Last summer, customers of a funeral home in Chilliwack, B.C., saw an alarming notice from the province’s consumer protection regulator. After pro-actively spending thousands on prepaid funeral costs, they would be getting absolutely nothing for their money.
“You will not receive those future services and the business is most likely unable to refund you,” said the notice from Consumer Protection BC. It cited a continuing investigation around the misappropriation of consumer funds by McLean’s Funeral Services Ltd.
Days before the Chilliwack alert was issued, a prepaid funeral service provider in Langley, B.C., had its licence suspended for lacking money to fund prepaid services. In Ontario, at least two funeral service providers have had their licences revoked this year for various reasons, while one funeral director in Simcoe was sentenced to 12 months of house arrest for misappropriating funds related to prepaid services.
Though relatively rare, cases such as these underscore the potential drawbacks of prepaid funerals and beg the question of whether the benefits outweigh the risks.
As funeral costs rise – averaging just over $13,000 for all funeral types and as much as $25,000 for traditional burials, according to Sun Life Financial Inc. – people who turn to prepaid funerals are often looking to be pro-active, save money and alleviate the burden on grieving loved ones. But experts say those funerals aren’t always the best bet when it comes to maximizing your savings, and people who reside in certain provinces can face additional risks in safeguarding their money.
With prepaid funeral contracts, customers directly pay a funeral home in trust for costs such as caskets, memorials and flowers way in advance – locking in prices against future increases. In provinces such as Ontario, the provider is required by law to choose only safe investments for prepaid trust funds.
“Let’s say you’re coming in today and you pay $10,000 for a funeral, and let’s say 10 years from now, that exact same funeral at the time costs $15,000, and there’s only $13,000 with principal and interest in the [trust] account, the funeral home is responsible for the loss,” said Laura Windover, a senior funeral director at Highland Funeral Home in Scarborough, Ont. The funeral provider can’t request more money even if the cost of the funeral goes up.
On the other hand, if the price of a funeral goes down, the provider can’t pocket the extra cash. They are supposed to refund the customer the difference.
But as the cases of missing and mishandled trust funds show, this may not happen. And the ability of consumers to get their money back can depend on which province they live in.
In Ontario, for example, families are 100 per cent protected by the Bereavement Authority of Ontario, a non-profit protection organization designated by the province. “The BAO Compensation Fund covers people’s prepaid funeral services contracts when something goes wrong,” said BAO spokesperson David Brazeau.
This is not normally the case in British Columbia. Even after the consumer protection authority suspended licences for McLean’s and other funeral providers, only a freeze order on a provider’s remaining assets was issued.
That said, prepaid funerals are still generally a safe bet, particularly in jurisdictions such as Ontario. “Such law-breaking in the death care profession is exceedingly rare in Ontario,” Mr. Brazeau said.
But there are other potential drawbacks to prepaid funerals, said Jason Heath, an advice-only financial planner. For one, the price of a prepaid funeral can often be higher than it should be because the funeral home gauges against losses. ”It’s unlikely that they’re going to give you a massive discount now,” he said.
“Chances are if somebody instead kept that same amount of money and invested it on their own – especially if they could do it in their tax-free savings account – they might have more money than the cost of the funeral in the future,” Mr. Heath said.
He also doesn’t believe alternatives such as final-expense insurance – which pays out a flat amount to a beneficiary for funeral costs or other uses such as urgent outstanding bills – or relying on a traditional life-insurance payout are the best strategies.
“If somebody were going to pay $5,000 in premiums to pay for a $7,000 expense, there’s a good chance that that same $5,000 would actually be worth $10,000 when they died,” Mr. Heath said. “On average, somebody will have more money to pay those expenses just investing the money themselves.”
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