Pre-need arrangements are typically made with mortuaries, cemeteries, and/or insurance companies, and more and more people are making them. The benefit of such plans is that when you move on to the great beyond, your loved ones won't have many arrangements to make. They'll be able to focus mainly on mourning, because plots will have been chosen and paid for, as will the funeral and burial. That's all very good.
The downside, and a reason to think twice before plunking down pre-need money, is that it tends to be a lot of money. And that pile of money will be out of your hands and earning interest -- for the people you paid, not for you. Let's say you're 75 and you pay $5,000 for a cemetery plot and $10,000 to a funeral home to cover your casket and various services. That's well and good, but what if you're blessed and live another 20 years? You've lost the benefit of that $15,000 for a long time. If you'd invested it and earned 10% per year on it, you'd have $101,000! That would probably be enough to cover death expenses and would leave some shekels to your loved ones, as well. Another consideration is that you might actually need that $15,000 at some point before you die.
In an informative article, financial advisor Nancy Dunnan warned us to be careful, because:
- Pre-need plans are often nonrefundable.
- Plans are often nontransferable, meaning you cannot change your mind or switch mortuaries.
- Plans often have hidden fees, meaning your survivors could wind up paying even more when you die.
- Plans can be mishandled.
Still, pre-need plans can make sense for some people in some situations. Learn more about the topic before you sign up for a plan, though. You can learn more at these sites: Funeral Consumers Alliance, Profits of Death, and the long but informative Funerals and Ripoffs.
And by the way, this is exactly the kind of topic that a financial advisor can help you with. Learn how to find one at our Advisor Center -- and perhaps check out our TMF Money Advisor service, which features customized independent advice from a variety of objective financial experts.