In our next post on cemetery preneed, we want to revisit a post from June 2012 (Cemetery Preneed Challenges: bucket accounting).  As discussed in that post, the cemetery prearrangement differs from its funeral counterpart because the cemetery can deliver property and merchandise prior to the purchaser’s death.  When establishing a preneed program, a cemetery will want to avoid a common mistake where individual contracts are required for each item of property, merchandise or service.  Multiple contracts are confusing to consumers and tend to end with missed payments and lapsed contracts.

When a single preneed contract is offered, the form should include an application of payments provision where interment rights are paid before merchandise and services.  Interment rights should be transferred to the consumer upon the payment of that part of the purchase price.  Do not defer the transfer until the entire purchase price is paid.

After the interment purchase price, the application of payments should then prioritize payment of the memorialization merchandise.  These items increase in cost at a rate that exceeds returns on the prearrangement funding.  Cemetery prearrangements are most likely funded by a trust.  Where a trust may net 3 or 4%, granite and bronze costs are climbing much faster.  To retain more profit from the prearrangement, the memorialization merchandise must be delivered as soon as the price is paid.

The prearrangement contract must also get consumer approval for delivery of memorialization merchandise.  Consumers do not like to be reminded of their mortality, and a marker on their grave space tends to do just that.  The consumer preference is to defer delivery until after death.  Accordingly, the prearrangement contract provisions must include a default that provides for delivery.  The consumer will have to assume the costs of storage if delivery to the gravesite is deferred.

Burial prearrangements also tend to be paid by installments over multiple years.  Consequently, these arrangements frequently include finance or installment fees.  These fees represent an offset to reduced trust earnings.