”. . . May I interest you in our Before Need Provision Arrangements?
. . . The benefits of the plan are twofold”–she (the funeral director) was speaking by the book now with a vengeance–”financially and psychological. You, Mr. Barlow, are now approaching your optimum earning phase. You are no doubt making provision of many kinds for your future–investments, insurance policies and so forth. You plan to spend your declining days in security, but have you considered what burdens you may not be piling up for those you leave behind? Last month, Mr. Barlow, a husband and wife were here consulting us about Before Need Provision. They were prominent citizens in the prime of life with two daughters just budding into womanhood. They heard all the particulars, they were impressed and said they would return in a few days to complete arrangements. Only next day those two passed on, Mr. Barlow, in an automobile accident, and instead of them there came two distraught orphans to ask what arrangements their parents had made. We were obliged to inform them that no arrangements had been made. In the hour of their greatest need those children were left comfortless. . . .”
–Evelyn Waugh,
”The Loved One”
Evelyn Waugh wrote the above words nearly 40 years ago as part of a scathing satire of the funeral business.
Today, ”pre-need” or ”prearranged” funerals are big business. One of the major companies in the field estimates that 600,000 such programs were sold last year and expects the number to reach 700,000 this year. As the average funeral these days costs slightly more than $3,800, that represents more than $2 billion worth of fu-neral services, caskets, flowers and related merchandise sold on the pay-now, die-later plan.
What`s more, as there are 2 million deaths annually each year in the United States, this boom in prepaid funerals has enabled the funeral industry to broaden its market by 30 percent annually.
Pre-need purveyors tout pretty much the same peace-of-mind benefits as Waugh`s funeral director pitched to Mr. Barlow, with a modern twist
–protection against inflation. Virtually all plans guarantee to cover any escalation in costs between the time the funeral is bought and the day the customer cashes in, so to speak.
”It`s a good deal for us, and it`s a good deal for the customer,” says Marvin N. Demchick, chair-man of Morlan International Inc., a Philadelphia company that owns 33 cemeteries (including one in Elmhurst) and 14 funeral homes in nine states. Morlan has found prepaid funerals a good way to ”move” inventory.
”The company makes a sale in advance,” Demchick explains. ”The money goes into a trust fund and is invested. The (investment) growth in that trust fund is a source of income for us.
”The customer gets protected against price increases in the main,”
Demchick goes on. ”They also get to make decisions on what to buy when they`re not in a period of grief and more vulnerable.”
Morlan, which concedes that it is a relatively small factor in the prepaid funeral business, says it is managing approximately $60 million in pre-need funeral trusts.
With so much money being paid up front for funerals, some worry about the potential for theft. Two years ago in Missouri a company called Future Trust Inc. filed for bankruptcy after allegations that $800,000 in pre-need trust funds were missing.
In Maine, one funeral director disappeared with $25,000 that had been entrusted to him to pay for future funerals. In Oregon, a funeral director who specialized in selling cremation services in advance was found to instead have stacked bodies in his mortuary`s basement and buried others in mass graves.
In Iowa, the state attorney general`s office last year filed suit against nine funeral- and cemetery-related businesses for misappropriation of pre-need funds, one of three recent cases there. Similar investigations are underway in Wisconsin and Minnesota.
Despite such occurrences, the overall track record of the prepaid funeral business has been fairly good, say funeral industry watchdogs.
”Instances of abuse are relatively small, but then again there never have been the kind of sales we`re seeing now,” observes Lee Norgard of the American Association of Retired Persons. ”We`ll know better in 7 to 10 years, when people who are buying the programs now die.”
The association has written model consumer protection legislation
–includ ing provisions for adequate record-keeping and auditing–which it is urging state legislatures around the nation to adopt.
Analysts say the two biggest publicly held companies in the prearranged business are Service Corp. International (SCI), Houston, whose stock was one of 10 chosen last week by Shearson Lehman Brothers Inc. for a model portfolio of ”exceptional investment value,” and Hillenbrand Industries Inc., a Batesville, Ind., casket maker.
Pre-need funeral plans have been around for years. But SCI–which owns 371 funeral homes, 91 cemeteries, 72 flower shops and a casket manufacturer
–helped foster the boom when it created its Guardian Plan, which funds future funeral arrangements through life insurance policies. Through its own and affiliated funeral homes, SCI so far has sold 188,000 such policies with a face value of about $350 million, according to Rick Gobroski, financial vice president of the company`s prearranged funeral division.
Gobroski indicates the company`s experience here has been a little disappointing; Illinois residents to date have bought only 921 policies.
”The Chicago market is a little different,” he says. ”It`s such a large area, with so many ethnic groups. It seems Italians only go to Italian funeral homes, Poles to Polish ones and so on. We`re reassessing our marketing and advertising approaches.”
Nevertheless, those in the business believe the potential for prearranged funerals, here and elsewhere, is large.
”We think it`s possible that by the year 2020 there could be 2 million sold a year”–the same size as the pay-when-you-die ”at-need” market, says Fred Rockwood, president of Hillenbrand`s Forethought Group, which has sold about 3,000 insurance-funded programs since their beginning in 1985. Forethought says 600,000 pre-need funerals were sold nationally last year, up from 344,000 in 1980 and 22,000 two decades earlier. It estimates 700,000 will be sold this year.
Forethought has a network of 1,450 funeral homes offering its product in 12 states, including Illinois. Its insurance subsidiary is awaiting regulatory approval in a number of other states.
”There are several trends working in our favor,” Rockwood continues.
”For one, our target market population is the 60 to 65 age bracket, and that`s the most rapidly growing segment of the population. There`s also a competitive factor involved, because this is a new product. When one funeral home offers it, his competitor is pretty much forced to have a program, too.” Pre-need funeral insurance policies all work pretty much the same way. Customers choose the kind of funeral they want, then buy what is actually an ordinary life insurance policy, with increasing face-amount value
(approximately 6 percent a year) to cover the funeral`s present cost and future inflationary increases.
The premium can be paid all at once, or payments can be spread out over a period of up to 10 years or so. Benefits from the insurance policy are assigned to the funeral director but usually can be transferred to other funeral homes if the person moves or the original funeral home goes out of business.
Funeral directors receive no payment until services are rendered. Under many of the programs, they agree to limit future price increases for their services to an amount pegged to the gross national product price deflator or similar index. Investment income from the insurance premium payments goes toward paying for the funeral and to cover marketing expenses for the program. The system works pretty much the same with trust arrangements, with the most notable exception being that money is paid into the trust all at once instead of in installments as with an insurance policy. Trust arrangements are seemingly subject to the most abuse. Iowa, for example, last week began requiring that sellers of prepaid funeral merchandise supply ownership deeds to buyers, submit yearly audits to the state and store merchandise in warehouses protected against loss–all to insure that buyers eventually will get what they paid for.
(There is relatively little trust-funded activity in Illinois, according to state officials, because regulations require all of the money paid toward a prearranged funeral to be put into trust. That means that plan operators don`t have any funds at their disposal to cover up-front marketing and other expenses.)
Companies like SCI and Hillenbrand hope the nonaffiliated funeral directors who market their insurance policies will also sell the companies`
caskets and other merchandise as part of the prearranged funeral packages, but say they don`t require it.
”We lay off our bets the best we can,” says Morlan Industries`
Demchick. (Morlan so far has dealt exclusively with trust-fund arrangements but plans to introduce its own insurance-funded product soon.)
Not all funeral directors, however, are enthusiastic about prearranged programs. In Illinois, the topic has raised considerable controversy within the state Department of Registration and Education, which controls funeral home licensing, over who can and who can`t sell pre-need services.
Apparently fearful that well-financed companies like SCI may eventually drive smaller, independent operators out of business, the department`s funeral licensing and disciplinary committee, made up largely of current licensees, has recommended prohibiting the sale of pre-need programs by telephone solicitation, a popular marketing tool.
The committee also, in essence, would permit pre-need programs to be sold only by funeral directors already in business and bar them from hiring others to sell for them. Under current state regulations, licensees or their designated representatives can advertise and solicit for the programs.
