In last month’s column, I outlined the questions you must address for preneed to serve as a positive part of your business and planning. As noted at the end of that article, I intend to answer those many questions in this month’s article, so please, read on.
Today, between 20% and 30% of the average funeral home’s annual calls originate from preneed. Now, if you thought that one person in your community would account for 20% to 30% of all your calls in a given year, would you be cavalier about the financial status of this person? Of course not. You would want to know their net worth, their ability to pay in the future, etc.
The concept of preneed involves getting consumers to make advance directives, thereby informing their loved ones and the funeral home of the services and merchandise they want. You play a key role in that consumer’s plan. In fact, when I’ve spoken with consumers about their prearrangements, most of the conversations have focused on the phone call they make to their kids immediately after setting the plan in place. They inform them, “I just met with the funeral director, and everything is taken care of.” From there, the kids either ask follow-up questions or treat the subject matter as an uncomfortable moment in time. Regardless, they remember, “Everything is taken care of.”
But often only a small part of the plan has been taken care of. Thus, you must make sure you are equipped to make the plan executable. The decisions you make on the following 12 questions will impact how effectively you will be able to fulfill consumers’ prearrangement choices.
Therefore, be careful. While you can control some issues affecting overhead for your services, you have no control over matters of merchandise. Unless required by state law, do not build cash advances into a preneed contract. And if you are required by state law to do so, please work to change that law.
To effectively fulfill your preneed contracts in the future, there must be more than just a funding account and a goods and services agreement. There must be something that links the two and spells out the exceptions or the unfunded issues. You don’t want to get caught up in a conflict between the kids’ memory or expectations and the actual preneed goods and services selected and funded.
For those who want to pay a lump sum, a properly managed trust with competitive fees will generally provide more money due to compounding than a single-pay insurance policy, in my experience.
Marketing and sales support make up another operating criterion, but what good is hiring someone to sell a lot of preneed for you if the death benefit doesn’t rise and you are left servicing preneed contracts that are less than fully funded?
The second key component involves “company stability.” During my career, I have seen many preneed insurance companies leave the preneed space, some by choice and some due to financial failure. When selecting an insurance company, there are several key indicators to look at, including:
b) Operating profit, which is the degree to which the insurer is profitable
If the decedent qualified for Supplemental Security Income (SSI), however, any excess should go to the state of domicile, not to the family. The preneed consumer was technically “a ward of the state.”
Preneed is not an easy subject. It blends economics, actuarial sciences, investing, marketing and sales. It is confusing. During my career, I have rarely seen a funeral home handle it properly.