Many funeral homes have an informal practice of accepting small insurance policies from individuals who want to know their funeral expense will be taken care of at the time of death. Often, the individual may not be comfortable discussing their funeral preferences with family, and trust the funeral director to apply the insurance proceeds appropriately. Missouri funeral directors were offended two years ago when the state’s regulatory staff suggested this situation was ripe for abuse. (The Missouri regulators have since passed regulations requiring a preneed contract in this situation.) But in the past few months, an increasing number of funeral homes have confided that they have been victimized by the informality of this practice. One such funeral home had maintained possession of an insurance policy for several years before providing a funeral equal to the stated death benefit. It was not until weeks later that the funeral home learned the policy’s death proceeds were less than half of the stated benefit.

Some of our clients express their reluctance in requiring a contract or charging a fee under such circumstances. They perceive this as an accommodation to the individual. However, a court would find that a contract was formed when the funeral director accepts the policy. For the funeral home that falls victim to this practice, a court could quite possibly say shame on them for not spelling out the terms of that contract.

As a business, the funeral home has the duty to define the terms of each contract, and the most important term was whether the funeral home had accepted the policy as full payment for the individual’s funeral. The hurdle for recovering an unpaid balance through litigation is also complicated by the fact that the funeral home had two opportunities to define their terms for accepting the insurance policy: when the individual originally brought the policy to them and then again at the arrangement meeting with the surviving family.

If the individual came to the funeral home with specific requests for the funeral arrangement, then that would have been the best time to set out the details of the arrangement for the surviving family to follow at the time of death. The problem with making promises about price guarantees is that the funeral home will not know with certainty what that policy will be worth until the time of death. Accordingly, funeral homes often use a form of non-guaranteed contract (I’ll apply the insurance proceeds to your service, but someone will have to assume responsibility for any unpaid balance). Even if the individual wants price guarantees, that promise would have to be conditioned on what is paid on the insurance policy. On the other hand, if the individual simply sought to have the policy proceeds applied to her funeral costs (leaving the arrangement selection to family members), that understanding needs to be documented at both the time of the assignment and again at the at-need arrangement. The survivors need to know they have a legal obligation for the costs that exceed the policy proceeds. The survivors should also be required to cooperate with the funeral home’s efforts to recover the policy proceeds. More than one client has had the experience of an insured’s survivor making the at-need arrangements and then subsequently attempting to surrender the same policy for its cash surrender value.