Vicki Duffy
	Paying twice In 1969, Vicki Duffy, of Harvey, La., bought a $1,500 funeral policy, believing that all fees would be covered, her family says. But when Duffy died 28 years later, her daughter, Arlene Duffy Hilley (above right), ended up paying $3,500 more for her mother's funeral because provisions were so skimpy, Hilley says. The family has sued.

An estimated 9 to 11 million Americans have already bought some $21 billion worth of prepaid funerals. Now aggressive marketing has given this familiar product new life. The pitch is simple: Plan ahead and save your family the stress of making arrangements at the worst time; lock in your price now to avoid much higher costs later.

But the notion of juggernaut price hikes is largely a myth, according to a Consumer Reports investigation. Indeed, prepaid plans benefit struggling funeral chains more than they protect your pocketbook.

The nation's three big funeral chains have used prepaid plans as part of a growth strategy that included borrowing billions of dollars to buy funeral homes from coast to coast. Those chains now own a quarter of the nation's 22,000 funeral homes, but they're in trouble. One of them, the Loewen Group of Burnaby, B.C., is in bankruptcy, while the other two--Houston-based Service Corporation International (SCI) and Stewart Enterprises of Metairie, La.--were so desperate for cash last year, they took $84 million from their Florida customers' prepaid funeral trust accounts to make debt payments, replacing the money with surety bonds--IOUs. The switch was approved by the state Board of Funeral and Cemetery Services, an appointed group that oversees Florida's funeral homes and whose chairman is employed by Stewart. Perfectly legal under Florida law, such a deal would not be allowed in most other states.

Prepaid funerals are pitched by the big chains as a way to lock in low prices now. But our survey found that these chains often charge a lot more than other funeral homes.

Our examination, including a price survey of 235 funeral homes in seven cities, discovered other news, both good and bad:

Affordable funerals. Throughout the country, there are plenty of standard funerals--with viewing, ceremonies, and an attractive casket--costing $2,500 to $4,500 excluding cemetery charges, our survey found. That's hundreds to thousands of dollars less than the $5,000 average price cited by the National Funeral Directors Association, an industry trade group. Half of the more basic arrangements available in all metropolitan areas we surveyed ranged from $500 to $1,700. But comparison shopping is a must. Our survey found wide price variations, even within the same city.

Big chains often charge more. Overall, national funeral-home chains charged roughly $1,300 more than independent homes for comparable funerals, our survey found.

But our analysis uncovered another type of funeral home, whose prices were lower still: small local chains of two to four homes. These small chains, on average, offered funerals for $2,000 less than the big national chains. Differences varied more by city, and ranged from $1,700 in San Francisco/Oakland and Austin, Texas, to $3,000 in Orlando, Fla. Small chains also had the best prices in those cities for the most basic, lowest-cost arrangements, involving immediate cremation or burial.

Flawed federal rules. Federal regulations require that funeral homes provide consumers with itemized price lists--an important consumer shopping tool (see Your rights). But prices don't have to reflect the actual cost of providing those services. That limits a consumer's ability to accurately gauge value. For example, a funeral home may feature a relatively low fee for "professional services" but mark up the cost of a casket, a tangible item whose value is more easily understood. Meanwhile, funeral directors can and do negotiate discounts if you buy the casket from them, which also undercuts the value of standardized price lists.

New come-ons. Personalization is the latest buzzword that big funeral chains are banking on to sell higher-priced merchandise and services--specially engraved casket lids, golfing doodads for the casket, and headrests embroidered with your choice of poetry. Other new revenue-generators: estate planning, grief counseling, and legal services. Consumers don't need to buy those services from a funeral home; we recommend they shop for specialists in the wider marketplace.

Saving money

Jessica Mitford was one of the first to prompt consumers to think about funeral prices with her 1963 book, The American Way of Death, a witty rebuke of "the most irrational and weirdest" status symbol. Industry critics haven't had a kind word for funeral directors ever since. Nevertheless, in a recent telephone survey of 1,002 adults conducted by the Wirthlin polling organization for the Funeral and Memorial Information Council, 95 percent of respondents said they thought attending a wake or funeral service is a good way to express their feelings after a death.

But there are signs that Americans are increasingly opting for simpler and less costly arrangements. In the same survey, 41 percent of respondents said they would prefer something other than a full-scale funeral for themselves. "In the mid-1980s, families wanted elaborate burials, bronze and copper caskets, and multiple limousines," says Robert Falcon, president of All Faiths Funeral Service in Austin, Texas, which had the lowest funeral prices in that city, our survey found. "Now they're declining the limousine. They're forgoing visitation for something very basic at the grave site. People's tastes have changed."

About one-quarter of the 2.4 million Americans who die each year are cremated rather than buried--a percentage that continues to rise. Cremation puts pressure on mortuaries to keep funeral prices in check, because consumers who opt for cremation typically eliminate the funeral service, and the vast majority buy less expensive alternative containers rather than a pricey casket.

	COST CUTTING "The truth is, many families are now more cost conscious and willing to shop around," says Robert Falcon of All Faiths Funeral Service in Austin, Texas.

For example, Baldwin-Fairchild Cemeteries and Funeral Homes in Orlando, part of the Stewart chain, charges $3,950 for the Primrose 18-gauge steel casket, Batesville Casket's best-selling model. Direct Casket, which has six showrooms in Los Angeles and New York City and sells everywhere else in the U.S. via www.directcasket.com, sells the same casket for $2,095 delivered the next day--a $1,855 saving. The wholesale cost: $948.

One funeral director we surveyed says he stocks almost no caskets now. "That was the old way. The industry is changing. I ask customers to go on the Internet to get their casket," says Milton Tellington of Tri-State Funeral Service in Washington, D.C.

High-priced funeral homes and chains are also facing competition from other, low-priced homes. New ComerCannon Family Funeral Home in Albany, N.Y., is doing what was once unthinkable in this collegial business; it gives prospective customers a chart showing how its prices compare with named competitors in town. Our survey found New Comer-Cannon's $3,380 price for a standard funeral with an 18-gauge steel casket was more than $1,600 lower than the median price for that type of funeral in Albany.

All this competition has significantly slowed funeral-price inflation, which was at 5 to 6 percent in 1990 through 1997 but just 2.8 percent last year.

The large debt-heavy chains don't see price cuts as the answer to competition. "They have leeway to lower prices, but no one is talking about lowering prices. They're trying to get more revenues by adding services," says Fran Blechman Bernstein, a first vice president and research analyst at Merrill Lynch in New York City.

The Stewart chain sees increased revenues and profit margins, and "enhanced pricing opportunities" in the growing demand for more personalized, customized funerals, says Brian Marlowe, Stewart's chief operating officer. "Baby boomers," he adds, "are more focused on doing things their way." But independents such as John Cannon of the New Comer-Cannon home, say personalized service should not cost more. Last year, his home handled the cremation of a Harley-Davidson aficionado and created a room with the man's bike and memorabilia. "I don't charge extra for that. You can't just make up charges, such as a facility setup fee, if it's not on your General Price List," says Cannon.

SCI, which owns 3,755 funeral homes, has begun using the relationship it establishes with customers as a foot in the door for selling after-funeral services, including estate planning, legal advice, and grief counseling. The company is also working on "massive relationship-building" with various organized groups to attract large blocs of new customers, says SCI President Jerry Pullins.

"Make no mistake about it, the primary beneficiary of these relationships will be SCI homes," Pullins says. "With this we're talking to hundreds or thousands of people instead of dozens per day."

Prepaid funerals are also a big part of the sales push by chains. If you were born before 1951, expect your solicitation call soon.

The trouble with prepaid funerals

Paying today for the promise of services and merchandise delivered years from now is always an iffy proposition for the buyer. In 1997, when Arlene Duffy Hilley, of Harvey, La., went to collect the $1,500 funeral that her mother, Vicki Duffy, had bought in 1969, she expected arrangements befitting the large-funeral tradition of their Italian-American family. Instead, "The funeral home wanted to put her in a cardboard box!" says Hilley. Hilley wanted a steel casket, and ended up paying $3,500, which she charged to her credit card.

Loewen officials counter that Duffy's policy paid for services and a cloth-covered casket. "Granted, the casket may not be the prettiest thing, but it wasn't a Dracula box and it wasn't cardboard," says Billy Henry, general manager of Loewen in New Orleans.

Prepaid funerals, sold as burial insurance, have been around since the 1940s. From the late 1950s through the 1960s, millions of small-value burial insurance policies, known as industrial life, were sold throughout the south--policies that often charged premiums totaling more than the benefit received. Worse, African-Americans were typically charged race-based premiums 7 to 33 percent higher than those charged to whites. After discovering that some African-Americans were still paying race-based premiums on old policies, Florida and Georgia officials issued cease-and-desist orders last year to 28 insurers.

But prepaid funerals did not become a booming business until the 1980s, when the Loewen, SCI, and Stewart companies all saw that the product could lock up and gain market share.

So prized is this product that funeral chains offer "bonus trips, banquets, Million Dollar Club awards, and other sales awards," says one SCI want ad for "counselors."

Most buyers of these plans today are in their late 60s, according to industry officials. But the new targets are people age 50 or older, the leading edge of the huge, monied baby-boom population bubble.

Prepaid plans usually require that you advance-pay your own benefit--the full price of the funeral. Most or all of your money goes into a trust account or an insurance policy where the seller collects a commission of roughly 15 percent. The price of your future funeral may or may not be guaranteed, depending on the terms of the contract.

A study by Consumers Union in October 2000 exposed major financial drawbacks in prepaid plans sold in Texas. Among the problems: Once a plan is written, changes, such as upgrading a casket, can void any price guarantees. If a plan is cancelled, the consumer gets back only 50 to 90 percent of the principal and none of the accrued interest. And some consumers pay more in insurance premiums than they receive in benefits; although interest earned by the plan belongs to the funeral home, the beneficiary must pay the taxes.

Cindi Strauss, of New York City, says she is angry about the hidden fees she discovered in the plan she bought for her mother. Strauss, an assistant in a brokerage firm, says she wanted to be sure everything was taken care of for her aging mother, Evangelina Addicks, back home in San Antonio, Texas. So in 1993 she bought a prepaid guaranteed-price funeral, including a $6,800 bronze casket, for $9,122. She figured she was covered--and indeed, she probably overpaid, based on our survey results. But when Addicks died in 1999, Strauss says she had to pay $656 more for obituaries and music, among other things. Meanwhile, the funeral home had already collected $3,000 in interest earnings on Strauss's plan over the years.

SCI officials say the extra charges were for services not part of the contract. But they concede the contract omitted such basics as the cost of the funeral service, a hearse, and use of the facilities for a viewing.

	Suné and Charles Schwartz
	Interstate woes Suné and Charles Schwartz paid $8,000 for prepaid funerals and cemetery plots in Florida. When they became ill, however, they moved near their son Perry (above, left), in Flowery Branch, Ga. The funeral chain wouldn't transfer the plans to a nearby home, Schwartz says.

Some states, such as New Jersey and New York, have consumer-friendly prepaid funeral laws. But even when plans deliver without a hitch, as many do, they don't save you anything. There's no discount for buying years in advance. According to an internal industry survey of 3,156 funeral directors, 59 percent said prepayers spend about as much as anyone else who buys a funeral; 22 percent said prepayers spend slightly more, and 4 percent said they pay significantly more. Our survey showed that national funeral chains, the biggest promoters of prepaid funerals, charge the highest prices.

Further, the interest the funeral home makes on your money is the main guarantor of any price caps. In 1999, when the funeral price inflation index rose only 3.5 percent, SCI's $1.5 billion prepaid funeral trust portfolio earned 17.6 percent--for the company, not consumers.

Finally, prepaid plans are unnecessary. You can accomplish the same thing with a bank CD and some simple paperwork to liquidate the assets upon death.

Recommendations

The Federal Trade Commission is considering revisions to the Funeral Rule, which gives consumers price and disclosure rights. FTC staffers have indicated that they will recommend extending current requirements to discount casket brokers, monument sellers, and cemeteries. They'll also recommend requiring standardized disclosure of the terms of prepaid funeral contracts. (The FTC has no jurisdiction over the terms themselves.)

Consumers Union supports these proposals and recommends one more: truth in itemization. The Funeral Rule requires that 16 services be itemized, but it doesn't require that the price of any one item bear any relationship to its actual cost. Funeral homes thus calculate their operating costs and simply spread the costs around the list. This makes it hard for consumers to judge true value or make meaningful, itemized cost comparisons without toting up an entire package of costs.

It seems unlikely that Congress will regulate prepaid plans. We strongly advise consumers to stay away from these plans altogether. But we also advocate state consumer-protection reforms that would require nothing less than 100 percent of consumers' funds be put in trust, give consumers the right to a full refund of principal and interest if they cancel, and protect prepayers from losses when they transfer from one funeral home to another. Until that happens, consumers will continue to be victimized by this poor deal.