PART IV: CONSUMER INFORMATION
Please note that each state differs in its specific regulatory requirements. This information should be used as a general Advanced funeral planning Increasingly, people are making the choice to preplan their funeral arrangements. One choice is to pay funeral or burial expenses in advance. This relieves family members of the need to make these decisions and arrange the contracts. It can also provide heirs or the estate with specific information regarding burial wishes. Most insurance statutes currently permit two methods of funding preneed funeral needs: (1) trust-funded preneed contracts, and (2) insurance funded preneed contracts. In some states, all preneed sellers who offer trust funded preneed contracts and/or insurance-funded preneed Common questions concerning preneed contracts Q: Who receives the interest on the trust funds? A: Although most states limit the funds’ access by the provider until the customer dies, the interest earned is the property of the preneed contract seller, who uses it to offset price increases between the signing of the preneed contract and the funeral. Q: If money remains after the funeral, who receives it? A: Some states allow the provider to retain any remaining funds, while others specify that the beneficiaries do; many states do not specify. The state receives any money leftover if the customer was on Medicaid. Q: Does a preneed contract qualify as a method for spending down assets for Medicaid? A: Yes. However, each state Medicaid office has its own qualification guidelines. Contact your state Department of Health Care Policy and Financing for further information. Q: Can a contract be used at any funeral home? A. It depends on the state. Some states allow customers who move to another state to transfer, some do not; some allow the provider to charge for the service, some don’t. transfer, but that the original provider can charge for it. The FCA’s position is that either type of contract ought to be transferable without penalty; if the second home is less expensive, the customer should receive the difference. Q: Are the proceeds of an insurance-funded preneed contract taxable? The NFDA’s position is that a customer with an irrevocable contract should have the right to A: Insurance policy premiums and proceeds are not currently considered taxable income for U.S. Internal Revenue Service purposes. Consumer tips ● Be certain the funeral home, mortuary, cemetery, or licensed insurance producer is licensed with the state as a preneed contract seller. ● A friend or family member should accompany the consumer when making the preneed funeral arrangements. ● Ask the preneed seller for a detailed price list of services and merchandise before selecting anything. ● Before signing a preneed contract, read it carefully and understand all provisions. Ask questions.
guide only; be sure to check with your individual state for the specific regulations that pertain to you.
contracts must be licensed as preneed contract sellers. Although anyone can become a licensed preneed contract seller, the majority of licensed preneed contract sellers are funeral homes, mortuaries, and cemeteries. Some states also permit licensed insurance agents to be preneed contract sellers. In the preneed industry, these individuals are referred to as preneed brokers. Do not purchase a preneed contract from a funeral home, mortuary, cemetery, or insurance producer that is not licensed with your state as a preneed contract seller. Q: Can I borrow the cash value of my insurance policy? A: If your contract is revocable, yes. However, the estate must make up the difference in policy value at the time of death or the preneed contract may be terminated. Q: What if I cancel my life insurance policy that funds my preneed contract? A: The insurance policy will be subject to surrender charges and perhaps a reduced cash value. The preneed contract will terminate when the insurance policy is canceled. Q: What if I fail to pay my insurance premium on my life insurance-funded preneed contract? A: Life insurance policies continue the policy by paying the premium out of the cash value of the policy. Once the cash value is exhausted, the life insurance policy will be canceled, causing termination of the preneed contract. Q: What if I cancel my trust-funded preneed contract prior to need? A: Once again, it depends on your state. Almost everywhere, purchasers have the right to terminate a revocable contract any time prior to use, and the provider must refund your money within a specified time period. However, in some states the provider may retain some of the money. Q: What if my heir(s) or designated representative wants to cancel the trust-funded preneed funeral contract? A: More than half of states have enacted a personal preference law, a statutory obligation for survivors to honor the written wishes of the deceased (with the exception of cremation in a few states). Thus, a customer can specify that the arrangements in the preneed contract must be followed. ● If purchasing a preneed funeral arrangement, the consumer should receive a copy of the contract that explains his or her rights and obligations, along with a written statement of all services, merchandise, and prices of items that have been purchased. ● The contract must clearly state how it is funded (life insurance or trust-funded), as well as the terms of payment. ● If purchasing a trust-funded product, ask how the funds are secured.
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Book Code: FIL1225
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