Overview of Preneed
Developed in 1998 by the Government and Legal Affairs Task Force of the International Cemetery and Funeral Association
It is beyond question that the purchase of a funeral, together with related interment and memorialization services, merchandise and cemetery property, is an important financial transaction for consumers. The Federal Trade Commission (FTC) has estimated that a funeral is the third largest single expenditure many consumers will ever make, ranked behind purchasing a home and a car.
The Consumer’s Disadvantaged Bargaining Position
However, such purchases are often made under circumstances that reduce the ability of consumers to make careful, informed decisions due to the pending or actual death of a family member or friend. In addition, the FTC, which has studied the funeral services industry for well over 20 years, has found that consumers lack familiarity with the funeral transaction itself: nearly 50 percent of all consumers have never arranged a funeral and another 25 percent have done so only once.
When making arrangements “at need,” that is, when a death is imminent or has just occurred, consumers must make potentially costly decisions under severe time, financial, and emotional constraints. Within hours of death, consumers must give authorization for the remains to be removed from the place of death to another location, usually a funeral home, and must also decide on a variety of other matters such as embalming. Additional decisions must be made including the purchase of a casket, the use of funeral home facilities, the type of interment, such as burial including an outer burial container, or cremation with or without interment, and memorialization.
An FTC Staff Report on Funeral Industry Practices specifically discussed this disadvantaged state of the consumer when making at need arrangements:
The handicapped bargaining position of the funeral purchaser is the product of a number of different factors. The most significant of these are:
dependency and suggestibility;
The ability of consumers to make clear and well-considered decisions regarding funeral purchases develops only when these five factors are absent. As a result, consumers are in the most advantageous position to evaluate the purchase of funeral and interment services, merchandise and cemetery property when the transaction occurs in advance of actual need or “preneed.” As noted by FTC staff in numerous published statements, preneed purchasing gives consumers the opportunity to shop comparatively and make decisions without the time and emotional pressures associated with “at need” transactions. The FTC staff also notes that preneed purchases allow consumers to obtain a hedge against the increasing cost of funerals by “locking in” the price of merchandise and services as of the time of purchase.
In addition to the comparative leisure at which consumers may consider or reject the making of preneed arrangements, consumers benefit in other ways. For example, federal law provides for a three-day “cooling off” period enabling consumers to cancel preneed sales made in the home or at a location other than the seller’s main office. Financially, preneed agreements are often paid on an installment basis ranging between 12 and 60 months with the terms of financing regulated by the federal Truth-in-Lending statute. This convenience of pre-funding funeral and interment arrangements is an important factor in reducing the financial strain that may accompany at need transactions.
Consumer Attitudes Toward Preneed
Survey data collected in recent years persuasively show that consumers favor the prearrangement of their own funerals and burials. For example, a 1995 study was conducted by the University of Kansas Medical Center on Aging among families that experienced the death of a loved one, age 50 or older, within the previous 5 months. Of the 163 families surveyed, one-third had no previous experience with funeral homes while 46 percent had no previous experience with cemeteries. According to the study, “in general, families who discuss(ed) final arrangements prior to death had much lower costs than families who did not.”
The University of Kansas study, which was funded through a grant by the American Association of Retired Persons, also found that 67 percent said that making funeral arrangements before death was helpful to the survivors while only 9 percent said it was not. Asked whether they were treated with respect, dignity, and concern by the funeral home staff, 94 percent said that they were treated “very well.”
Many of the findings in the University of Kansas study corroborate earlier findings made by the Wirthlin Group in two industry-sponsored telephone surveys. A benchmark national survey conducted in 1990 polled 1,000 consumers on their experience with and attitudes toward the industry. Three out of four believed that prearranging their own funeral or burial made good sense and over half, 53 percent, already owned cemetery property. More than one in four had already preplanned their own funeral and over half of that number had prepaid them. Sixty-five percent had positive remarks about industry members while only 11 percent mentioned anything negative.
The Wirthlin Group conducted a follow-up national telephone survey in 1995 among 1,000 consumers and found, among other things, that 80 percent believed that prearrangement was a good idea. However, the survey indicated that only 24 percent had actually prearranged their funeral or burial plans. As in the 1990 survey, just over half of that number, 58 percent, had prepaid them. Regarding their impression of industry members, 68 percent of those surveyed in the 1995 poll had positive remarks while only 15 percent had negative remarks.
More recently, the International Cemetery and Funeral Association (ICFA) commissioned a telephone survey by Walker Information in 1997 of consumers who had pre-planned and prepaid either their funeral or burial arrangements. A total of 400 interviews were conducted of purchasers in the Indianapolis, Indiana area, equally divided between cemetery and funeral home consumers.
The purpose of the survey was to measure whether preneed customers found their purchases to be beneficial. Seventy-five percent of cemetery pre-planners rated the experience as excellent or very good. Only 3 percent rated the experience poor. Among funeral pre-planners, the rating of excellent and very good climbed to 81 percent, with only 1 percent finding the experience poor.
Asked whether they would recommend making cemetery/funeral prearrangements to others, 89 percent of cemetery pre-planners and 84 percent of funeral pre-planners said that they definitely or probably would. With respect to the reasons for pre-planning cemetery or funeral arrangements, 81 percent and 80 percent, respectively, felt that prearrangement “eases the loss of a loved one” while 67 percent and 68 percent, respectively, agreed that “it saves money.” In response to the question, “How satisfied were you with the prearrangements that were made?”, 94 percent of cemetery and 97 percent of funeral pre-planners were either satisfied or very satisfied with the plans. A copy of the Walker Information survey is attached.
Assurance of the Seller’s Performance
The ICFA also commissioned a study of preneed trust funding requirements by two professors of economics, Ronald G. E. Smith and Keith A. Heyen. Professor Smith is the author of The Death Care Industries in the United States (McFarland, 1996). The purpose of the study was to determine the lowest percentage of funding necessary in a preneed trust account in order to ensure the seller’s delivery of the merchandise or services purchased by consumers.
The merchandise and services reviewed consisted of four items: a.) A standard stainless steel casket by a major casket manufacturer; b.) A standard concrete outer burial container; c.) A standard bronze memorial, that is, a 24″ X 14″ with a round vase; and d.) Opening and closing services. Historical wholesale costs for the merchandise ranged from the years 1955 through 1997 for the outer burial container, 1970 through 1997 for the casket, and 1967 through 1997 for the bronze memorial. The wholesale costs for opening and closing services were based on the retail price charged by a cemetery in the mid-west for the years 1967 through 1997.
The investment of the sums deposited into the preneed trust were divided into three categories: a.) One-year U.S. Treasury bills; b.) Standard & Poor’s index of 500 stock prices; and c.) Tax exempt municipal bonds. Based on the historical performances of these three types of investments, the study concluded that an adequate funding requirement ranged from 100 to 110 percent of wholesale cost for caskets, 100 to 105 percent of wholesale for outer burial containers, 105 to 115 percent of wholesale for memorials, for opening and closing services, 110 to 130 percent of wholesale, depending on the type of investment. The study also considered the age range and mortality rates of preneed purchasers, the limitations of the methodology used, and various other factors. A copy of the study is attached.
In sum, research and survey data from a variety of sources independent of each other including the Federal Trade Commission, academia, and the private sector, strongly concur that consumers are in a more advantageous bargaining position – and favorably regard the purchasing of funeral and burial plans – when such transactions are made in advance of need. The model guidelines which follow examine a number of areas, in addition to preneed, affecting the public and its relationship with cemeteries, funeral homes, and other service providers. That relationship is at once both complex and continual – the collective “public” being actually individual customers, next of kin and friends of the deceased, and members of the community at large. Therefore, the model guidelines are intended to reflect the diversity of roles under which the industry and the public meet.
It is the hope of the International Cemetery and Funeral Association that the model guidelines contained herein will foster improved communication between the industry, government entities, and the public, promote a better understanding of the needs and concerns of these respective parties, and preserve and enhance the industry’s ultimate role as the guardian of the nation’s heritage.