Not familiar with Pre-Need...or considering signing up for one? For a brief overview of Pre-Need, please read my archived post of July 18, 2008, with the title: IS “PRE-NEED” REALLY NEEDED?
As I point out in that article, there are times when such an arrangement can be useful. However, as I also point out, there are pitfalls to watch for. One of these pitfalls has to do with the financial strength of the funeral firm which is asking you for up front payment along with its contract.
Here's a pertinent quote from a Wall Street Journal article, "FBI INVESTIGATES FUNERAL CONTRACT COMPANY," published on November 12, 2008:
"The FBI is looking into alleged misconduct by a funeral contract company that guaranteed hundreds of millions of dollars of services to families before becoming insolvent…The FBI letter says the questionnaire is being mailed to funeral homes because it's impossible for agents to personally interview representatives from the "voluminous number of funeral homes" in the 19 states where the company had done business…In preneed funeral arrangements, customers pay for their funeral and burial services before their deaths. For example, a customer who bought a package of funeral services valued at $5,000 in 1995 would receive those same services upon his or her death in 2008, even if the value had risen to $8,500 with inflation. Under such arrangements, money for a prepaid funeral generally is placed in a trust account that bears interest."
Clearly, this will only work if the company remains in business. If it goes bankrupt before you or your family member needs the service, your money may be permanently lost. So the warning here is to make sure, to the best you are able, that the company wanting your business is likely to stay in business.
Admittedly, this is not always easy. But like all other transactions in the marketplace, the rule is Caveat Emptor: Let the buyer beware!
Bob Tell Author, "Dementia-Diary, A Caregiver's Journal" http://www.dementia-diary.com