Guide to Pre Need Funeral and Cemetery Sales
Pre-need funeral or burial contracting remains a popular but should you consider them?
The idea of arranging for one's funeral and burial “pre-need” remains attractive enough to Americans that it continues to be a profitable tradition for the country's death care industry. Since at least the 1950's, cemeteries and funeral homes across the nation have taken advantage of special holidays (most notably Memorial Day which is considered, behind the scenes at least, as the “Christmas” of the death care industry) to market their pre-need plans for funerals, cremations and burials. While folks are visiting a cemetery to pay tribute to a deceased loved-one on such days, they can expect to see a flyer or two (or maybe even a live sales person or two) about the establishment's pre-need offerings. Additionally, cemeteries and funeral homes still routinely send their friendly, clean-cut representatives into their local communities (often door-to-door, but also via booths at festivals and even at shopping centers and flea markets) in advance of these holidays with literature and sign-up forms aplenty.
And though critics sometimes call these sales approaches annoying or even intrusive, they remain sufficiently popular with consumers to account for 25-50 percent of sales each year at most funeral homes and cemeteries across the country, according to a 2007 article from the industry's news source Funeral Wire. (And, though specific figures are difficult to come by, industry experts generally agree that pre-need sales continue to account for a larger and larger percentage of the industry's total sales each year.)
As popular as the pre-need plans are among customers, consumer advocates generally advise against them for a variety of solid reasons. These activists often point to many other, more practical and less-expensive, options for assuring that a future funeral is dignified, affordable, emotionally helpful rather than stressful and, maybe most importantly, paid for. The following offers a thorough examination of the most common pre-need offerings available from funeral homes and cemeteries today throughout the United States, and we look at the most common recommended alternatives to these pre-need funeral and burial packages.
The Basics of Pre-Need Funeral Sales
Pre-need packages sold by funeral homes and cemeteries (or their affiliated companies) are generally available in two varieties: insurance policies or trusts. Both promise customers “peace-of-mind” coverage for their funerals and burials, and, generally speaking, their main attraction is that they offer their customers the promise of a fully planned memorial service and burial, in which their precise wishes are carefully spelled out and, more importantly, paid for in advance, allowing loved ones to focus their emotional energies on grieving and memorializing as opposed to the technical details (often wildly emotional in their own right) of planning – and paying for! – the services. But, buyer beware! There are definite -- sometimes disastrous, and usually hidden -- drawbacks to both types of pre-need funeral and burial plans.
Funeral/Burial Insurance – Many pre-need plans offered by funeral homes and cemeteries are, basically, insurance policies regulated by the state's insurance oversight body. As such, they are typically backed financially in case the company becomes insolvent. Most states – and the insurance industry in general – maintain funds that cover policy holders for claims that their company cannot pay, for whatever reason. And, in exchange for that protection, the covered companies must meet strict requirements intended to minimize the risk that they will be unable to meet their claim obligations. The first, probably most important, matter that funeral and burial insurance consumers should inquire about is whether the company offering the insurance is fully licensed and covered by this important consumer protection. (Sometimes this company is the funeral home itself, but, more likely, it is a third-party company with whom the funeral home either contracts or refers – the later happening in instances in which contracting with an insurance company is legally prohibited.) While these cases are rare, consumer advocates across the country do report occasional cases in which insurance contracts are sold by companies that do not have their licensing paperwork fully in order, thereby putting the purchaser at great financial risk when it comes time to claim funeral and burial benefits on the policy.
But other than these concerns (that come with any insurance contract), there are a number of other important issues that pre-need funeral or burial customers should consider before signing a deal to purchase funeral or burial insurance contract.
The most important of these is, probably, the idea of portability. The fine print of many of these pre-need contracts will require that the policy be redeemed only in certain areas or with certain companies. This stipulation can make life difficult for families whose loved-one has purchased a policy but moved to a different region in the meantime. In such cases, families who may have assumed their relative's funeral plans were arranged in turn-key fashion, can suddenly find themselves having to deal with the logistics of organizing a funeral or burial many miles away from a family's hometown – either that or paying for an entirely new set of plans in a more convenient locale, thereby rendering their loved-one's well-intended insurance policy a waste. Pre-need customers should pay careful attention to any potential contracts in this regard. It is rare that burial or funeral insurance will be entirely portable, so customers should make sure they – and their relatives – will be entirely comfortable with the portability terms even decades after the signing.
Another issue to consider is additional costs that may be required of family members at the time the funeral or burial services are provided. Commonly requested (and needed) services such as obituary announcements, death certificates, and even transportation for family members from a funeral service to a graveside, are sometimes not included in the contract and must be arranged and paid for “at need.” Again, carefully reading the fine print of the insurance contract is a must to help families avoid the surprise of many additional costs (potentially thousands of dollars) just as they are also grappling with the loss of their beloved relative.
Many pre-need customers have reported difficulties in making changes to their plans some years after signing their insurance contracts. They may, for example, be swayed by modern trends toward simple memorial services followed by direct cremation and decide the want to forego their previous plans for an elaborate service featuring an ornate, expensive casket. In such cases, it is doubtful that the contract will allow for a refund of any over payment for goods and services not used. It's true that sometimes the contracts will include provisions for changes, with a penalties applied, but, in such case, the penalties may not make the changes financially worthwhile for the consumer.
And a final issue to consider is whether the insurance contract really will end up costing the customer less than the services would have cost “at-need.” A key attraction to pre-need contracts is often that customers can lock in their rates, paying current rates for funeral and burial services that may be redeemed decades later. As with the other cases, careful examination of the fine print is vitally important. Some contracts have been known to offer the goods at their at-need prices, leaving families responsible for the difference between what was paid “pre-need” and the final bill at need. Such contracts do generally make provision for interest to be added to the customer's account over the year, but, in cases in which inflation of funeral and burial costs outpaces the interest earned on the account, families could still be held accountable for additional charges at-need. Though, as we are about to see, this concern is usually more relevant to our second type of pre-need plan, trusts, to which we now turn our attention.
Trusts: This type of pre-need plan differs from an insurance policy in that cash is deposited directly in a bank account to cover the price of goods and services ordered in the future. Because it's not insurance, these contracts are generally backed and regulated by a state's banking commission as opposed to its insurance regulators (though, of course, in many states those agencies are one in the same). Probably the most significant difference for consumers is this: insurance policies usually offer consumers their benefits no matter whether the account has accrued a sufficient balance to cover those costs. (In other words, a pre-need customers who have paid monthly premiums for, say, just three years of a 10-year term on an insurance policy are often entitled to the same benefits as a customer who has long-since completed a term of payments.) This can make insurance a significant financial advantage over trusts, in the event a death occurs relatively shortly after the insurance policy begins. But, customers who pay for their insurance policy for an entire term, sometimes discover that they paid much more, in total than they would have had they put the money into a trust.
Though most of the above mentioned issues regarding insurance pre-need contracts can also be relevant to trusts, there are some matters that apply most specifically to trusts.
The first of these issues is the fact that, if a trust is not fully funded by the time the money is needed (at the time of a death), family members will likely be held accountable for any remainder needed to cover the goods and services ordered in the contract.
The other issue is the fact that the trust is managed by the funeral home or cemetery itself (or the third party contracted by the establishment) and, therefore, not available to the purchaser or his or her family. This has proven problematic for families who encounter an unexpected financial need (say, for long-term elderly care or for unanticipated medical expenses) and might benefit from access to the trust's funds. Unfortunately for the pre-need customer, trusts are not generally set up to function as savings accounts, and the managers are under no obligation to release the funds for any purpose other than pre-arranged funeral and burial services. This can be a very difficult families whose circumstances change suddenly – and dramatically – and might be better served spending their limited resources on health care or housing instead of memorial products and services.
And and final important issue regarding trusts is in regard to interest rates. In some cases, the pre-need contract specifies that the funeral home or cemetery is entitled to retain any interest earned on the trust funds. In such cases, consumers are strongly advised to assure that prices charged for the goods or services are sufficiently discounted so as to account for the additional income generated by the trust via interest. (Judging this can be a tricky proposition, of course. Especially for financial novices.) And in cases in which interest is returned to the customer – but prices are not set at the contract's signing -- as we mentioned above -- it's possible that the trust's gains over the years might not outweigh industry inflation, resulting in a net loss for the customer (or his or her family).
No matter whether your pre-need contract is an insurance policy or a trust, financial experts and consumer advocates all point out, the risks of customers signing on to an agreement that either they or their family's will regret is very significant. Accordingly, these experts generally advise that customers avoid pre-need contracts all together. Whatever your family's decision on this, the best policy to employ is to triple check all fine print before signing and, definitely, buyer beware!
Be Ready for Funeral and Cemetery Sales Pitches
Alas, as we say, pre-need funeral and burial plans are generally popular – and have been for decades – despite all the risks mentioned above. That, experts say, is the result of superior salesmanship employed by funeral home and cemetery companies. Well-timed flyers (advertising specials), friendly, clean-cut representatives working the community, and other such direct sale (some might argue high-pressure) strategies continue to yield good results for the sellers. Below we list some ideas the consumer advocates and other experts routinely recommend for making sure family's don't become regretful buyers, swayed by emotion (by sales people employing highly effective passive-aggressive techniques) into signing contracts that are not, really, in their best interests.
Recognizing the typical pre-need sales pitch: The first thing consumers are well-advised to do when considering a pre-need plan is to learn to recognize when they are hearing an actual sales pitch. Consumer advocates point out that many death care industry sales people are specifically trained to sell, directly, to their friends and family. This tactic helps disguise the fact that sales pitches are, in fact, pitches. “Your local funeral director is a salesman, not your friend,” consumer advocates commonly warn. “Even if your family has been arranging funerals with him for decades!” In today's death care industry, customers should be warned that, even if their trusted “friend's” name still appears on the establishment's sign out front, it's likely that he's motivated by much more than neighborly altruism. Many of today's long-established cemeteries and funeral homes – in which the establishment name is a well-regarded local legend – are actually currently owned by large, publicly traded, more-or-less anonymous corporations whose marketing strategies rely heavily on consumers believing they are doing business, exclusively, with a popular local family. In fact, in many of these establishments, the family-owners have been long-since bought-out by the large corporation, but remain on staff as “managers” who are contractually obligated to run the business entirely under the corporation's terms, even to the point of avoiding disclosure of the real owner's name (unless asked for it directly). These managers are sometimes under a great deal of pressure to meet aggressive sales goals established by the company and, accordingly, their years of “friendship” toward a potential pre-need customer may have more behind it than meets the eye initially. The bottom line for consumers – unfortunate as it may be – is this: be wary of friendly funeral home or cemetery representatives who may be seeking to establish (or continue) a relationship with you or your family, only for the purpose of making a pre-need sale that might not be in your best interest. We do not wish to insinuate the cynical idea that funeral home and cemetery sales people are, by definition, prone to use their personal relationships in this manner, but we do have a duty to point out that the practice is commonly promoted – if only behind the scenes – in death care industry sales training.
Analyzing the typical pre-need sales pitch: Once you have determined that you are being presented with a sales pitch for a pre-need funeral or burial, it is important to critically analyze the pitch in order to determine if it is in your best interest. The most important aspect to this analysis is to simply remember that consumer advocates who cover the death care industry almost universally advise against buying pre-need plans as offered by local cemeteries and funeral homes. The above section on the “basics” of pre-need has already discussed many potential ways in which pre-needs plans can work against the interest of the purchaser and his or her family. In general, you can expect sales people to suggest several of the following common benefits of pre-need purchasing: pre-need plans give their purchasers the peace-of-mind of knowing their final wishes are firmly established and ready to be carried at out at any time; pre-need plans are a grand gift to the purchaser's survivors because they bring about no financial burden for the purchaser's final costs; pre-need plans are way to protect purchasers from inflation that can add a significant amount to the price of a funeral or burial over the course of a decade or so; and pre-need plans will assure a dignified, comforting time for all family members who may be distracted with their grief at the time of a death in the family. Anyone considering a pre-need funeral or burial plan should remember that there is a strong likelihood that none of those promises will hold true as the purchaser or his or her family might expect. All pre-need funeral and burial contracts vary slightly from company to company – and even from year to year or location to location in a given company – and buyers should always take care to carefully weigh the fine print of the contracts placed before them against the promises made by the sales person. In many states, buyers have a legal right – guaranteed by state law – to revoke their signature from a pre-need contract up to a week after they have signed. Buyers should do all they can to avoid signing before they have carefully inspected the fine print of a contract but, in the event they find themselves rushed (often as a result of pressurized sales tactics) into signing, they should not hesitate to take advantage of any mandatory trial period their state may require.
Potential pre-need customers should also be wary of emotional appeals that often appear in sales pitches. Funeral and cemetery personnel know that concerns about having a dignified memorial, about being a comfort (or even an inspiration) to family members, and about preserving family legacies are often chief on the minds of their potential customers. So sales pitches will often be formulated around those concerns, with the funeral director or cemetery sales representative taking pains to assure the customer that these concerns will be well addressed with a pre-need plan. But, what these sales people will neglect to say, of course, is that pre-need planning is only one means by which to meet these emotional needs (and some will argue that it is rarely ever even the best of these means). Pre-need customers can rest assured that there are plenty of other pre-planning options by which a family or individual can assure an emotionally healthy, financial feasible funeral, burial or other memorial service. And it is to those options that we will turn to close out our exploration of pre-need funeral and burial plans.
Other Pre-Planning Funeral and Cemetery Options
Careful readers may have already noticed something curious about the title of this section. Until now, we have focused exclusively on the term, pre-need. And yet, in the end, we are turning to a a discussion of pre-planning.
It may be surprising to learn to those uninitiated in the death care industry that there is a significant difference between those two terms. They are used interchangeably only by those not fully familiar with the inner workings of the industry.
Pre-planning refers, in industry parlance, to, simply, the act of planning a memorial service or burial in advance of a person's death. Pre-need, meanwhile, indicates planning as well, but it goes one step further, too. That term implies that payment will be made by the customer in one of the ways we have discussed in this article (either by insurance policy or by trust).
Pre-planning can involve a payment (or payments) will be changing hands, of course, but not necessarily so. Pre-planning involves an always expanding number of options for, well, planning (and sometimes paying for, but not always) a funeral service, cremation or burial.
Pre-planning options tend to be rather simple and focus on giving family members as much control over the plans, and the funding, as possible. So pre-planning options, almost by definition, tend to skip the local funeral home or cemetery entirely, except as possible contractors who will be hired ", under very specific terms specified by the plan rather than by the funeral home or cemetery's historic practices and traditions (which may or may not be in line with the precise wishes of the deceased and family).
Accordingly, one of the most common pre-planning options is a simple “Pay On Death” checking account opened at a local bank and funded by the person planning the funeral, burial or cremation for himself. POD accounts afford all of the most important benefits of a trust account opened as part of a funeral or burial pre-need plan, and they offer the key additional benefit of giving the owner full control of the money (at least while he or she is living). Just about any traditional checking or savings account at a traditional bank can be set up to Pay On Death. The account holder then simply gives the bank a list of beneficiaries who will have access to the money in the account once a death certificate is presented. (Actually, banks vary on whether they will allow for multiple beneficiaries. for best results, experts usually recommend just having one beneficiary, with a prioritized list of sub-beneficiaries who would become active, one at a time, as the other beneficiaries die or become otherwise incapacitated. Account managers at most banks can usually help you with the formalities of setting up a beneficiaries list.) It really is as simple as that.
Typically, a POD account is accompanied by separate plans for a funeral. These plans should be done thoroughly and carefully and that is the reason many families opt for the insurance or trust fund plans offered by funeral homes and cemeteries. Planning (anything) can be difficult, and many are tempted to simply leave that work to someone else. But funeral consumer advocates point out that following the funeral home or cemetery's one-size-fits-all plan template can end up being a costly mistake (both in terms of emotions and finances). Besides, the kind of planning required of a POD-accompanied funeral plan can be an uplifting, even healing, experience for any family. There is no way to produce a thorough, trustworthy guide for creating such a plan. Every family's plan will be different. But, the good news is there is plenty of room for creativity and customization. Some plans may establish one POD account to be used for the funerals and burials of several family members, with various other family members contributing deposits to the account in the “pre-need” years. Others plans may establish that the POD account is actually the life savings account of the person for whom the funeral is being planning and that the cost of the funeral is expected to be far less than the total, with the balance being distributed to the heirs.
Knowing exactly how much to have available in a POD account can be a tricky proposition. Generally speaking, a good rule of thumb will be to consult a number of funeral homes in the area about their price for “direct burial” or “direct cremation.” These are the basic services that funeral homes are required by law to include on their General Price List to be distributed to anyone who inquires. Armed with several of those quotes (usually they will be below $1000 in most areas of the United States), a family can estimate one of their largest single expenses (allowing, perhaps, 5 -10 percent for potential inflation), and proceed accordingly.
For amenities such as caskets and urns, families are advised to check with online retailers for estimates of potential prices, and, perhaps even consider purchasing those in advance. Many families today do, indeed, buy urn and even caskets from online sources and then store them for future use. At any rate, a thorough inspection of prices online will yield a good estimate for how much should be set aside in a POD account for these amenities.
And, from there, the sky is the limit. Families can plan for an elaborate or simple memorial as their traditions and resources deem appropriate, often relying on facilities they own (or have access too for free, such as at a church) to help keep costs in check.
And there is plenty of help available to families who go the “pre-planning” route. Funeral consumer activists groups exists across the United States to help families estimate costs, keep costs down, and work around laws that sometimes seem to suggest that “do-it-yourself” funerals (which is what funerals planned around POD accounts are sometimes called) are practically impossible. (Do not believe the occasional discouraging word!) A quick Google search for Home Burial or Do It Yourself Funerals will yield links to a number of such groups and vendors that offer support products and services (often for a fraction of the cost), and a great place to start for help is the legendary Funerals.org, the website of the Funeral Consumer Alliance, the largest, most active group of consumer advocates.