Robert and Dolores Kowalski prepaid $12,400 for their funeral arrangements at a suburban Chicago funeral home in 2012. They were in their early 70s, in good health, and wanted to spare their children the burden of planning and paying for their funerals.
When Robert died in 2024, the family discovered that the contract they'd signed 12 years earlier didn't cover everything they thought it did. The casket they'd selected was no longer manufactured. The cemetery plot they'd been promised had been sold to another family. And the "guaranteed price" their contract advertised came with an asterisk they'd never noticed: guaranteed only if the funeral home remained under the same ownership.
The funeral home had been acquired by a private equity-backed group in 2019. The new owners honored the contract's dollar value — $6,200 for Robert's services — but not the specific goods and services the Kowalskis had selected at 2012 prices. The family paid an additional $4,800 out of pocket for what they thought was already covered.
How Pre-Need Works
Pre-need funeral contracts come in several forms, but they share a basic premise: you pay for your funeral in advance, either in a lump sum or through installment payments, and the funeral home agrees to provide the specified services when you die.
The funds are typically held in one of three ways:
Trust funds. Money is deposited into a state-regulated trust account, where it earns interest over time. Trust funds are the most consumer-protective structure because they're subject to state oversight and audit requirements.
Insurance policies. A life insurance policy is purchased with the funeral home named as the beneficiary. The policy's death benefit is supposed to cover the contracted services. This is the most common structure nationally.
Insurance assignments. The consumer purchases a policy and assigns the benefits to the funeral home. This is similar to the insurance model but gives the consumer slightly more control.
The Trust Fund Problem
State trust requirements vary enormously. Some states — New York, California, Massachusetts — require 100% of pre-need funds to be deposited in trust within 30 days of receipt. Others have lower thresholds or no trust requirement at all.
Where trust requirements are weak, the potential for misuse is significant. A 2024 investigation by the *Chicago Tribune* found that Illinois funeral homes had underfunded pre-need trusts by a collective $48 million. In some cases, funeral directors had used trust funds for personal expenses, business operations, or investments that lost value.
The problem isn't limited to Illinois. A 2025 audit by the Texas Department of Banking found that 23% of the state's pre-need trust accounts were underfunded. In Ohio, a 2024 investigation by the state's Division of Real Estate and Professional Licensing found similar shortfalls.
When a trust is underfunded and the funeral home goes out of business, families can lose everything they paid in. There is no federal safety net. State guaranty funds, where they exist, provide limited protection.
The Insurance Gap
Insurance-funded pre-need contracts have their own pitfalls. The most common is the coverage gap — the difference between the death benefit and the actual cost of the contracted services at the time of death.
Here's how it happens: A consumer buys a pre-need policy at age 65 that provides a $7,000 death benefit. The funeral home's price list at that time shows a basic funeral at $6,500. The consumer assumes they're covered.
Twenty years later, the consumer dies at 85. Funeral costs have increased by 3–5% annually. A basic funeral now costs $13,000. The insurance policy still pays $7,000. The family owes $6,000.
Some pre-need contracts offer "price guarantees" that promise to cover the contracted services regardless of future price increases. But these guarantees typically apply only as long as the original funeral home remains in business and under the same ownership. If the home is acquired or closes, the guarantee may be void.
The Portability Problem
Pre-need contracts are generally not portable across state lines. If you buy a contract in Florida and die while visiting children in Michigan, the contract may not be honored — or may be honored at a reduced value.
Even within the same state, transferring a pre-need contract from one funeral home to another can be complicated. Some contracts include transfer penalties. Others require the original funeral home's consent. In practice, many families simply abandon prepaid contracts when they relocate and pay for services out of pocket.
The Sales Culture
Pre-need funeral contracts are sold through aggressive marketing campaigns that target older adults. The sales techniques are designed to exploit anxiety and guilt:
- "Don't burden your children with these decisions."
- "Lock in today's prices before they go up."
- "What would happen to your family if something happened tomorrow?"
Former pre-need sales agents describe commission-driven cultures where the goal is to close the deal, not to ensure the consumer understands what they're buying. Contracts are long, complex, and filled with fine print that most consumers — particularly elderly ones — don't fully read or understand.
Commission rates for pre-need sales agents range from 15% to 25% of the contract value. On a $10,000 contract, that's $1,500 to $2,500 in the agent's pocket — a strong incentive to close, regardless of whether the product is right for the consumer.
What the FTC Is Doing
The FTC's proposed Funeral Rule update includes provisions that would strengthen pre-need disclosures. The proposed changes would require:
- Clear disclosure of whether prices are guaranteed or estimated
- Plain-language summaries of contract terms
- Itemized cost breakdowns for all goods and services
- Disclosure of what happens if the funeral home goes out of business
The proposed rule has been under review since 2023. Industry groups have pushed back on several provisions, arguing that they would increase administrative costs and make pre-need contracts less attractive for consumers.
What Consumers Should Know
If you're considering a pre-need contract:
- Read every word. Don't sign until you understand what's guaranteed, what's estimated, and what happens if the funeral home closes or is acquired.
- Ask about trust funding. In states with strong trust requirements (New York, California), your money is better protected. In states with weak requirements, consider whether the risk is acceptable.
- Understand portability. If you might move or travel, ask specifically what happens to the contract if you die in another state.
- Compare alternatives. A dedicated savings account, payable-on-death bank account, or revocable living trust may provide more flexibility and control than a pre-need contract.
- Involve your family. Make sure your children or designated decision-makers know about the contract, where it's filed, and how to access it when needed.
The Kowalski family's experience is not unusual. Millions of Americans have prepaid for funerals they believe are fully covered. Many will be surprised when the time comes.
The pre-need industry sells peace of mind. Whether it delivers on that promise depends entirely on the fine print — and most consumers never read it until it's too late.
*Sources: National Funeral Directors Association pre-need trust estimates, 2025; Chicago Tribune investigation / Illinois Comptroller's Office, 2024; Texas Department of Banking pre-need trust audit, 2025; Consumer Federation of America pre-need analysis, 2025; FTC Funeral Rule rulemaking docket, 2023–2025; Deathcare Executive compensation survey, 2025; NFDA consumer experience survey, 2025.*
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