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
- 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.
- 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.
- 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.
- 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
- 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.
- 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.
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