PreNeed (Pre-Paid) Funeral and Burial Plans

Advantages and Disadvantages of Prepaid Plans

One way to plan in advance for the end of one's life is to sign a formal contract called a "preneed funeral plan." With this plan, money to pay for a funeral and/or burial is held in a trust, in an escrow account or paid through an insurance policy on the life of the person desiring the plan. Parts of or all of the funeral service and burial are designed in advance and pre-funded in advance and the family has little to do but show up.

This type of planning has become very popular in recent years. A survey conducted by the AARP in 1999, found that two out of five people over age 50 had been approached to pre-purchase funerals and burial goods and services. An AARP survey in 1998 indicates that 32% of all Americans over age 50, roughly 21 million people, have prepaid some or all of their funeral and or burial expenses (but not necessarily through a formal preneed plan). Breaking that down; about 25% of the over age 50 population have prepaid for their burials (cemetery plot, mausoleum or niche), 18% have prepaid for headstones, urns, caskets , grave liners or vaults, opening and closing of graves and so on and 13% have prepaid for goods or services from a funeral home or funeral director. The same survey indicates that over $25 billion is being held in preneed trust funds. Roughly another $25 billion is waiting to be paid out in life insurance benefits. Prepaid or preneed funerals and burials are big business.

Funerals and burials funded privately by the family, or paid from an individual life insurance policy and arranged informally through a funeral home or funeral director are generally not subject to state regulation. Any formal arrangement through a second party or involving a contract is subject to regulation in all states. Each state has adopted different rules as to who can sell these plans, what the plans can provide, what contract provisions must be, how the plan is to be funded and what recourse purchasers might have in the event of fraud or default. All states call these regulated plans "preneed" funeral and burial arrangements.

Here are some advantages as to why one would want to buy a preneed plan for funeral and burial services and goods.

• It provides peace of mind knowing these arrangements have been made in advance.

• It avoids the burden on family members to make decisions when they are most vulnerable to manipulation.

• It allows one to virtually control from the grave by determining in advance the funeral products, funeral services, burial products and burial services that one would prefer having for final arrangements.

• It helps the family to avoid taking loans, arranging finance plans, raiding savings or selling assets to pay for a funeral and burial.

• It guarantees (for many contracts) that if products and services currently purchased are not available in the future, equivalent substitutes will be provided at no additional cost.

• It locks in guaranteed prices (available with some contracts) forever.

• It allows for inflation in future costs (for those contracts that do not guarantee prices) by investing money in an interest-bearing account or buying life insurance that increases in value over time.

• Depending on the contract, it may allow for transfer to another funeral home or for partial or full refund.

Unfortunately, there are also problems with prepaid, preplanned final arrangements.

• With some trust fund and insurance funding options there may be no refund if someone wants to cancel the plan in the future.

• If a purchaser moves to another state there may be no transfer options or there may be different rules governing the funding option.

• In some contracts, interest earnings on investments resulting in excess money not needed for the plan may be retained by the funeral home or funeral director.

• On installment plans interest may be charged but not credited to the account.

• In certain insurance funded contracts, the ownership or death benefit may be irrevocably assigned to the contract holder (funeral home), preventing the purchaser from enjoying ownership rights in the policy.

• In certain insurance funded contracts, a growth in the death benefit over time that exceeds the cost of the preneed plan services and goods may be pocketed by the contract holder (funeral home) instead of being refunded.

• If the contract provider goes out of business or fails to secure 100% of the funds for future payment, there may be no recourse to get all of the money back that was put in.

• If certain services or goods that were purchased initially are not available in the future, but more expensive versions might be, the family may be forced to pay extra for those items.

• In certain insurance funded plans, if the insured dies too soon, there may have been a waiting period in which few or no benefits are paid at death, thus forcing the family to pay out of pocket for the funeral.

• Certain unscrupulous providers may have failed to provide an itemized list of services and goods or failed to identify properly, specific services and goods, thus allowing the provider in the future to substitute less expensive items or to leave out services and goods that were originally anticipated in the agreement.

What Services and Goods Can Be Prepaid?

All states allow for prepaid plans for funeral services and merchandise. This would include such things as picking up the body, embalming and restoration, rooms or chapel for viewing and funeral services, casket, vault or grave liner, transportation, permits, death certificates, obituaries and so forth. Almost all states allow for prepaid burial services and merchandise as well. Only about six states do not allow it. Burial services and merchandise might include opening and closing the grave, grave markers, vaults or grave liners, mausoleums or niches. Cemetery plots are excluded from prepaid plans in all states.

The AARP has excellent information for consumers on planning for funerals. Quoting from the AARP:

"Most states have a licensing board that regulates the funeral industry. You may contact the board in your state for information or help. If you want additional information about making funeral arrangements and the options available, you may want to contact interested business, professional and consumer groups."

To find a planner in your area you may also contact the National Care Planning Council at inquiry@longtermcarelink.net or call 800-989-8137

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HUD Reduces Loan Amount by 10% on Reverse Mortgages

The letter we expected from HUD came out and any reverse mortgage with an application signed after the 30th of September will be reduced by 10%.  Moving forward, as this industry continues to change and evolve it is important to get the education and make a decision.  While we never want to make snap decision we need to get the most education we can and make the right decision.  I had talked to many clients who wanted to wait for the market to turn and now with a 10% reduction the market has to turn more to make the reverse mortgage work in their situation.

Lets take the time to talk about the program before HUD decided to penalize seniors again.

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Negative Press on Reverse Mortgages -- Is it the next big scam?

To hear it told by uninformed reporters that don't do their homework it would be wise to steer clear of the Reverse Mortgage.  It seems a month doesn't pass when there is legislation passed that makes it harder to get a Reverse Mortgage and less beneficial to the seniors. In fact my earlier post mentioned lowering that amount of YOUR cash that you can have access to.  I don't know but while there are many scams out there to watch out for the Reverse Mortgage isn't one of them...there is so much information about the Reverse Mortgage and there are testimonials of thousands of people with the Reverse Mortgages..how long with the scam last if it was?  Take the time to talk to a professional that knows the ins and outs of the program the beneifts and the pitfalls to avoid.  Do yourself a favor and at least get the education so you can make an informed decision.  Maybe its not for you, but what if it was the best thing you ever did?  Why not find out for yourself.  Don't take my word for it or any reporters word for it.  Find out for yourself.

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IMPORTANT Reverse Mortgage Information

There are reports that HUD is planning on releasing a mortgagee letter that will decrease the pricipal limit on reverse mortgages by 10% on applications taken after Oct. 1 2009.

What this means that if you are even considering a reverse mortgage you need to act fast and get an application completed to qualify at the higher rate.  Filling an application does not bind you to the loan, but allows you to qualify for the higher amount of cash.

Contact me immediatly and I can get a local rep out to help you have access to more equity in your home.

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New Reverse Mortgage Site

My commitment to seniors has always been one of education and doing all I can to help. It was the reverse mortgage product that pointed me in this direction and after meeting hundreds of seniors I realized that I might be able to help them even if a reverse mortgage is not for them. I am currently working on putting together a web-site that will allow you to get personalized information on the reverse mortgage (there are a lot out there) but also I am going to add many other links on the site that will help you find the services that you need to enrich your "Golden Years". By partnering with others in the senior industry and with your help, we can build a community that will enrich the lives of seniors. If you have a trusted advisor that helped you, please let me know and we can add them to our community of profesionals.

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A Reverse Mortgage is Just One Option

My main task each day is to educate senior homeowners about the reverse mortgage and try to set the record straight. While the premise of the government insured reverse mortgage is simple, the details need to be examined in each situation. I think it would be a worthwhile exercise for people to be educated on the program just as I feel they should look into selling their home, long-term care insurance, in-home care programs, live insurance, investment opportunities etc. etc. Being educated takes a little time but the rewards of education brings peace of mind and allows you to feel confident you are making the right decision. While you are gathering information if someone starts to apply pressure for you to purchase or sign up..that should be a red flag. True professionals want to educate you so you can make the best decision for you and your family.

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Reverse Mortgage Misconception #1

This last week I was out of the office spending some time with family and friends and had the opportunity to share a little what I do everyday. When I mentioned that I helped educate seniors on the reverse mortgage program I was met with different looks. What has become so well known to me over the years is still somewhat of a mystery to others. This stands to reason because unless you have been educated about the program it can be confusing. What adds to the confusion is a lot of incorrect information that comes from many miss informed reporters. Even Consumer Reports (who many trust to check out different products and programs) printed an article that perpetuated many misconceptions about the reverse mortgage.

The response I heard from a number of people when I mentioned the reverse mortgage program was "Ohh thats where you give people their equity and then when they die you get the house?"

They were only have right - you will get access to the equity in your home and never have to make a monthly house payment as long as you remain in the home. If you move or pass away you only have to pay back the amount you borrowed plus interest and fees. In many cases the appreciation of the home exceeds the interest and fees so in essence the home pays those charges. Rarely is all the equity used up that there is nothing left to the heirs when you are gone. If in the rare event that all the equity is gone FHA will pay any difference to the lender so our heir will never be negatively affected by a reverse mortgage.

Each situation is different and I provide free education to go over the positives, negatives and your individual numbers regarding a reverse mortgage so you can make an informed decision.



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