In our last post we discussed the need for the Missouri State Board to provide guidance to their financial examiners regarding Section 436.425 and insurance funded contract forms. In this post we will discuss Section 436.425 and trust or joint account funded contracts.
Subparagraph 9 has created confusion for examiners and sellers. That section states that a preneed contract shall “set forth the terms for cancellation by the purchaser or the seller”. The Missouri law is clear that consumers must have the right to cancel a preneed contract and receive a refund. But what about the seller? Funeral homes frequently will leave a contract in place when the consumer has defaulted on installment payments. The question is whether a funeral home must include some form of cancellation rights. Other than default on installment payments, are there circumstances when a funeral home should be authorized to cancel the preneed contract? Would that be true even for non-guaranteed contracts?
Subparagraph 15 addresses the installment payment issue more specifically. This subsection requires a disclosure of what happens when the contract beneficiary dies before all installments have been paid. Examiners have attempted to apply this section to contracts regardless of whether the form is guaranteed or non-guaranteed. We have taken the position the disclosure should only be applied to guaranteed contracts paid with installments. If the contract is guaranteed, but requires a single payment, the disclosure would not be required. With a non-guaranteed contract, the consumer simply applies the trust or depository account to the costs of the funeral. No promises have been made about prices.