Most funeral directors would be hard pressed to calculate what investment return their preneed trust is producing. Regular deposit and distribution activity makes computation of investment returns difficult. The more frequent the activity, the harder it is to compute the return. Accordingly, it would be easier for the funeral director to look at paid in full contract, and compare its value at different dates. For example, assume an $8,293.50 contract was sold on September 1, 2012 with a single premium (trusted at 100%). Five years later that contract is serviced in October, and the funeral home receives $9,758.24, the trust has had a simple annual return of 3.5%. The investment return of $1,464.74 (9758.24-8293.50) is divided by $8,293.50 to come up with an aggregate return of 17.66%. That aggregate return is divided by the years the contract was outstanding (5).
With regard to mutual funds, investment research analysts use five time periods to assess the fund’s performance: year-to-date, one year, three years, five years and 10 years. Of most relevance to investors such as preneed sellers are the five and 10-year periods, with the latter time frame being considered the best measure of an investment manager’s ability to perform.
So, if preneed sellers want to measure their trust performance against other funding options, take a sampling of contracts with a sales date prior to October 1, 2007, and perform the calculation set out above. Be sure to use contracts that were paid in full on the date of sale. If different start dates are used, the returns should differ slightly, but they should be within a fraction of a percent of each other.