In a prior post, we used Allan Sloan’s article on the Treasury bond market to discuss the impact on preneed insurers and their funeral home clients. The Treasury market has forced preneed insurers to lower their policy returns, which has a direct impact on the profitability of funeral homes. To make insurance funding more profitable to the funeral home, insurers have recommended that the funeral home include a surcharge based on the sales price of the prearranged funeral. Depending upon the insurer, consumers have been required to pay a surcharge as high as 19%. But, the Treasury market has also forced preneed insurers to raise their premium rates, and the most dramatic rate increases involve installment terms of three years and longer.
A 70 year old preneed consumer looking to pay for a $7,500 prearranged funeral with a monthly installment of $150 or less, might anticipate an installment term of about 50 months. But with insurance funding, the consumer will typically have to make installment payments for about 84 months. While installment premiums have always added additional cost to the insurance funded preneed arrangement, the Treasury bond market has forced insurers to push more costs upon the consumer.