Pre-paid funerals worth the price?
Paying for services ahead of time may seem like a way to save your loved ones from a financial burden, but is it a smart move?
By David Ellis, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) - All you want to do is leave your heirs with a will -- not a bill.

The average funeral in the United States costs roughly $6,000, according to the Federal Trade Commission, and many top $10,000.

So what about paying for you own funeral before it's your time to go?

If you're not familiar with the concept, "prepaid" or "preneed" funerals allow you to buy everything from a casket to cremation services from your local funeral home. Your final arrangements are taken care of before you move on the great beyond -- even if that is decades away.

Marketed heavily to the elderly and baby boomer generation, prepaid funerals currently account for a quarter to one third of all funerals, according to the National Funeral Directors Association (NFDA).

And the attraction is easy to understand. Prepaying for a funeral can relieve your family members from having to make funeral arrangements while they offer buyers a chance to beat inflation by buying at today's prices.

But before you opt for that prepaid plan, be careful -- you might be getting taken.

Prepaid pitfalls

For starters, prepaid plans do not offer buyers a lot of flexibility.

If you move...For example, if you purchase a prepaid contract from a funeral home in the Northeast and retire to sunny Florida, the contract might not be transferrable and you could be out the money you paid in, says Stacy Canan, a senior attorney with the AARP.

If you change your mind...Or suppose you have second thoughts about the funeral home where you buy a prepaid plan -- depending on what state you live in, you may be entitled only to a portion of your money back, according to the Funeral Consumers Alliance (FCA). Some states, including Florida and Mississippi, have regulations that are so loose that a funeral home could claim as much as two-thirds of your money if you change your mind.

Other traps

In order to deliver on that promise of "locking in" today's prices, funeral homes will tend to offer payment plans, which often come with a catch.

Losing control of your money...Many times funeral home will encourage customers to place their money into a trust that earns interest, but which the funeral home controls. That means that the funeral home could potentially claim any additional money generated in interest beyond what the funeral actually costs.

Say, for example, that you prepaid $5,000 today for a casket, hearse and headstone and that when you finally pass away, the package is going for $6,000. Now suppose the interest from the funeral home's trust increased your balance from $5,000 to $8,000 -- don't expect your heirs to get back any of that excess money, says Josh Slocum, the executive director of the FCA.

Insurance?...Funeral service firms may also suggest buying a prepaid insurance policy that would become payable to the funeral home or cemetery upon your death. While it also promises to grow to offset inflation, if you cancel the insurance policy or if you die within the first few years of paying premiums, the policy may not pay the full benefit or you could be shorted the money you paid in.

Instead of entrusting the funeral home with your money, it is better to manage it yourself, says Slocum.

A safer option involves designating an interest-bearing account payable upon death and choosing a beneficiary, an option that is available at most banks. That way, the funds are immediately available to the specified family member or friend after you die, and they are not forced to wait until the reading of your will or wade through probate court, which can take place weeks after the funeral.

What's more, if you change funeral homes or pack up for Florida, you aren't losing any of the money you saved for your funeral.

Sorting it all out

Despite the drawbacks, there some instances in which paying up front is a smart move.

If a person will require long-term medical care, but his assets are just above the Medicaid cutoff point, prepaying for a funeral could help him meet that requirement, according to the National Funeral Directors Association.

But if you are set on getting all of the arrangements together, consumer groups recommend preplanning, not prepaying.

That means talking about your plans with your family, setting aside money in an account that you control and even doing some comparative shopping at different funeral homes.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.