Beware of anything called funeral "insurance."
INSURANCE - A formal social device for reducing risk by transferring the risks of several individual entities to an insurer. The insurer agrees, for a consideration, to assume, to a specified extent, the losses suffered by the insured.
Unlike homeowners or life insurance, there is NO risk for the "insurance" company selling funeral insurance. If you plan a $5,000 funeral, you will be expected to pay the full $5,000 for the funeral insurance, whether you pay it all at once or make time payments or whether your survivors end up paying the rest after your death. (The income that the company makes by investing your money pays the company, pays the commission, and should cover funeral inflation.)
Buying funeral insurance is like giving away your money to the insurance company in exchange for an IOU that is usually made out to one of their funeral-home-owning buddies. IT IS NO LONGER YOUR MONEY!
Here's the sad experience Anna Jones had with Fortis Family, a group of so-called "insurance" companies, that specializes in preneed funeral "insurance." She first wrote the FCA office on March 4th, 2001:
Ten years ago when my husband died, I paid for his funeral. I also paid
for mine at the same time. [$2,481.60] I was terribly devastated, even was
considering suicide because of my loss at the time. Thank God I didn't,
because life is good again. I have moved from the area, will not be
going back. I also want to donate my body to science so there will be no
funeral. I have been told I can not get any of my money back from the
funeral home where I purchased the contract. They said the policy has
been sold several times to different companies, I don't even know who has
it. I was under the impression when I paid for it that it was with the
funeral home in DuQuoin, Il. where I took it out. I don't understand how
this works, but it is MY money and it seems like even if I took a loss on
the interest that has accumulated by now, that since my plans have
changed, why can't I get my money back. I can really use it now, and
what will happen when I die, with my money if I can't get it back. Like
I said, I won't have a funeral. Please let me know who I can contact to
get this information. Thank you. Anna Jones
We gave Anna some suggestions, including the address of the Illinois Comptroller who is supposed to be monitoring preneed funeral issues in that state. On March 28th Anna e-mailed:
I wrote to the funeral home as you suggested, he wrote me back
and told me that I would have to contact the Fortis people who hold the
policy to see if I can cash it in. I received a letter from them a few
days ago, and they said that the Funeral Home is the beneficiary. They
said the funeral home is the one who has the discretion as to what to do
with the policy. I sent the funeral home another letter yesterday,
telling them what the Ins. co. wrote me.
I told him once again, that there will be no funeral. Also there is a
chance I will be leaving here even farther and going to California where
my son and daughter in law are living. Even now I live too far from the
area, that if I died they would not be here to take care of me. Surely
there is something that can be done. Would the funeral home get all the
money when there is no funeral? My kids were supposed to get any money
that wasn't spent on the actual funeral but if there is none, what
happens? I just wish I hadn't been in such a crazy state when he died
ten years ago. Then I wouldn't have made such a dumb decision. But the
Searby's were local people where I lived for many years. I trusted them
I guess. Now I just don't know.
The FCA office decided to ask Fortis directly what their policies were. The following letter was faxed to the president of Fortis Family on March 30, 2001.
Alan Feagin, President
via fax: 888-232-9835
Dear Mr. Feagin:
I am writing to find out your official policy for consumers who might wish to cancel their Fortis funeral "insurance." While prepaying for a funeral has been a blessing for some, for others it has been a disaster when a change of plans is desired or necessary. Specifically, I'd like to know:
May consumers contact Fortis directly to determine the present value of their policies?
What is the rate of growth on a funeral policy with Fortis?
May consumers contact Fortis directly for a refund?
If not, what recourse do consumers have if a funeral home won't request a refund?
What is the rate for determining cash value for a canceled policy?
Funeral Consumers Alliance
On April 3rd, Anna wrote:
In keeping up with my problem, I received another letter from the funeral
home yesterday. They wrote:
Dear Mrs. Jones
You can forward a copy of this letter to Fortis Family Insurance. As far
as the funeral home is concerned you can cash in your policy with the
company. This will make your pre-paid funeral void at that time.
As far as the beneficiary, the funeral homes are the beneficiaries so they
can get paid for the funeral that has been pre-paid.
If Fortis Family Insurance needs more information from us tell them to
contact us. You will have to request the forms to cash in the policy.
David H. Searby
An e-mail from Anna on April 30th:
Hi. It's me again. Just wondered if you had ever heard back from Fortis? It has been several weeks and I still haven't heard from them. [No response from Fortis to the FCA letter either.] I sent them the copy of the letter from Searby funeral home, stating that as far as he was concerned I could cash the policy in. I sent a second letter about 8 days ago, and still I have not received any reply either by phone or letter. I just thought I would keep you up to date on what is going on. I recently got a call from the Comptrollers office in Chicago. He also left a message on the answering machine with Fortis and he didn't get a reply either. As you said, it will be interesting. Thank you once again for all your help. I will e mail you if I get any kind of answer. I may try calling again. Thanks.
This e-mail from Anna on May 1st:
Hi again. I received a letter from Fortis today. They sent a cash
In the letter it says:
Type of plan: Sp Series 15
*Death Benefit: $5,350.
Outstanding Loan: $.00
Loan Value: $2,804.76
Net Cash Surrender Value: $2,827.ll
Beneficiary: Searby Funeral Home
*May Include any additional coverages.
Which of these amounts will they send me? I am not sure as to what this
really means. I thought that you could tell me. Will the funeral home
get the rest and will I get the Net /Cash Surrender Value? I will be
waiting to hear from you before I do anything. Thanks again for all your
Hoping that Anna Jones at least had a sense of humor, we sent her the following e-mail:
Ironically, I was on the telephone with a fella I know in our state Banking and Insurance Dept. when I down-loaded your last e-mail. I read it to him. His advice is to take the loan money, making sure that not repaying the loan won't cause the policy to lapse. Then change the beneficiary any time you want to another FH where you live now or where you're moving to when you do. Most med schools require that the family pay to have the body delivered to the med school (tho' it DOES vary from med school to med school). Anyway, you'd surely have enough left in the policy to get your body there and still have $1,500 or so left over for a hellova reception your kids can ask the FD to pay for.
Because I'd never gotten a response from the Fortis president, Sue Simon, editor of Funeral Monitor,managed to chase down a live person to talk to there, and guess what she learned: Fortis is going to charge Anna 8% interest on the "loan." Charging Anna interest to borrow her own money? Yikes! At that rate, the balance of Anna's death benefit money will vaporize in less than 12 years, if the interest is charged against her account; then the policy WOULD lapse. Yes, Fortis has been growing Anna's money at about 8% a year, much faster than most other funeral "insurance" schemes, and Anna didn't have to declare the interest on her income tax. But if Anna had put her money in a long-term CD, she'd have over $4,000 today. Fortis should be ashamed for swiping almost 10 years of interest. m
But Fortis isn't the only company running a funeral "insurance" scheme. Forethought (owned by the folks who make Batesville caskets) estimates about 4% annual growth on their "policies," depending on age and mortality rates among other things. This isn't quite enough to keep up with funeral inflation in most cases, so you'll want to see what is guaranteed and what happens if the casket you picked out is no longer available. (A substitute casket needs to be of equal quality and construction, not equal "value"-price--which is constantly going up from what you paid). And will you get all your money back from Forethought if you cancel after a few years? Only if you live to be 100, I was told by the customer service rep.NOTE: In some states, funeral directors can take your prepaid funeral money and convert it to funeral "insurance" WITHOUT YOUR PERMISSION, pocketing a commission in the process!