Death Care Law Blog : Kansas Death Care and Preneed Lawyer & Attorney : Stalter Legal Services Law Firm : Funeral Law, Elder Law : Kansas City

Heritage is the term that the death care industry uses to describe the relationship each funeral home or cemetery attempts to forge with the community through years of service. Heritage reflects a commitment to the community, and through that commitment, the operator can expect the community’s business.

Initially, the vast majority of funeral directors fought preneed because the upstart operator used pricing strategies to undermine the heritage of the established competitor. Accordingly, the early preneed laws were intended to choke off preneed. But now, the vast majority of funeral homes offer some form of preneed, and preneed laws are slowly changing to reflect that.

Funeral directors also perceive the business practices of the national companies as a threat to their heritage. The larger the funeral operator, the more access it has to economies of scale, investment capital, and resources for advertising and administration. For sixty years, Pennsylvania funeral homes have been subject to a law that was intended to give the ‘little guy’ a level playing field. As reported by the Philly.com, a Federal court has found many provisions of the Pennsylvania Funeral Directors Law unconstitutional.

The Pennsylvania Funeral Directors Association expressed “surprise” over the decision, and encouraged the State Board of Funeral Directors to appeal the decision. The Association is being somewhat disingenuous with its membership, the public and the State Board. The ruling’s issues had been the subject of years of litigation, and the Court’s frustration with the State Board to heed warnings to change the law bubble out in a footnote on page 154 of the ruling. While the State Board takes the brunt of the Court’s rebuke, we anticipate the Association’s influence has played a pivotal role in the Board’s response to the litigation.
 

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Our preneed provides peace of mind by freeing your family from the burdens of rising funeral costs and from making difficult decisions during their time of grief.

Since the inception of the transaction sixty years ago, that statement has defined preneed marketing. Even the AARP recently embrace the peace of mind concept. The inflationary protection that can be provided by preneed is the product of the guaranteed contract through which, funeral homes assumes the risks of investment returns and cost increases. But unless today’s consumer can afford to pay for that guaranteed preneed contract with a lump sum payment, the most popular form of preneed funding is forcing many families to choose cremation.

In 1988, insurance moved to the forefront of preneed funding by virtue of a tax ruling adverse to preneed trusts. While insurance was already a major player in the preneed industry, insurance companies had followed the lead of the early preneed pioneers by crafting a product to be used with the guaranteed contract. In the twenty years that followed the tax ruling, preneed insurers built sophisticated programs around their guaranteed contract policies. To win the funeral home’s business the insurance product must provide a commission (to pay preneed program expenses), an increasing death benefit (to offset the increase in costs to service the contract), preneed contract forms and regulatory reporting. The costs of these features are most apparent in the pricing of installment premiums.

Using costs discussed in our prior post, assume a husband and wife (age 67) want to purchase average funerals, opening and closing services and a grave marker. The total costs are approximately $20,000.00. That is a hefty sum for a couple on a fixed income.

The premium rates charged by preneed insurers vary due to factors such as the funeral home’s volume of business written, the commission rates sought by the funeral home, the age and health of the consumer, the term of installments, and the method of invoicing. For purposes of this post, we averaged two of the leading preneed insurer’s premium rates and assumed premium invoices would be mailed to the consumer. The attached chart reflects the monthly premiums for installments over 3 years, 5 years and 10 years. The chart also reflects the total cost of the premiums to the couple.

Most elderly consumers would be hard pressed to make monthly payments of $330, let alone $740. And if the couple elects the 10-year installment plan, the total cost of the original $20,000 package almost doubles. Not much of a cost savings.

Like most consumers, the preneed buyer will begin to ask what can I purchase with $80 (or even a $100) a month. The resulting death benefit will be about enough for two cremations.

If the industry wants to keep the traditional funeral affordable, more flexibility is needed in the funding of preneed. The price guarantee (and the purchase of insurance) may have to be deferred until the consumer (or funeral home) can afford it.

 

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To provide a prospective of the cost on one’s final arrangements, consumer groups advise the public that the cost of a funeral could be the third most expensive purchase made during their lifetime (behind the purchases of a house and a car). In doing so, the consumer group often sites the average funeral cost figures provided by funeral trade organizations. These averages typically do not include the costs associated with purchasing burial spaces, monuments and burial services. Because cemeteries are not subject to the FTC’s Funeral Rule, there are no general price lists from which to gather information for cost comparisons.

For year 2009, the NFDA reported the average cost of a funeral (with a vault) to be $7,755. If the funeral costs have tracked the national cost of living increases, the 2011 average cost should be close to $8000. The traditional funeral and burial is not complete without the burial space, a marker and interment services. A Google search for average burial costs doesn’t produce many 'current' hits.  One of those Google hits is a 2005 Forbes article, that reported the average burial space cost to be $4,000.

Burial spaces can vary greatly in cost depending on the type of cemetery and the type of burial space. Municipal cemeteries will have some of the lower prices (courtesy of the tax subsidies), and religious cemeteries tend to have some of the higher prices. Prices vary greatly depending on whether the interment is to be made in a ground space, a companion space, a lawn crypt or a mausoleum.

The Forbes $4,000 burial space price seems a bit high, and for the purposes of this article, we will assume the cost of companion spaces to be $4,000 (a family’s first funeral purchase is typically for dad, and spaces are purchased as companions so mom can be assured to have her place next to dad).

Many cemeteries require endowed care contributions that often are in addition to the cost of the burial spaces, so assume an endowed care contribution of 15% or $600.

The cemetery will also charge for the services of opening the grave, installing the vault, and then closing the grave when the interment is completed. It is not uncommon for an opening and closing to cost $1,500 to $2,000.

And there is the cost of the marker or monument. Assume a granite companion upright monument is chosen. The averages differ, but a cost of $2000 is quite reasonable.

For the average family, the surviving wife faces an ‘average’ cost of $16,000 when her husband dies. When one scans the automotive ads, you will find at least a few new car models that cost less than a funeral and burial. The ad I’m reviewing also offers financing for 72 months. In contrast, funeral homes and cemeteries expect payment in full within weeks of providing their property, goods and services.

Even when insurance proceeds will be available to pay the funeral and burial, it may be months before proceeds are received. If there is no life insurance, the cost may be too high to use a credit card. While the family may prefer the traditional funeral and burial, the cost, and its immediate payment, can be too high.

For those families that do not choose cremation, the lack of flexible financing is leading to increasing receivable issues for death care operators. Trade magazines are reporting that the receivables carried by operators are growing in terms of amount and defaults. So, even when the family opts for the traditional funeral and burial, the operator is seeing an increasing number of those families failing to pay.

The historic advice has been to get as large a down payment as possible, and then stay diligent on follow-ups with the family for payment. Death care operators are now being advised to help the family not reach beyond their means. Apparently, this is still not enough. It is time for the death care industry to consider installment payments (and, not only in terms of at-need services).
 

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The Saturday edition of the Kansas City Star includes a section titled “Faith” that is devoted to the issues of religion. A few weeks ago, Star reporter Helen Gray wrote two different Faith articles regarding local funeral trends: cremation and one funeral operation’s focus on working closer with churches.

The cremation article offered the observations from both clergy and funeral directors. The clergy acknowledged that cost and a growing social acceptance have contributed to the rise in cremations (which stands in stark contrast to the comment of one corporate spokesman reporting second-hand how nothing has really changed). But, the comments suggest that some clergy (like many funeral directors) are still simply reacting to cremations. (Another Kansas City Star contributor, Bill Tammeus, wrote a piece titled “Cremains of the Day” that touches on the problems clergy have cremation.)

The other article focused on how one local funeral operation has adopted a very proactive approach to working with area churches. By operating without a “home”, this funeral operation has lower overhead, and can provide lower costing services to churches. The operation’s success would seem to be putting more emphasis on working in tandem with the minister, and less emphasis on directing the funeral.
 

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Blame it on the economy, or on ‘unfavorable secular trends’, but as cremation rates continue to rise, operators need to consider their General Price List and their non-declinable basic service fee. In many parts of the country, competition has driven the price of the direct cremation far below the charge that the funeral home requires for its basic professional services. It is the FTC’s position that the death care operator cannot discount its basic professional services fee, and this causes operators to question whether a cremation service can be priced below the basic professional services fee.

The FTC staff has issued informal opinions that except direct cremations from the “no discount rule”. But, operators enter into a gray area when they create cremation packages that offer more than a direct cremation, but cost less than the basic professional services fee.

In response to an inquiry about home funerals, the FTC staff opened the door to alternative basic professional services fees. The staff indicated that it would not object to a reduction in the basic services fees for home funerals if the reduction is commensurate with the limited use of the provider’s facilities and services. For those funeral homes that do not own a crematory, their role in the cremation is similar to that when assisting with a home funeral. Consequently, the FTC opinion would seem to allow these operators to offer an alternative basic fee for cremations.

Cremation societies often set the lowest cremation price in a community because they do not have the overhead of a funeral home. But when the family wants more than a direct cremation, the comparison of cremation packages becomes more difficult. Operations that compete for cremations should consider expanding their GPL to explain the various services that are included in the cremation packages.
 

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A few months ago, a stock analyst issued a critique warning against investment in the industry’s public companies. A few weeks later, the critique got a second wind when chat pages and social media forums picked up on the critique’s conclusion, and circulated the article as proof that certain trends will ‘haunt’ all funeral homes and cemeteries for years to come. Several weeks later, the critique’s attempt to assess or explain the industry’s key issues continues to haunt me. If a professional who makes his living from investment assessments has difficulty grasping and explaining the intricacies of the death care industry, consider the difficulties our regulators and legislators may have understanding the business.

The critique identified “the” three issues impacting the industry’s revenues and profitability: cremation, preneed and longer life expectancies. This post will focus on cremation.

The analyst opens with the statement that ‘several unfavorable secular trends’ are hampering long-term growth and profitability in the death care industry. But, the critique concludes with sticking the “unfavorable secular trend” label solely on cremation. There is no doubt that cremation is turning the industry on its head, but is the “secular trend” label important? It is when you view the history of the business, and need to convey the depth of the cremation issue, and that it will continue to grow.

The American way of death was shaped by the Christian funeral and burial. Theology professor Thomas Long has written several insightful books and articles regarding the Christian funeral and the role of the body. Another excellent work is Paul Irion’s “The Funeral: Vestige or Value?” The growth of death care business can be traced to the fact funeral homes profited by establishing a good relationship with the local church. That fundamental relationship served the funeral home well for several generations. But as our society became more pluralistic and secular, the acceptance of cremation grew.

For theologians, cremation represents a challenge to long standing beliefs about the funeral ritual. But, the emerging message to clergy is one of education and adaptation. As a follow up to his seminal work on the funeral ritual, Paul Irion wrote a book simply titled “Cremation”. This blog has previously discussed this issue, and one form of adaptation by churches: the columbarium.

For the funeral director, a church’s shift to embrace cremation sends a mixed message. The families from these churches view the funeral as having value as a ritual, but a ritual that does not require the purchase of a casket. If the funeral home does not own a crematory, the director will have to compliment the church’s pastoral care, or risk losing the church’s business altogether.

Operators must also market to a public that has become more secular, and view the funeral home as providing a utilitarian service. As the analyst alluded to, once the body is disposed of, all other services are ‘auxiliary’ in nature. The secular public is more likely to purchase a cremation, and forego any type of memorial service.

While cremation has taken away casket sales and cut into the purchase of services, is the critique accurate in its warnings about the death care industry? Keep in mind that the analyst was assessing the industry for profitability and growth, and that growth is difficult for a mature industry to achieve. The death care business has all the characteristics of a mature industry: limited or declining markets, intense competition, and evolving consumer demands. Individual companies may be able to achieve growth, but the industry as a whole may not until the Baby Boomer generation ages another 10 years.

Some mature industries do wither and eventually die away. But in contrast to industries that produce a product with a definitive life cycle, death care is based on a service that will always be needed. Funeral homes may have been guilty of having allocated too much of their profit to the sale of a casket and too little to their services. But, they have the ability to adapt their pricing strategies. For the small operator who cannot afford a crematory, alkaline hydrolysis may provide a less expensive investment. And, there is the green burial alternative to explore.

Next: Dark Clouds and Preneed
 

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The Easter sermon is traditionally defined by Good Friday, and the hope and promise offered by Christ’s resurrection. However, clergy seldom seem to focus their lectures on Easter Saturday and the despair of Mary and Jesus’ followers. In a sense, the same is true for many clergy who officiate at a funeral. Who hasn’t attended a funeral where the minister started with an acknowledgment of the death and then provided reassurance about the deceased. What clergy do not seem to appreciate is that the deceased’s family is often focused on their own individual losses and need help just making it through Saturday.

While some theologians criticize the death care industry for directing the funeral ritual from the Christian burial to personalization, others are striving to understand the needs of surviving family members. This need is as old as the Easter story.

Personalization is not for everyone. But the 'value' of the Christian burial no longer resonates for many individuals, and perhaps it is because the purpose of the ritual is not adequately communicated by clergy. While cremation continues to confound some clergy, it's popularity requires new thought by funeral directors and ministers alike.

Paul E. Irion's book The Funeral: Vestige Or Value? provides a valuable resource to understanding the value of the Christian burial. Though the book is more than forty years old, it remains relevant today. In the upcoming weeks I plan to read Mr. Irion's book on Cremation in the hope it provides insight for both clergy and funeral directors alike.

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Cremation is having a profound impact on funeral homes, cemeteries and churches alike. While Christian denominations prefer to reinforce the role the body plays in funeral liturgy, cremation offers churches the opportunity to establish a bond with parishioners that cemeteries once provided. It is becoming fairly commonplace to read about churches, like the First Evangelical Lutheran Church in Longmont, Colorado, that are considering whether to establish their own columbarium. 

However, there are a number of issues churches need to evaluate before making the decision about a columbarium. The Calvin Institute of Christian Worship has an excellent article on its website, Better than a Cemetery: A Presbyterian church offers an alternative, that describes the approach taken by the Bryn Mawr Presbyterian Church in Bryn Mawr, Pennsylvania. 

A columbarium requires more of a commitment then some church leaders may initially understand. However, this article accurately conveys the planning and preparation that should be invested in the process.  Once a church makes the decision to establish a columbarium, it will need to address many of the same legal issues that face a cemetery, including the following:

• Rules that will govern the columbarium, and that will allow the church flexibility with regard to future issues;
• Contracts that define the niche owner's rights;
• Endowed care trust requirements;
• Applicability of state laws; and
• Future sales.    

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