You’re gonna die. Why make your family suffer even more by burdening them with the cost of your funeral? That’s the pitch made by companies that try to get you to pay for your funeral years in advance. But, in most cases, you’re better off putting your money into normal savings accounts or life insurance instead.

The Wall Street Journal takes a close look at the prepaid funeral industry, and why these plans are usually a bad idea:

Some view prepaid plans as an inflation hedge that allows them to lock in today’s prices—about $10,000 on average—for an expense that in recent years has risen faster than the consumer price index. Others take the step simply to spare survivors the burden of arranging and paying for a funeral. Consumer advocates say these plans are most appropriate for people who wish to spend down assets in order to qualify for Medicaid coverage.

About one in four Americans age 50-plus—some 20 million people—have paid in advance for a funeral service, according to AARP. While national figures on the size of those payments are scarce, in Texas alone consumers have contracts worth $3 billion.

Prepaid funeral plans come in two basic varieties. With a so-called guaranteed plan, a funeral home promises that if you pay today’s prices, it will provide the goods and services you purchased, no matter how much prices rise. “Non-guaranteed” plans offer no such protections. But if these accounts appreciate in value, heirs get to keep the gains. (You can prepay today’s full cost or a portion of it, in one lump sum or over time.)

Even guaranteed plans don’t always protect against unexpected bills, however. Many exempt such items as flowers and music. And changes, such as upgrades in caskets or a switch to another funeral home, can void the price guarantee.

There are other risks as well. In 2008, a Missouri company that sold prepaid plans collapsed, after “systematically loot[ing] the cash for their personal enrichment” according to state officials.

The industry is largely unregulated, leading to abuses and fraud. Instead of a prepaid plan, the Journal recommends setting up a joint bank account with someone you trust, and putting your funeral savings there. Or you can set up a trust fund and designate it for funeral costs.

When Prepaid Funeral Plans Are Wealth Killers [WSJ.com]

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