Has the economy caused consumers to put preneed on a back burner? Perhaps, but funeral directors can anticipate an increase in spend down inquiries. It is hard to turn prospective business away, but funeral directors need to consider how these transactions do not lend themselves to insurance funding or the conventional guaranteed preneed contract.
In many situations, these families cannot afford a full traditional funeral. Over time, they may be able to contribute funds to pay for most of a funeral (depending upon the expense of the casket), but they cannot commit to regular monthly payments. Often, payments may be several months apart. A funeral home cannot freeze its prices if the family cannot commit to paying the required price within a specified time.
But, what are the funeral director’s responsibilities with regard to the non-guaranteed payments? Does the funeral director become a guarantor of the payments received on the non-guaranteed contract? This is one of the ‘lesser’ issues in the IFDA master trust controversy.
Last October, the IFDA included the following explanation on their website:
Non-guaranteed contracts are subject to the ups and downs of the market – like many other investments. Their principal is protected by the funeral director who sold them the “non-guaranteed” preneed policy.
Today, the IFDA website is a bit less forthright about the non-guaranteed contract:
The very nature of a "non-guaranteed" preneed contract is earnings are not guaranteed, but the amount of principal paid by the consumer is protected. The value of non-guaranteed contracts is determined at the time of need and any paid principal is a deposit toward the final cost. If there are any earnings in the Trust investments, those earnings are credited toward the final purchase price. But if there are no earnings, the amount of principal paid is still protected by law and applied on behalf of the consumer to the final purchase price.
Unless the non-guaranteed payments are invested separately in government-backed securities, the consumer will ride with the funeral home in the ups and downs of the market. To suggest the consumer will at least get his deposits means that the deficit has to be funded out of the trusts assets, at the expense of the guaranteed contracts.
Last summer, the Missouri Funeral Directors and Embalmers Association made a POD/bank account proposal during the state’s reform hearings. While the proposal has merit, state attorneys were quick to point out that POD bank accounts cannot be excluded from a consumer’s assets for qualification testing. In other words, you need an irrevocable trust for spend down purposes.