Pre-Need

"I have always loved the story of an elderly gentleman who had burial plots on both coasts. The family kept after him to tell them where he wanted to be buried. He thought for a moment and then said, 'Surprise me.' We walk a fine line between knowing what we want to happen at our own funeral and forcing some hard decisions on our family. Conditions change, situations become altered and suddenly the family cannot fulfill all of the requests we have made. Many a family lives with long-term guilt over failing a loved one in this area.
The answer to this is to make general plans. Have a family meeting so everyone has a voice in the plans and understands what is to happen, and then make clear that it will be all right if changes have to be made.
I cannot emphasize this enough that family unity is priority number one. The only way to avoid misunderstanding is to have an understanding. A family discussion is in order."

- Doug Manning

Excerpted from Building Memories: Planning a Meaningful Funeral
With permission from Insight Books, Inc. © 2002 |
www.insightbooks.com

Preneed Explanation and Regulation

This sheet is designed to explain the need, operation, and regulation of preneed funeral funding. Please read it and have a good understanding of what occurs, please ask the funeral director any questions you aren't clear on when dealing with preneed funeral funding.

If you are receiving this by mail, it is important to understand that preneed discussions and contracts have to be made with a licensed North Carolina Funeral Director - to assure you have access to the licensed personnel - always, always make an appointment. Weekend and night appointments are fine, we just need to know WHEN a family is coming, there are many quiet days that this works well, and there are many busy days when we don't have time to commit to working on preneed. So, PLEASE don't just go to the funeral home unannounced to have this conversation.

The purpose of prearranging and prepaying for a service is to gain interest in a funding source to offset the rise in cost of a funeral service or cremation. The purpose is not to shelter money and get a refund back. Some preneeds with good growth do show a refund necessary, but in most cases those funds will be routed back through the Clerk of Court to determine what happens with the funds.

There are two types of contracts - Standard and Inflation Proof - have a clear understanding of what each accomplishes and which might suit your needs best. The only way an Inflation Proof contract can be purchased is if the exact full amount of the funeral cost is being paid - and paid to our preneed insurance provider. The Funeral Director is not going to recommend to you which you should purchase. Funeral costs do rise each year. The funeral home, casket companies, vault companies, outside cash advance contractors, and sales tax, often change and increase at certain points, often at the end or beginning of, a year.

If a family brings in an outside insurance policy for beneficiary assignment to the funeral home as a preneed - we have no way of making this an Inflation Proof preneed. We cannot be held responsible for policies purchased outside the realm of our business. Many of those insurance policies do not have growth - for instance a $5000 policy bought in 2005 may be still be worth $5000 in 2028. Very often we catch negative comments because of a policy sold outside of the funeral home that we had no involvement in selling or endorsing. We deal with a tremendous amount of insurance companies each year on funeral bills, and the amount of companies that consistently do a good job of handling the claim in a quick professional manner, is about 5 companies.

Here are some important explanations on preneed:

1. REGULATION: In North Carolina, the North Carolina State Board of Funeral Service(1-800-862-0636) oversees and regulates preneed and preneed contracts. Each preneed has a $20 filing fee, this fee is for the State Board to oversee the contract for the lifetime of the contract to make sure the consumer is protected. Each year, the funeral home is required to file a yearly report showing interest. The State Board also has access to the funeral home's open files and performed files. If any consumer has a concern that there is something wrong with the contract, or thinks there is malfeasance, the consumer should call the toll free number. The $20 filing fee has to be in a separate check to the State Board, so that at least 2 checks exist, one for the filing fee and one funding(usually insurance company, sometimes the bank) provider for the preneed. The state wants a paper trail of checks placed in the person's file - so for that reason, we do not accept cash on preneeds. This paper trail exists to protect so that everyone has a clear record of payment. The contract the family will sign for a preneed indicates that within 30 days, they will get mail confirmation from the NC Board of Funeral Service that they have the contract on file. The contract that is signed will have a place for the person signing the contract to initial that they know that within 30 days they will get that mail confirmation from the Board, and if they do not receive that confirmation within 30 days - they should call the toll free number and tell them. So if you do not receive confirmation within 30 days - call them - it makes the funeral home look good that we are concerned about consumer protection and making families aware and clearly explaining the regulation that protects them. Look for this section on the contract:

2. REVOCABLE AND IRREVOCABLE CONTRACTS: You can make a contract Revocable - meaning that if a family wants to revoke a contract and get the funds back later they can. They can make it Irrevocable - meaning that the funds have to stay in the account until death. Many families come to us for a preneed as a means of doing a "spend down" to qualify for public assistance/Medicare issues. Those families will want to the do the Irrevocable so it does not count as an asset.

3. WHERE ARE THE FUNDS PUT?: When you do a preneed, the check is made out to the funding agency, not the funeral home. In most cases, we use an insurance based preneed funding company to hold the funds - and they provide growth to the policy. In rare cases, a bank is used as the funding vehicle - however low interest rates in the last decade have made this a less picked option. Every now and then someone asks, "Is there any hurry in my doing a preneed, I can wait until next year, right?", while not a "hurry", if someone is trying to accomplish getting some growth on a preneed, then the sooner the better - for age purposes. Insurance companies are basing growth on two things: the amount of the deposit and the age of the individual doing the preneed. We will give you an example: a 57 year old man depositing $7645.68 on a preneed as of this writing would garner growth after the origination of the policy of around $1300, to bring the preneed to $8600 range - and would increase in value on the anniversary of the policy each year - the first year "bump up" of value is the big increase. Let's take a 77 year old man depositing $7645.68 and the growth is around $220 after the origination of the policy to give a death benefit of around $7880.00. So... there can be advantages to doing it young.

What's in it for the funeral home? The main benefit to the funeral home in the case of a preneed funded with our insurance company is that it provides us with almost immediate payment for our charges. It seems to relieve the family of some worry at the time of death the finances have been planned for, and sometimes it is beneficial for the funeral home to know what choices were made so we can order any merchandise needed but not in stock. In most of the insurance related preneed products we offer - the funeral homes receives a commission for the sale of the preneed policy.

Families who buy outside insurance policies need to fully understand the policy information - if there is a contestable(usually 2 years) or graded benefit period following purchase - then the possibility exists that the insurance death benefit will not pay the full amount. Also, consumers who purchase monthly, quarterly, or annual pay insurance policies and fail to pay the premiums, must know that the policy could lapse and not pay the full death benefit. Funeral homes when using bank preneeds cannot use the funds before death, or borrow on the funds in any way.

4. TYPES OF CONTRACTS, STANDARD AND INFLATION PROOF: If someone is either setting aside funds without selecting merchandise and services, or they are deposit an amount other than the exact cost(higher or lower) of the service they have selected, the consumer will have to do a Standard contract. A Standard contract basically means the consumer will be responsible for any cost on the services and merchandise that is above the value of the preneed at the time of death. However, if there is more money in the preneed at the time of death than cost of services and merchandise - then those funds can be used to pay other funeral related charges not originally on the bill, or the family can choose a refund, however as mentioned earlier - in most cases that money has to be routed back to the Clerk of Court. Right now about 85% of our contracts are Standard preneed contracts. An Inflation Proof contract requires the consumer to choose services and merchandise - get an exact figure - and that amount is what is paid. Now the state law regulating preneed will not let the funeral home guarantee the cost on CASH ADVANCES... cash advances or outside charges are not technically funeral home charges - but items traditionally the funeral has paid for on a bill. In our case, we usually try to limit cash advances to three items: Grave opening and closing (in church or family cemetery, NOT memorial parks), death certificates, and sales tax. The state uses a formula to decide what percentage of the preneed was cash advances at the time of the contract, and what percentage of the cost is cash advances at the time of death - and depending on the figure - could cause either the funeral home or the family to have some additional cost. By law, we cannot guarantee cost on cash advances. The funeral home is basically agreeing to provide the merchandise and services selected (if there are no changes) at the cost paid at the time of the preneed contract. I hear people occasionally call this "freezing" the price. That term is really not correct, the price doesn't freeze - the price climbs each year and the preneed gets added growth each year on the anniversary date of the contract - however, the funeral home is so confident of the preneed growth product - that is agreeing to take the balance of the death benefit and provide those services. There is a difference though in the contracts for any extra funds in the account - the way law is written, the funeral home gets to keep the full amount of the preneed funds at the time of death on an Inflation Proof because it took the risk on the contract. To put it into context, if you had a Standard contract that costs were $7200 at the time of the contract, and upon death, there was $7800 in the preneed insurance - but the the cost of the funeral had risen to $7600... then the family would have $200 to spend on other cash advances(minister honorarium, flowers, paid obituaries, etc,) that could be written as part of the bill at the time of death. Whereas, with an Inflation Proof, using the same figures, the family would not be issued a refund or have additional funds. Each family that comes in is trying to accomplish different things, so we try to stay away from suggesting which way they go. This seems to be the most difficult part of preneed law and preneed decisions that people don't understand. Don't be afraid to get this explained several times before it sinks in.

5. HOW WILL WE KNOW WHAT THE PRICES ARE YEARS LATER: Each funeral home is required to give the family a copy of their General Price List, and have available their Outer Container Price List and Casket Price List. These are given to the family at the time of the preneed contract arrangements, and at the arrangements at the time of death. Funeral homes do not warehouse caskets for future use - at the time of the contract, clear information concerning the choice of a casket and outer container is listed on the Statement of Funeral Goods(unless the family set funds aside without choosing any merchandise). It is not uncommon for caskets that have been produced for years to suddenly stop production - or changes so vital it doesn't look much like it did when it was picked. The law is going to require on an Inflation Proof contract that we substitute with a like item - and in all cases - that is likely going to require the responsible family members to give their blessing on the change and they are comfortable with the replacement. It is a good time to mention the Federal Trade Commission requires a funeral home to have certain words, and charges, on their General Price List. It can look nitpicky, and families can tend to think the funeral home is being nitpicky with individual charges, but by law we have to abide by the Federal Trade Commission rule. Itemization of charges in itself is a good concept, that a family is only paying for what they choose - but the end result on paper can still look a bit odd - but we are just complying with the rule.

6. SLOW DOWN AND UNDERSTAND THIS PROCESS: In most cases, you can take your time and do your best to understand all of the preneed information you are given. As we all know, if someone is pressuring you to hurry and sign, it is not a good deal. There are times when a family is in a hurry because of pending public assistance. Do keep in mind that end of the year appointments also are rolling around in the time prices are sometimes increasing with casket vendors, cash advance items, outer containers, and yes, the funeral home too. So a quoted price in late November, may be up some in January. Once a General Price List is dated and used, we have to abide by those prices on any funeral statements or preneeds.

7. TAKE TIME AND READ THE CONTRACT YOU ARE SIGNING: The responsible family member will sign the preneed contract, which has additional information regarding the contract on the back of the contract. You will have to indicate whether the contract will be Revocable or Irrevocable, that you understand you will be contacted by mail within 30 days, and an area that says you signed the contract at the place of business - that we didn't come out to your house and worry you - we might have worried you - but in most cases we didn't come out to the house.

8. SHOULD WE DO THIS? Each family will have to make that determination on their own, but do allow us to tell you what happens several times each year. A child, or children of an elderly person is surprised to find out their parent did not plan financially on the cost of services for themselves. Bank accounts can get frozen in some cases so access to funds for payment are stopped. We see the frustration of the family member because amidst their grief, they are saddled with trying to figure out how they will pay for what will happen. Each year, some local wags get delight in telling us, "I don't care what they do with me, they can throw me in a ditch...", well, that may sound good to the one proudly telling us, but the ditch isn't an option for disposition. So while not everyone needs a preneed, it can be helpful in many situations.

9. THIS IS AN AGREEMENT OF TRUST AND SHOULD BE TREATED AS SUCH: There are some great laws in North Carolina to protect the consumer in doing a preneed contract. However, it is our firm belief here, that you should not sign anything for a preneed, or write checks concerning a preneed unless you have complete confidence this being handled in a manner that will ultimately help the consumer on the preneed contract. We are honored you asked for this form or asked about preneed, but only proceed if you think this process has been adequately explained and you are protected. Taking a check to a funeral home for future services is a tremendous act of confidence and trust - it should only be done when you have complete confidence in the firm and the process.

10. THESE ITEMS WILL BE WITH YOUR PRENEED INFORMATION AFTER YOU CREATE A CONTRACT:

  • Copy of Standard or Inflation Proof Contract
  • Statement of Funeral Goods and Services
  • Copies of Check, both NCBFS filing fee check, and check or checks to preneed funding vehicle.
    (After the contract is signed, you will receive follow up mail weeks later with the policy number that was created to be assigned to that contract.)

11. PRENEED IS REGULATED BY: The North Carolina Board of Funeral Service, 1033 Wade Avenue, Suite 108, Raleigh, NC 27605. 1-800-862-0636


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