With the exception of a few states, each form of preneed funding has its own statutory requirements. Consequently, different contract forms are required for each method of preneed funding. So, what does this mean for the consumer worried about the safety of funds paid to the funeral home or cemetery.
Among the pecking order of contract forms, insurance funded contracts generally tend to be among the more compliant forms. The larger preneed carriers understand that if they are to win the funeral home’s business, the carrier must be able to provide the funeral home with the preneed contract form. When there is a problem with an insurance funded contract, often it is because the agent has chosen the wrong form. For example, the recent law change in Illinois requires new disclosures to be made in the contract form. If the agent pulls an old form, the contract is in violation of SB1682.
In terms of compliance, the trust-funded contract may place a distant second depending on who sponsors the trust (and whether the consumer’s state requires the filing of the preneed contract form). While the national companies (and some state associations) are diligent about having their contracts reviewed for compliance, that has not been the case for many independently owned funeral homes. While state associations are due credit for bringing a higher level of compliance to their state’s contract form, some associations (such as the contract forms used by the IFDA) set a very low bar.
The most suspect of the funding methods contracts is the depository (or self administered) account. With this funding method, the preneed seller is going solo without the assistance of an insurance company, the state association, or even a fiduciary. All too often, the operator assumes a contract is a contract, and ‘borrows’ a contract form from another funding method. Or worse yet, the funeral home uses the FTC at-need goods and services form as the preneed contract.
To prepare for a regulatory examination, sellers need to confirm they are using the correct (and current) contract form. Within each funding folder, the seller should establish a current contract form folder and a historic contract form folder. Similarly, the operator will want to maintain a current GPL and Outer Burial Container price list and a historic GPL and OBC price list folder (going back indefinitely).
While many consumers tend to purchase preneed based on personal trust earned by the funeral director, contract form compliance demonstrates that funeral director’s understanding of the preneed law. Preneed contract form compliance is also the consumer’s protection should the trusted funeral director ever be hit by a bus. The next owner of the funeral home will be bound by the terms of those preneed contracts, not necessarily the oral assurances of his predecessor.