Grieving over the death of her father last year, Sharon Whitehead and her mother at least could take solace that the funeral arrangements had been taken care of.
Or so they thought.
When Whitehood tried to transfer her father's 17-year-old "prepaid" funeral plan from Port Richey, Fla., to her parents' relocated home in Evansville, Ind., she was stopped cold by the fine print. The Port Richey funeral home not only refused to transfer the policy, it would refund only the original $1,395 that Whitehood's father paid in 1983. It would not give back the years of interest that the home collected on that money to underwrite the funeral costs.
Whitehood wound up paying $4,764.50 to an Evansville funeral home to arrange for services, a rental casket, urn and cremation.
After her dad's funeral, a woman from the Evansville funeral home asked Whitehood if she wanted to buy a prepaid funeral plan for herself. "Are you kidding?" Whitehead responded with a laugh. "I don't think so."
Prepaid funeral plans, called "preneed" plans in the funeral industry's euphemistic parlance, have become undeniably popular over the past 20 years. More than 7 million people in the United States, most over age 55, have pumped about $15 billion into pending prepaid plans, according to AARP. A national trade group for funeral home directors estimates that up to 30 percent of the 2.3 million deaths in the nation last year involved prepaid funeral plans.
The average prepaid plan costs about $5,000, industry representatives say, though the tab can vary greatly depending on type of service, size of funeral home and region. An immediate cremation in an inexpensive casket is available in some areas for less than $1,000 while a top-of-the-line bronze casket and elaborate service may cost more than $10,000.
Funeral home operators promote prepaid plans as a way to remove financial stress from grieving relatives. But critics say such peace of mind is too often an illusion, and people such as Sharon Whitehead sometimes learn that at the worst possible time.
Coast to coast, the industry has been hammered over abuses and questionable practices, including:
- Aggressive telemarketers who peddle policies by phone out of large boiler rooms.
- Policies that can't be transferred if the buyers move or that won't be refunded with interest.
- Funeral home operators who go out of business or drain prepaid trust funds that are designed to remain untouched until the time comes to pay funeral costs.
Though some industry experts predict a federal law eventually will set minimum standards for preneed plans, each state now sets its own rules.
Florida, in particular, has been a target of critics for its industry-friendly policies. Most states require that 100 percent of the money in a prepaid funeral contract be placed in a trust account until the funeral occurs; Florida requires only 70 percent in trust.
Last year, Florida regulators took the controversial step of allowing two of the country's largest funeral home chains to take $84 million from their Florida customers' prepaid trust accounts and replace the money with surety bonds, essentially IOUs. The cash-starved companies, Service Corp. International of Houston and Stewart Enterprises of Metairie, La., used the money to pay down debt.
"Florida is one of the worst states" for protecting funeral buyers, said Lisa Carlson, executive director of the Funeral Consumers Alliance, a national group based in Vermont.
Beyond questionable practices, there is a more fundamental reason to consider options other than prepaying for your funeral: It is, by most measures, a lousy investment.
In an investigation last year, Consumer Reports rebutted one of the prime selling points offered for prepaid plans: that locking in funeral costs now avoids higher prices later.
"The notion of juggernaut price hikes is largely a myth," the magazine concluded. "Indeed, prepaid plans benefit struggling funeral chains more than they protect your pocketbook."
Consumer Reports pointed out, for instance, that Service Corp. International earned 17.6 percent in interest in 1999 on its $1.5 billion prepaid funeral trust portfolio. But the company added only 3.5 percent of the interest into the prepaid accounts, based on its "funeral price inflation index."
None of this convinces Florida regulators that the prepaid funeral industry has serious problems.
"Even though there are horror stories, there are thousands and thousands of transactions that go without a blemish," said Diana Evans, executive director of the Florida Board of Funeral and Cemetery Services, which regulates the industry statewide.
Still, it's the horror stories that stick out.
Like that of the family of Gladys Bohn, a Modesto, Calif., woman. The family filed suit last October accusing a Santa Cruz, Calif., mortuary of ignoring the details of a prepaid plan that Bohn had bought in 1989 and eventually paid $1,866 for. According to the family, Bohn's prepaid plan specified amenities such as a light-colored "Princess" casket, the services of a professional cosmetologist and a car and driver to transport floral arrangements.
After Bohn died at age 96 last year, the careful planning was for naught, her family said. The mortuary could not find her body for three days, then buried her in a particleboard box without honoring her special wishes. Her family says that when her remains were disinterred six months later, Bohn was found in a body bag, still wearing her hospital gown.
Top funeral home companies acknowledge some bad characters in their midst but say the issue is overblown.
Service Corp. International, the world's largest provider of funeral and cemetery services, handled about 304,000 funerals in North America during 2000. About 28 percent of those were prearranged.
On its Web site, the company lists benefits of a prepaid plan: It protects loved ones from the stress of making tough choices at an emotionally difficult time. It eliminates guesswork about what the deceased might have wanted. And if prices rise dramatically over the years, families could save thousands of dollars.
Service Corp. International spokesman Greg Bolton said all prepaid policies it sells are transferable to other homes in its 1,500-home network in the United States and Canada.
The National Funeral Directors Association said instances of funeral homes that refuse to transfer policies are the exception.
An industry consultant and publisher of a monthly magazine on the industry said preneed policies are worthwhile not as an investment but because of the assurance they offer.
"There is no other way and no other method in the world that any provider of a service is willing to guarantee something 10, 15, 20 years in the future," said Dan Isard, publisher of Preneed Perspective. "You can't walk into General Motors and say, 'I want a Chevy five years from now.' But the funeral director is willing to give that guarantee."
But consumer advocates say there's still too much uncertainty: that a funeral home inheriting a transferred policy won't necessarily carry out wishes made years in advance. That buyers may come to regret making a commitment when they don't know what the future will hold.
"When people prepay for a funeral, they don't think they are going to change their mind," Carlson of the Funeral Consumers Alliance said. "But given the vagaries of human existence, people do divorce, people do remarry, people do move away, perhaps to be with a child in their waning years. Or they may come upon hard times and need the money." (St. Petersburg Times researcher John Martin contributed to this report.)