Your firm and your pre-need partner

I happened to drive by the Douglas County Fairgrounds earlier this week and notice that the fair was already upon us.  That signaled to me that the end of summer was not too far off and gave me an idea for writing a post about the fall season being a great time to capitalize on pre-need volume for your funeral home.

Little did I think when I drove by the fairgrounds that it would lead to a series of articles on pre-need.  But, here we are with my 3rd article on the subject this week. . . . and I have one more planned for next week.  So, I guess it has became a series!

Today’s article is about your funeral home and why you choose the pre-need partner that you do.  I’m just trying to get you to think about all the alternatives and either reinforce that you have the right partner for what you are tying to accomplish or are there better options out there for what you are trying to accomplish?  It is the process of going through these types of exercises over time that will make your business function at a high performance level.

Just to start very basically, most funeral home pre-need is now done through insurance sales and there are many great companies out there to partner with.  Do you partner with the company that you do simply because you are great friends with the sales representative. . . or they offer cruises once you reach a certain level of sales?  Those may be valid reasons to partner with that company. . . but are there other reasons that you are missing?

Do you rely on the commissions paid to help operate the funeral home or pay those that do the actually prospecting and closing of the pre-need product?  Again, possible valid reasons to choose the company that you do.  Every funeral home has different circumstances and while advice can be given, each funeral home will have its reason for choosing its specific pre-need partner.

What I can do in this space, however, is tell you how I made the decision for our funeral home and you can compare that to how you make your decision.

First of all, Minnesota is now, and has been for some time, a state where insurance based pre-need has been the desired choice for funeral homes.  My guess is that almost all funeral homes now use insurance over bank trusts whenever possible.  I would look at different insurance company options about every three years and then usually chose two companies that we would use to fund pre-need policies.  Having two companies in our arsenal sometimes allowed our consumers to make the choice dependent on different funding guarantee scenarios.

I always started with the premise that the State Office of Insurance knew more about the financial conditions of the companies allowed to write insurance in Minnesota than I did.  Because of that, and a state guarantee system, I looked at things like A.M. Best ratings, but really did not pay much attention to them.  My thought process was, “If the State of Minnesota looked at their reserves and other financial conditions and allowed them to operate in the state, who was I to question that finding?”

My decision then really came down to how I looked at the three main variables that insurance companies had to offer agent partners like us.  In my mind, those three items were commission level, guaranteed growth of policy face value, and what I called “Bump” – which is a term I used for how much over the single premium was the company willing to offer right off the bat in face value to the consumer.  Different companies had different themes on these three items with some offering large commissions to the agents, but little “bump” to the consumer.

And, some might offer a higher bump, but guarantee growth at only 1.5% whereas other companies might limit the bump but offer guaranteed growth at 3%.  So, you had to make some decisions on which way you wanted to grow.

Quite frankly, the one thing I never considered all too much was commissions.  I was much more concerned that the “bump + growth” would keep up with inflation for ten years.  There was never a guarantee, because while you could figure out the guaranteed “bump +growth”, you never had a crystal ball to plan for exact inflation of prices.

At the end of the day we usually ended up choosing a policy and company that offered the most “guaranteed” growth on the policy face value.  We would explain “Bump” on the policy to the consumer as a dollar number that the insurance company was willing to give on a single premium payment as a “bonus”.  Even if the “bump” was small, most consumers were happy that a $10,000 financed pre-arrangement carried with it a $10,300 value the minute they walked out the door. . . and then had the guarantee of 3% growth on that value going forward.

So, the next time you think about what company that you want to be your partner in pre-need. . . just make sure that you know what the partner can offer. . . depending on the growth of the policies and the money available to pay you for eventual services that you provide. . . you might have paid for that “free” cruise three times over!

Related:  Today we learned in this press release from A.M. Best that the Columbian Financial Group and its affiliated companies including Columbian Mutual Life Insurance and Columbian Life Insurance has had its credit rating outlook revised to a Negative rating from a Stable rating.

According to the press release, the company focuses on the senior market including pre-need insurance and has operations in all fifty states, the District of Columbia, and the U.S. Virgin Islands.

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