I think that there still is a discussion about “Guaranteed” vs. “Non-Guaranteed” preneed funeral contracts.  Although, I would argue that for the past decade or so the vast majority of preneed accounts sold by funeral homes are “Guaranteed”.  By that I mean that the services and merchandise is picked out at pre-arrangement time and fully funded by a life policy of that face value. As time passes and the account holder dies the funeral provider, who also did the pre-arrangement, provides those services for the value of the death benefit at the time of death with no additional charges to the consumer/preneed client.

That has seemed to work very well, and depending on the state laws where written a funeral director may get more or less than his current charges for the services.  In some states he may not be able to keep any overage and any value of the policy above his funeral statement for services rendered must be sent to the named Seconday Beneficiary.

So, at least in those states, a funeral provider may have to guarantee goods and services that could have a higher value at death than the proceeds of the policy.  That works out as a “discount” by the funeral provider.  On the other hand, the funeral home can never take an overage so over a number of contracts he probably has discounts because of under-inflationary growth that are never offset by gains on the other side.

For most funeral homes that method works just fine and the idea of having a preneed account on the books and the commission it generated when put in place may make up for the number of discount funerals that happen.

In Minnesota where I worked the law required that the beneficiary of a preneed policy be “Any funeral home as their interest may appear” which meant we could only be paid, as primary beneficiary, the amount of our statement.  In essence, we never received an overage but if the preneed policy was “guaranteed” we could be underpaid.

It also allowed the consumer/preneed client a “Bag of Money” that was not tied to a certain funeral home.  That was a handy sales tool when dealing with seniors who may be thinking about moving to a southern state or, as they got older, to the community of their children.  It allowed them a “Bag of Money” in their pre-arrangement account that was “portable”.

Tom Anderson
Funeral Director Daily

Again, as to “Guaranteed preneeds” they generally work very well and are probably not a financial issue unless, like recently, you have a very high inflation rate for a period of time and a fixed low-interest rate growth preneed product.  And, some costs you just cannot control — such as utilities, property taxes, the cost of steel or lumber in casket manufacturing, the cost of concrete in vault manufacturing.  In essence, you can try to control costs. . . .but not all are controllable by you.

So, what does that mean on “Guaranteed” funeral pre-arrangements?  For our assumptions let’s just say a preneed client has a work-up of exactly $9,000 for the services he/she wants to pre-arrange.  Furthermore, we will say for a one-time premium of that amount that the insurer adds $1,000 of face value to that policy.  So, the policy starts at $10,000 of face value and has an annual 2.5% growth rate on the $10,000 face value (which came with a $9,000 single premium).

That policy, in ten years will have an appreciated face value of $12,800.

If you run the inflationary numbers on the $9,000 of merchandise and services (and profit) for the same ten years.  If your inflationary costs went up:

• 3% annually — you would have a cost of service of $12,095
• 4% annually — you would have a cost of service of $13,222
• 5% annually — you would have a cost of service of $14,660

And, at death you provide the services that cost you, including profit, that much and receive the $12,800 in full payment from the policy.

As you can see from our small illustration on one potential account, the average annual inflationary costs probably have to get above 4% to create a loss of margin large enough to worry about.  In our example that 4% is about 1.5% higher than the insurance company is crediting the policy.

Our example does show the importance of receiving some “insurable additional value” to the policy in order to make this work stress-free.  For instance our example case adds $1000 of face value to the $9,000 single premium.  Without that “Bonus” the face value — compounding at 2.5% annually for ten years — would only be worth about $11,520.  The lack of the additional “Bonus insurance”, many times called a “Bump” in the Death Care world, would increase the odds of a deficit between the funeral home’s actual costs and the insurance benefit provided.

By the way, as you can find with this inflation calculator here, in this time of “higher than average” inflation, a purchase of $100 in 2020 would cost $124 in 2025 — which is an annual average inflation of 4.49%.

Do “Guaranteed” funeral preneed accounts work in high inflationary times?  That is truly a question that has to be answered by each Death Care provider owner.  Again, one has to weigh the benefits of securing a future death call with the potential for getting a lower than inflationary return on the sale cost.  And, each individual owner will have their own anxiety levels on the level of discounted funerals they execute.

There is no “right or wrong” decision on operating your preneed department with “Guaranteed” or “Non-Guaranteed” policies.  However, making sure that you know the math and the ramifications of that math is essential in providing the best possible scenario for your funeral home.

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It doesn’t matter what type of Death Care business your are in. . . funeral home, crematory, casket supplier, vault company, chemical company. . . . the odds are that you have seen your costs of business go up in the past four years — since inflation started creeping up sometime in 2021.

You probably have your thoughts on your sales prices of your products pretty well set for 2025, but what might near future inflation do to change that outlook?  Depending on which indicator you look at, “cumulative inflation” has increased prices over the past four years from 17-22%. . . . however, that number could continue to rise in the future if history is an indication.

What that “cumulative inflation” means, is if your input costs have went up on that same average, a funeral service that you charged $10,000 for in 2021 would have to be sold at $11,700 to $12,200 today simply to stay at the same profit levels.

This current wave of inflation hit its peak when in June 2022 prices were listed at 9.1% higher than at the same time in June of 2021  (See article and table).  Since that time we have seen a reduction in year over year inflation reaching down to a 2.7% level in November of 2024 as compared to November of 2023.  The goal is to reach a “healthy inflation” figure of around slightly over 2.0%.

Will we get there soon?  That remains to be seen, but I think the last miles of inflation reduction can be sticky. . . especially if this episode is anything like the last big episode in my life — which happened from about 1975 to about 1983.  And, there are a couple of things in common with that time period.  . such as a new Presidential administration promising tax cuts to Americans.

While we have made progress so far in the fight against inflation, please take a look at this graph from the 1975 episode which shows that after making progress for a while, inflation took off again.  That’s something that I hope we can avoid.

I think it is somewhat hard to get inflation to continue its downward trend when there are certain “late business increases” by government entities that may raise prices going forward.  In my opinion, government, being as big as it is and as methodical as it is, is sometimes behind the curves that happen in finances. . . . and that is a worrysome situation in my book.

Tom Anderson
Funeral Director Daily

For instance, I just recieved notice that my local municipal utility will be increasing monthly facility charges at an 8.3% annual clip, and utility demand rates from 7.5% to 8.6% depending on useage amounts.  And, I’m guessing that I’ll have a property tax increase coming on board to help the city, county, and school district catch up to their inflationary costs also.

That’s about 4 times what experts say “healthy” inflation is. . . .and I think it is indicative of government finally catching up in raising income to meet already risen inflationary costs.  In my book, I believe that businesses have been adjusting price increases much faster and may be almost done doing so, but I also think that government increases are still to come.

So, my point is, while I think business, that can act quicker than government, is getting caught up to the recent past inflation, don’t be surprised if you see some inflationary increases that might surprise you coming from public sector entities. . ..

The great thing about being a small, independent business is that you have the ability to turn and manuever like you are riding a jet-ski rather than piloting an aircraft carrier.  It may be that in 2025 that pivoting skill will be necessary. . . .

Related Article — “Amid trade tensions and sticky inflation, Bryant expert shares U.S., global economic predictions for 2025.”  Bryant University – Bryant News  (RI)

Related Article — “Inflation slightly accelerated last month — here are the prices rising most.”  Bankrate.com

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The National Federation of Independent Businesses (NFIB) issued their monthly “Optimism Index” last week and it showed the highest degree of “optimism” among small businesses in America since 2021.  That’s great but, there are also conflicting reports that came out that share a degree of caution among businesses.

For instance, this article from CBS News last week made notice of 7,100 retail store closures in 2024 — which is up 69% over the prior year’s number.  And, this article and charts from CNBC point out that the latest inflation indicators show a slight uptick in the rate of inflation in November after a long-series of drops until then.

November inflation numbers show that inflation for “all items” came in a rate that prices were 2.7% higher than the same month a year ago after a rate as low as 2.4% in September.  And, when stripped of food and energy numbers, inflation came in 3.3% higher after being down to 3.2% in July.

Later today you will hear how the Federal Reserve will deal with this “push/pull” of news that seems quite paradoxal — that is optimism in a world of more business closings and slightly higher inflation.  Most people think the Federal Reserve will continue to ease interest rates which should lead to even more optimism but also put pressure on the idea of lower inflation.

You can read the NFIB Optimism Report here.  Here are a couple of things I noticed from it that may play a part in your business planning:

• 54% of small businesses expect to make capital outlays in the next six month

• Of that 54%, 39% of them will be spending on new equipment, 22% will be spending on vehicles, and 14% will be spending on facilities.

• 32% of the small businesses reported employee compensation rising

• 28% plan to raise compensation in the next three months

• Among those who report lower profits, 32% blamed weaker sales, 18% blamed rising costs of materials, 13% blamed higher labor costs, and 9% blamed lower selling prices for the goods or services that they sell.

• In the last 4 years, small businesses report that the average interest rate has risen to over 9% from about 4% four years ago.

In an interesting note to this article and one that funeral home owners need to recognize going forward,  especially as Death Care rites and rituals are changing,  is that Neil Saunders, an analyst with GlobalData made this assumption about all the retail store closings, “However, many of the chains closing stores are those that have problems which go beyond the economy. Their propositions might not be right, their offers might not be what consumers want, and they might not have responded to competitive threats in the right way.”

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