What Are Some Risks of Preneed Funeral Plans?

Although rare, fraud or misappropriation of funds is always a possibility when you invest in a preneed funeral plan. For example, in 2009, an Ohio-based funeral services company bilked over 97,000 customers, including consumers, funeral homes, insurers and financial institutions, of over $600 million when it failed to buy insurance policies with the money it held in trust. That case resulted in a civil judgment of nearly $500 million and prison terms for several of the principals involved. 

More recently, in 2019,. the Neptune Society and its parent company, Service Corporation International(SCI), were sued by the State of California for allegedly bilking clients of over $100 million by failing to put 100% of prepaid funds into a state-regulated trust as required by California law. Although the suit did not allege that clients failed to get the services they paid for, it claimed that many customers who cancelled their contracts were denied refunds because the money simply wasn’t there. The lawsuit ended in a stipulated judgement that required SCI to pay retribution to all harmed customers and $23 million in civil penalties. 

Another major risk of preneed plans is that they may not be portable, even if the service provider claims they are. Thus, if you move to a different state or decide to change service providers, you may not be able to get your money back, the Funeral Consumers Alliance warns. This can also be the case if you change your mind about what you want — for example, if instead of going with a full-service burial you decide on direct cremation. instead. In some cases, you may be able to terminate the agreement entirely, but this typically comes with a termination fee, which can be as high as 30%. Furthermore, any price guarantee you were given in the original contract won’t be valid anymore, so the total price may go up. 

Additionally, if your service provider buys an insurance policy with your money, it may not pay a death benefit for one, two or even five years. 

With that being said, many of the risks of preneed contracts can be mitigated if you read the contract carefully and ask questions before you sign. Although some funeral service providers are unscrupulous, most are honest business people who will be happy to answer any questions and go over the contract with you if you ask. 

Sources

“Funeral scam figures get prison sentences in St. Louis federal court”. Insurance News. https://insurancenewsnet.com/oarticle/Funeral-scam-figures-get-prison-sentences-in-St-Louis-federal-court-a-420755 

“Pre-Planning & Pre-Paying”. Funeral Consumers Alliance. https://funerals.org/get-help/pre-planning-advance-directives/ 

“Attorney General Bonta Announces Service Corporation International, Nation’s Largest Funeral Service Provider, to Pay $23 Million Penalty and Consumer Restitution for Consumer Protection Law Violations”. State of California Department of Justice. https://oag.ca.gov/news/press-releases/attorney-general-bonta-announces-service-corporation-international-nation%E2%80%99s