeral homes are often dealing not with one person, but with several family members, the costs can get lost in the system, and the family is just required to pay the number that is spat out at the end.

Charlie
9 years ago

I think the biggest bonus of a prepaid funeral is the guarantee of the cost of services that most funeral homes offer as a standard to their client families. I have seen what my TFSA has done for 7 years and I also see what a funeral has increased by over the past 10 years. I think I’m happy with the prepaid funeral decision. I also have to express my pleasure with someone finally pointing out that the CPP death benefit isn’t automatic the one thing I would have mentioned is that when a couple is splitting CPP credits because the one spouse is getting very little doesn’t mean that the spouse who was being increased is going to get more of a death benefit.
Did you know what cost of a funeral will roughly double every 10 years so if you can afford it you should be starting a plan with your funeral home most offer programs that allow you X number of years to pay for the funeral with the added benefit that should you die before the balance is paid you or your family isn’t responsible for any difference between deposits paid and the total funeral cost.
i would also take the thought above a little further… tomorrow go into Future Shop and tell the associate that you need a new TV but you don’t need it for 25 years but you will give them todays price and pick it up in 25 years and see what they say. when the local funeral home is encouraging you to do what i just suggested and a lot of people don’t think for some reason it is worth it to do.