5 Signs of a Financially Healthy Preneed Company

By Paul Lovelace, Executive Vice President & Chief Corporate Development Officer

Have you ever seen someone walk a tightrope across a canyon?

It’s breathtaking and nerve-wracking. It’s also the perfect metaphor for how it can feel to run your funeral home’s preneed program. Every step forward is an achievement. However, one wrong decision or miscalculated step can threaten your program’s success.

That’s why choosing the right preneed provider is more than just a good business decision. It’s a necessity.

For years, I’ve worked with funeral homes to create preneed programs that benefit their businesses and families. I’ve seen good, average, and downright disastrous strategies that did funeral homes more harm than good.

My experience has taught me one simple truth: a strong preneed partner gives funeral homes stability, security, and confidence. A weak one can lead to financial headaches, broken promises, and disappointed families.

So, how do you know if a preneed provider is strong?

The first step to knowing if a preneed provider is the right fit for your funeral home is understanding what makes a preneed provider reliable, responsible, and financially healthy. That way, you can confidently choose a new preneed provider or determine if your current provider still fits your business goals.

Here are 5 signs of a financially healthy preneed company.

1. Profitability

While money isn’t everything for your funeral home, it certainly is a big part of determining if a preneed provider is right for you. Because if your preneed provider isn’t profitable, it won’t be around during claim time for your families’ policies.

Your preneed provider should have consistent profits. That may sound like a no-brainer, but many funeral homes partner with preneed insurance companies that operate at a loss, which puts their business and families at risk.

A financially healthy provider ensures your policies will be honored, your families will be taken care of, and your business won’t be left holding the bag.

2. Growing assets

Assets are key in determining if a preneed provider is financially healthy. Let’s explore why.

A growing preneed provider is more likely to be a stable preneed provider. If a preneed insurance company’s assets are increasing, it likely means it’s selling new policies, attracting new customers, and building for the future – all things you want!

On the other hand, a shrinking asset base can be a red flag, as those providers may not be able to withstand future financial problems.

Growing assets isn’t the only factor that makes a preneed provider a good partner – but it is a strong indicator that they should be considered for your funeral home.

3. Sufficient capital and surplus

Peace of mind is one of the most important reasons a family should preplan.

The assurance a family gets from knowing their funeral is planned and funded is the same feeling you should get from your preneed provider. To give you that security, your preneed insurance company needs to have sufficient capital and surplus.

Capital is the initial funding a preneed insurance company has to make investments. Surplus is the profit they make from those investments. A preneed provider’s surplus acts as its emergency fund and is the cushion that ensures all their claims can be paid timely and with the expected death benefit, even during financially tough times.

A company with weak capital and surplus may struggle to fulfill its obligations to funeral homes and families. A strong surplus means peace of mind for your business and the families you serve.

4. Good net yield

Remember how we discussed assets earlier? Well, it’s not enough for a preneed provider to have growing assets – those assets must be stable and provide a predictable and competitive return.

That’s where net yield comes into the picture. It refers to the investment return a preneed provider makes on its invested assets. A reliable preneed provider will have growing assets that are steadily generating income, while a less trustworthy provider may have volatile and unpredictable cash flow.

Your preneed provider’s assets should generate enough money to help it stay competitive while limiting exposure to risk. Avoid preneed insurance companies with over-the-top net yields, as they are likely invested in several risky investments.

The right provider balances competitive returns with good judgment.

5. Solid underlying investments

At the end of the day, you want to know that your families’ preneed policies will be funded in a timely manner with a full death benefit. So, you need to know where your preneed provider is putting its money.

Here’s the trend to remember: The best preneed providers invest in high-quality, stable assets like government bonds, corporate bonds, and mortgage loans. Why? Because the cash flow from those investments is predictable and necessary to pay claims.

When preneed providers choose risky investments – like stocks – they flirt with disaster if the market crashes. These companies risk not just their own financial health but also the money families use to pay for their funerals.

If your provider isn’t making smart, high-quality investments, your funeral home – and the families you serve – could be at risk.

Find a partner that checks all the boxes – and puts you first!

Choosing the right preneed provider is one of the most important decisions for your funeral home. A reliable provider will be financially healthy, protect your families’ policies, root your preneed program in a solid foundation, and see you as a true partner.

And if your preneed provider has served funeral homes for more than 40 years, even better.

At Funeral Directors Life, we understand what it takes to help your funeral home establish a great preneed program. We also understand the importance of working together as partners and will do all we can to support you.

“FDL takes excellent care of its clients. Not many preneed providers offer great growth rates, at least, not like FDL does. We still have some preneed policies with our previous preneed provider, and it’s sad to see how those have been negatively impacted over time. FDL’s growth rates continue to rise.”