A Preneed “check-up”. . make sure you “Do it Right”

Your funeral home has lots of options when it comes to the issue of Preneed.  For instance, in most states you have the choice of funding via Trust or Master Trust bank accounts or funding with life insurance vehicles.

You also have the decision as to if you are going to guarantee the sale of the funeral or memorial services with preneed selected services for the pre-funded amount or use the pre-funded amount as a “bag of cash” to be used against the selected final choices at the time of death.

There is no choice that is right or wrong, but all choices have future ramifications down the road at the time of the client’s death and services.  For instance, if you chose to “Guarantee” the selection choice of the consumer it is certainly best for the funeral home to have funds grow at least as fast as your expenses have gone up.  If the fund doesn’t you’re getting less margin for that service than you would be for the same service selected at-need.

With a non-guaranteed preneed in the same situation where costs may go up faster than the client’s funds, you can recover your margin, but you risk alienating consumers who thought the amount they put away years ago would cover the costs of services. . . unless they selected something different and more expensive at-need.  And if that happens – a funding shortfall, it is an uncomfortable situation for the funeral home to be in.

With those thoughts in mind, this article from the Actuarial Post of Great Britain is interesting.  In a recent survey they found that 42% of preneed clients have what they call a “Life Cover Gap”.  That means that 42% of preneed clients have less in their preneed accounts than even a cremation with a “simple” service would cost.  They found that those 42% have coverage of about US$ 3,673 when the service would cost about US$ 4,028.. . . . or a deficit balance of over US$ 350.

Here’s what Paul Bridgewater, Head of Insurance at OneFamily says about the findings, “Having funeral costs covered can give peace of mind, but it’s not always the most pleasant thing for people to have to think about.  As a result, it’s likely that many people don’t have the level of cover or savings they need for the type of funeral they want, but are also reluctant to look into their arrangements in more depth. That’s why it’s key for advisers to ask the right questions and ensure that the policy and payment levels they advise are really going to provide what the customer needs.”

I think Bridgewater is spot on.  Once clients have made the decision to prefund their funeral costs funeral advisors have to be able to ask the right questions to make sure the policy and payment levels are really sufficient for that later date execution.  In my opinion, a family that thinks “they have it all taken care of” and then find out they don’t can cause problems.

Tom Anderson
Funeral Director Daily

As most of you know, the “all taken care of” group can include those who don’t always tell their family everything.  We’ve all been with a family who thought “it was all taken care of” but the deceased client had only told us what kind of services they wanted, where the cemetery is, and who they wanted to sing at the service with no money put into pre-funding. . . . and to the family, “all taken care of” meant it was all taken care of and even paid in full.

So, pre-arrangements and preneed is of many types and varieties.  This article is just a reminder that the more we can be thorough through the process the better off the funeral home will be in the future.  For the family or individual who just wants to give information with no prefunding I might go as far as to have them sign a statement for their preneed file that funding was discussed but not chosen.  The more facts you have when the family finds out the funeral is not paid for, the better off your funeral home will be.

Preneed can be a great business builder and cash-flow help to your operation.  However, to make sure it is done correctly it takes the right individual to ask the proper questions to get that account set up for each unique individual.  Taking the time to “Do it right” is the best way to alleviate future problems.

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