Consumers: Reading the Bold Print

Posted on March 27, 2010 by Bill Stalter

A recent news report titled “Broken Trust” served to fan the emotions of Illinois residents who purchased a preneed contract from the Illinois Funeral Directors Association. The facts involve a 103 year old lady who purchased the contract 16 years ago, and experienced a 32% drop in the contract’s value in one year. The news report quotes from the funeral home’s website:

“By locking in today’s funeral costs and ensuring that the necessary funds are set aside, you help relieve yourself of unnecessary future worry and your survivors of an unexpected expense.”

The news report then adds: “For the Graces and thousands of other families in Illinois, it did not work that way.”

The news report goes on to add commentary for consumer advocates advising against the purchase of preneed. However, the news report is very misleading and serves to confuse consumers because of an important fact: Mrs. Grace purchased a non-guaranteed contract.

Contrary to what the article suggests, the Grace family did not lock in the 1994 purchase prices of the funeral home’s goods and services. They have every right to be upset about the recent drop in value, but so do hundreds of Illinois funeral homes.

Over the course of 16 years, Mrs. Grace’s preneed contract has realized an increase of 1.66%. Not a great return. The goods and services selected in 1994 to have gone up at a rate of 4.2%.

While a difference of $4,500 may exist between the value of Mrs. Grace’s contract and the current cost of the 1994 goods and services, the Grace family is not obligated to purchase that same funeral.  The family may choose less expensive goods and services.

The Illinois Comptroller has published various consumer guidelines regarding preneed contracts. All have an explanation of the differences of guaranteed and non-guaranteed.

To avoid unnecessary distress, consumers should read available disclosures closely, review the preneed contracts, ask questions of the funeral director, and involve other family members in the process.

For Illinois families who own a non-guaranteed preneed contract with diminished values, if you demonstrate flexibility over the casket selection, most funeral homes will reciprocate with regard to their services.
 

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Pre Sale Disclosures and Post Sale Counseling: educating the preneed consumer

Posted on December 13, 2009 by Bill Stalter

It is an all but too familiar news report about 60 Michigan preneed contract purchasers having lost all their money, the industry response described the protections afforded by state law.

The MFDA statement drew some rebuke on an industry chat page, including one post recommending that state FD associations take a greater role in educating the public. However, consumer advocate groups will readily acknowledge that “educating the public’ on the risks of the preneed transaction is a difficult task that often occurs after the fact.

The MFDA offers good advice regarding the protections provided by Michigan law, but consumer advocates would be more impressed if the association offered that same advice on their website, and through printed disclosures at member funeral homes.

Once the preneed contract is sold, the industry has long felt it was best to limit communications with the consumer. This ‘perception’ was reflected in the following assertion made in one of the lawsuits filed against the Illinois Funeral Directors Association:

One of the benefits of the Preneed Trust Tax-Exempt Fund was to avoid reminding the preneed customers of their own mortality with an annual mailing of an interest reporting form (Form 1099). The mortality concept has always been critical to the satisfaction of preneed customers insofar as it allowed choices to be made by the customers while sparing their survivors the emotional and financial obligations associated with a funeral. The tax-exempt option was and remains the preferred choice for approximately 75% of preneed customers.

But as the MFDA statement suggests, consumers are better protected when annual statements are provided. In contrast to the old perception, regular contact between the funeral home and the consumer could be used to strengthen the consumer’s loyalty with the funeral home. Such contact could also help reduce another age-old preneed problem: but Mom said her preneed contract took care of everything.
 

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