|Posted on March 16, 2012 at 1:00 PM|
Here’s a typical kind of thank-you letter our office receives on a regular basis:
“Dear local final expense agent, we at Smith and Sons Funeral Home would like to thank you for providing a final expense policy to the Robinson family. Recently we conducted the services for their mother, and the family was most grateful to us. The real gratitude, however, goes to you. Thank you for making the funds available through a burial policy so that we could make her service truly memorable.”
Such notes of appreciation from funeral directors are common to those of us who sell final expense plans; the directors truly appreciate how we serve families with pre-planning and pre-funding plans. There are three major reasons why this is so, but first, let me give you a quick primer on final expense policies.
Because of the growth potential, many quality A-rated carriers nationwide have entered this exciting market. With the “graying of America” market (those 70–plus years old) and the tsunami wave coming of the baby boomers (those born 1946 to 1964), they see a huge potential for these small, low-risk “burial policies.” The policies range from $5,000 to $25,000 face amount on average, and involve easy underwriting with just a few major health questions and telephone verification; there are no applications, no home office specimen, no blood work, and no exams. The majority of policies are either approved or declined within seven days, and there are never any rated cases. Most plans are traditional whole life policies with guaranteed premiums and a guaranteed face amount with non-forfeiture options. For the 200 to 300 final expense policies I sell each year, I try to keep the premiums around $45 a month; this seems to fit into the budget of middle- and lower-class seniors much better and keeps my persistency high.
Most importantly, though, we need to recognize that these small policies are often the only life insurance that seniors have at time of death, and these funds enable the funeral industry to create lasting memories for the family to honor the life of a loved one.
Funeral directors appreciate final expense agents because:
1. They Will Get Paid
According to the National Center for Health Statistics, 2,415,000 confirmed deaths took place in 2007.1 Except for a very small fraction of deaths that are handled by county coroner departments, surviving spouses, children, grandchildren, siblings, parents, and domestic partners have to walk into a mortuary to make final arrangements. The funeral industry acknowledges that fewer than 30% of individuals who have passed away did any funeral pre-planning and/or pre-funding.2
Therefore, if a final expense or pre-need plan is in force, the family has less stress from the financial side and can spend more quality time in the grieving process, which is important for acceptance of a death. Also, the funeral home knows with the “Assignment Form,” signed by the beneficiary named on the policy, some or all of the funds from the burial plan will be directly forwarded to them from the insurance carrier.
Funeral directors appreciate this added protection that they will be paid, because from time to time, families try to avoid paying and expect a free funeral, often due to the smallest errors or indiscretions. Some I’ve experienced as a funeral director:
• The local paper made a mistake in the obituary when they named a surviving second cousin “Bobby Jen,” instead of “Bobby Jean.”
• The funeral director who made the arrangements was not at the viewing on a Sunday morning — another director was on duty. (If only the family knew that their favorite director was doing a removal from a residence in which another family asked for him, and most states require the deceased to be removed within hours of death.)
• The funeral director was not at his or her “military post” at the entrance of the funeral home to make sure any estranged family members were not allowed into the service. Funeral directing is a noble profession; we are entrusted to care and shelter the dead, comfort the living, and make a memorable service, but not to be “MPs”!
After confirming that the final expense policy is in force, past the contestable period (two years in most states), and not heavily borrowed against, most funeral homes will accept the insurance toward the cost of merchandise and services. A trend today is to charge a processing fee if accepting the insurance — usually a flat fee (i.e., $250) — while the funeral home waits up to three months to receive payment from the carriers.
2. Families Have More Choices
For example, if a final expense policy provides $10,000, and the national average price of a funeral today is $6,000, the family has options to buy additional merchandise and services.3 Today’s families are being very creative in memorializing their loved ones. Popular add-ons include dove release, video tributes, catering of food at the funeral home, bagpipers, harpists, and horse-drawn hearses to the cemetery. Some families have realized that if they will spend $25,000 or more on a wedding ceremony, and it can happen several times in a person’s lifetime, shouldn’t they outlay something extra to celebrate a life well lived? And this happens only once!
3. Final Expense vs. Pre-Need Insurance
If the family has pre-funded the funeral with insurance, most funeral directors prefer final expense over pre-need insurance. Pre-need life insurance is a creation of the funeral industry; it guarantees the consumer a pre-determined, fixed cost of the funeral, including the services rendered and goods selected (i.e., the casket). Built into the plan will be an “inflation factor,” so the theory is that as the funeral costs grow, the rider will offset future increases that the funeral home must pay for merchandise and services (transporting the dead, preparing, use of chapel, hearse, etc.). In addition, the pre-need buyer is assured he or she can go to that selected funeral home or within a network of funeral homes.
Many funeral homes provide pre-need insurance only if the consumer asks for it. They would rather deal in cash at the time of need, or pre-purchased final expense plans, because pre-need insurance presents several challenges to the funeral home owner:
Inflation Factor — Will the percentage in the pre-need contract keep current with the rising cost to the funeral home for merchandise? Most current plans don’t; it’s difficult for a pre-need carrier to set the factor accurately with the challenges in our current economy. Therefore, the funeral home may be losing money when the pre-need becomes an at-need case. With final expense policies, the benefit is a specific amount, say $7,000, and most reputable funeral directors will strive to make everything fit within those limits.
Selection of Merchandise — Most people who purchased a pre-need plan also selected a casket (unless choosing cremation, an option that 35% nationwide now select, according to www.cremationassociation.org). There are fewer casket companies today than there were 100 years ago, however, so there’s a good chance that the casket of choice will no longer be available. Then, some family members may become angry and conclude that the funeral home is trying to take advantage of them. With final expense plans, families select the casket at the time of death, often choosing a color that their loved one truly would have enjoyed. Some families may feel “cheated” if everything was pre-arranged — that they were out of the loop. They want to help make decisions and be involved, which helps with achieving closure.
Ownership Changes at the Funeral Home — There are about 22,000 funeral homes in America today, but as in any industry, they are subject to ownership changes, and businesses open, move, close, etc. Many new proprietors decide not to honor those pre-need contracts of the previous owner(s), and in most states this is legal. When a funeral home has picked up a deceased, and the grieving family comes in to finalize the details, they reveal that their loved one had a pre-need plan with that funeral home. Often they will be very upset when they are informed that because of new ownership, the contract is no longer accepted and the funeral home will obtain what cash value may exist from the policy, while the family will be responsible for current charges from the GPL (General Price List, a federally required list of the current prices for a funeral). At that time, the family may threaten to go to another funeral home, but the funeral industry knows that most won’t. There is even a maxim in the industry: “He who gets the body first, gets the business.”
These are just a few reasons why AARP does not recommend purchasing a pre-need insurance contract.
Instead, with a final expense plan, all involved are winners. The policyholder, who wants to ease the burden on loved ones, has peace of mind after making this purchase. The producer, by being compassionate and giving the right guidance, has provided the best life insurance one can have. The funeral director can provide more options for the family and create a truly unforgettable service that properly celebrates the life of the deceased. And the surviving family knows that their loved one was thinking of them, even after death!
Isn’t it time that you start getting thank-you notes from funeral directors?
Alan Benedict considers himself “just an old-fashioned agent and funeral director.” He has sold life insurance for more than 20 years, and began specializing in final expense plans exclusively 13 years ago. Mr. Benedict also holds a California funeral director license and has managed a funeral home in years past.
Footnotes:1. National Vital Statistics Report: Volume 56, Number 21, July 15, 2008.2. National Funeral Directors and Morticians Association.3. Ibid.