Advance Funeral Planning
NFDA, along with other funeral service associations and consumer groups,
encourages families to make funeral arrangements in advance.
Advance funeral planning provides the consumers with peace of mind because
preplanning allows individuals to express their funeral service wishes; enables
all family members to participate in planning funeral services; avoids conflicts
caused by family separations; and, allows family and friends to focus on
celebrating the life of the individual at the time of death.
Paying for the funeral in advance give more assurance that personal wishes
will be met, increases the value of money spent by providing protection against
inflation and relieves the surviving family of facing additional and immediate
financial issues during an emotionally distressing time.
An estimated $21.2 billion had been paid in advance funeral arrangements
based on 1996 figures compiled by Conning & Company, of Hartford, Conn. An
estimated $10.2 billion was held in trust by funeral homes. There was another
$11 billing in preneed insurance policies, according the insurance research
There are guaranteed and nonguaranteed contracts. If the contract is
guaranteed, the funeral director promises to provide the goods and services
described in the contract regardless of his or her cost at the time of the
performance. If the contract is nonguaranteed, the funeral director agrees to
provide the goods and services at his or her prevailing rates at the time of
need and there may, or may not be, an additional cost to the consumer.
There are revocable or irrevocable contracts. If the contract is revocable,
the parties can cancel the contract and all, or a portion of, the initial
investment and interest is returned. If the contract is irrevocable, the parties
cannot cancel the contract. An irrevocable contract is often necessary when
using monies set aside for a preneed funeral contract in order to qualify for
The primary regulation of preneed contracts is at the state level. All
states, except Alabama, have regulations pertaining to preneed contracts.
Preneed sellers who are affiliated with funeral homes are regulated by the
Federal Funeral Rule, which is enforced by the Federal Trade Commission.
There are three preneed contract-funding instruments. They are primarily
trusts, insurance and, too lesser degree, annuities.
Each of these instruments have distinctive advantages and disadvantages based
on the means and requirements of the individual consumer and funeral home as
well as the instrument’s potential for growth, state regulations, and other
A preneed trust may earn interest that increases its value, protects against
inflation and can be used to pay the cost to administer the fund, depending upon
Almost every state regulates the administration of funeral trust. The 100
percent law, in effect in more than half the states, means that a funeral home
must deposit or trust all of the prearrangement funds in a financial institution
or instrument and may not withdraw any funds until time of death.
Less restrictive laws require only a portion of the funds be trusted. For
example, 80/20 laws mean the 80 percent of the deposit must remain in the trust
account and the remaining 20 percent can be used by the funeral home. However,
all of the funds are applied to the price of the funeral goods and services at
the time of death.
Preneed insurance is a customized life-insurance policy purchased
specifically for funeral goods and services and directs payment of death
benefits to the funeral home. The consumer needs to know how much insurance to
purchase to secure a guaranteed funeral and needs to make sure that the
insurance amount is increased along with inflation.
State agencies responsible for the regulation of insurance are also usually
responsible for the regulation of the solicitation and sale of preneed
Annuities are sources of income reserved for retirement. A portion of
annuities may be set aside, in advance, to pay for funeral arrangements.