The Texas preneed regulator may have left some consumers scratching their head. On September 16th, the Department of Banking issued a press release that a cease and desist order had been issued to prohibit a Lubbock funeral home from selling trust-funded prepaid funeral contracts. But, a Lubbock newspaper reported comments from the Department of Banking that the funeral home could still sell insurance-funded prepaid funeral contracts. So, how is the funeral home can sell one form of preneed but not another?
With insurance-funded preneed, the funeral home typically acts as an agent for the insurance company. The insurance company provides a preneed contract form, and establishes procedures regarding the administration of premiums. The insurance company also provides consumer statements and regulatory reports. Essentially, the funeral home has a minor role in the preneed transaction once the insurance application is completed.
With trust-funded preneed, funeral homes either act as their own ‘seller’ or they contract with a third party sales organization. In many states (such as Missouri), the state association master trust is a third party seller and assumes the seller’s compliance responsibilities. Those responsibilities include contract compliance (preneed contract form and trust agreement), consumer payment accounting, trust allocations, recordkeeping, and regulatory reports.
Apparently, the Lubbock funeral home acts as its own seller. DOB auditors cited the funeral home for poor recordkeeping, and the failure to deposit consumer payments. There is nothing in the press release (or news article) to suggest the funeral home was guilty of any criminal act or that preneed funds are missing. It is quite possible the funeral home’s inadequate records contributed to its failure to make the required deposits.
The funeral profession is on call 24 hours a day, seven days a week, and providing service to families comes before everything else. And, for many funeral directors, preneed compliance is an intrusion on the time that should be devoted to families.
But, regulators are warning that if the services offered to families include trust-funded preneed, the funeral home cannot push the preneed paperwork into the bottom drawer.