Final Committal Texas problems With Pre-Paid Funeral Services A report prepared by Consumers Union SWRO October 2000 available in pdf format

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Other State Programs Other states have passed reforms to their funeral service laws to curb some of the worst abuses in the preneed and at-need markets and ensure efficient regulation. California brought the regulation of at-need and preneed funeral and burial services under one roof--at the Department of Consumer Affairs. The California Cemetery and Funeral Bureau licenses and regulates both the funeral and cemetery industries, and investigates complaints related to funeral homes, crematories, and cemeteries. California did not incorporate the regulation of insurance polices or monument companies into its single-state-agency approach. On the other hand, California did come up with a sound way to ensure a fair refund of preneed money when consumers cancel. All of a consumer’s payment must be placed in the trust, but funeral providers may take from the interest an amount equal to 10 percent of the amount paid in as a revocation fee. Georgia recently passed a new statute to require funeral homes, cemeteries and casket stores to meet the same registration and licensing requirements, a major step in the direction of a unified regulatory apparatus. In particular, the legislation equalized the refunds consumers can expect if they cancel a preneed agreement for a funeral service, monument, vault or other item. Now all money from items purchased on a preneed basis, including caskets, monuments and vaults, is 100 percent refundable until the time of death. (48) According to a 1997 survey by the International Cemetery and Funeral Association, at least 17 states require funeral homes to place 100% of consumer funds in trust. Ten of these states extend this protection to preneed cemetery services. (49) 21 states require funeral homes to refund the amount placed in trust plus interest upon request of the consumer at any time.(50) At least 13 states prohibit finance charges on preneed contracts.(51) Twenty two states do not specifically authorize the use of insurance policies to fund preneed contracts, although only a handful actually prohibit these policies altogether.(52) Washington state law ensures that a consumer who cancels a preneed contract will get a reasonable refund equal to 90% of the cash price of the contract plus interest. (53) The Washington State Department of Insurance defined as an unfair practice the sale of any life insurance where the premiums exceed the benefits. Under Washington insurance regulations, life insurance benefits must equal at least the amount of premiums paid plus 5% interest compounded annually. (54) Indiana requires funeral directors and cemeteries to trust 100% of the preneed money paid in by consumers, and any excess interest in the trust that exceeds the cost of the funeral (at the time of its delivery) must be refunded to the consumer’s estate. (55) New York preneed laws apply to funeral directors, cemeteries and monument companies (for pre-payment of any services “wherein the merchandise is not to be delivered or the personal services are not to be rendered until the occurrence of death”) and ensure that 100% of the money collected plus interest earned remains the property of the consumer. Consumers who purchase preneed contracts receive an annual statement of principal and interest, and at any time can withdraw the full amount in the account without penalty. (56) According to the New York Funeral Director’s Association (NSFDA), the Association’s own trust account—invested in jumbo CDs and earning a conservative 5.3% interest—is more than enough to cover funeral cost inflation and families often get money back after the funeral is over. (57) New York also prohibits the sale of small whole life insurance polices to back preneed contracts, and the state Funeral Director’s Association supports this prohibition in an ongoing battle with the insurance industry. “The yield on cancelled policies is very low,” the organization says. “Oftentimes there is nothing. If the consumer stops paying they lose all benefits. Often there is no underwriting. Consumers living a long time will actually pay more for the policy than the death benefit represents.” The NSFDA also endorses New York’s existing prohibition on funeral directors accepting commissions from insurance companies or any other vender of preneed products. (58) Like many other states, Maine also requires funeral homes and cemeteries to trust 100% of a consumer’s payments. New consumer protections passed last year ensure that the funeral home may withdraw only the reasonable expenses incurred for actual administration of the trust account. (59) Maine has also prohibited funeral homes from soliciting preneed business altogether. (60) High profile complaints from consumers all over the country recently spurred Congressional hearings on problems in the preneed market, and the Federal Trade Commission has recently taken testimony on its rules related to funeral services in general. But, reform of the funeral business is primarily a state issue, and Texas must fix its problems at home. Consumers Union supports the following Texas reforms. Legislative Recommendations Consolidate funeral regulation into a single, consumer oriented agency. Assure regulation of all funeral services, including preneed and at-need monument sales. Provide complete information regarding complaints, inspections, prices easily accessible to consumers investigating a company before they invest funds. Collect funeral service and cemetery price lists and publish (brochures and electronically) a regularly updated consumer price guide. Study the use of the non-declinable charge to determine which services currently included could be itemized and then declined by consumers who wish to handle more of the funeral arrangements themselves. Investigate capping the non-declinable charge at a flat, affordable rate. Require prompt review of consumer complaints and appropriate action. Retain readily available records of consumer complaints for at least two years. Do not destroy complaint records for at least five years. Provide consumers and the public with statistics about complaints against funeral and preneed insurance companies, including the type of problems identified by consumers. Protect consumers from overly aggressive home sales by: enacting a mandatory waiting period between a sales home visit and payment for apreneed contract; and creating a 30 day “free look” period during which a consumer can change his or her mind and get a full refund of all payments made as long as no merchandise or services have been delivered. Reform the preneed market to ensure consumer value for the money invested and contract portability. Simplify and standardize preneed contracts to ensure that consumers clearly understand what is not covered. Require preneed contracts to be printed in at least 10 point type. Require this standard contract to provide for reasonable consumer modification of funeral services at need without penalty. Eliminate the 10 percent “retention” that funeral homes may keep from the payments consumers make into the trust and substitute a reasonable administrative fee to be paid out of the interest earnings. Consumers who cancel a trust funded preneed contract should receive a full refund of all payments plus interest, less a nominal administrative fee, since no services have been provided. Require an annual disclosure to consumers the amount of principal and interest and the annualized rate of earnings for any trust backed preneed contract. Require all trust funded preneed contracts to be fully transferable, including both principal and interest earned over time. Require the full value of an insurance backed preneed contract including additional insurance purchased through dividends or other policy “growth” due to indexed or other increase—to be transferable to any funeral home selected by the family. Stop the practice of charging interest for products and services to be delivered at an indeterminate time in the future altogether. Repeal provisions authorizing the use of retail installment contracts for preneed funeral goods and services. All funeral services purchased by a consumer at one time from a single entity should be incorporated into a single preneed contract. Prohibit preneed contracts backed by insurance policies where premium payments exceed the face amount of the policy. The face amount should equal a minimum of the total premium payments plus 5% interest. Require the insurance company to report at the time of death the amount of benefits paid to the funeral home under the policy, and require any benefits in excess of the cost of the funeral at time of death to be payable to the family or designated beneficiary, not the funeral home. Require refunds under insurance backed preneed, contracts to be, at a minimum, equivalent to refunds available through trust backed preneed contracts when a consumer cancels. ______ Notes: 48 California Department of Consumer Affairs, Cemetery and Funeral Bureau, home page, downloaded 8/25/00. California Business and Professions Code, Sec. 7735. “Final Passage of New Cemetery and Funeral Law is Good News for Georgia Consumers,” Office of Cathy Cox, Secretery of State, March 23, 2000. 49 International Cemetery and Funeral Association, ICFA Survey of Cemetery and Funeral Home Statutes and Regulations, Merchandise and Service Trust, Printed 8/26/97, Updated 12/31/98. 50 Eskin, Sandra and Sharon Hermanson, “Preneed Funeral and Burial Agreements: A Summary of State Statutes,” AARP Public Policy Institute, December 1999. Also ICFA Survey. 51 ICFA Survey. 52 AARP Survey. 53 Washington Statutes, RCW 18.39.250 (2), (5) and (7). 54 Washington Insurance Regulations, WAC 284-23-550. This regulation applies generally to life insurance policies with a benefit amount less than $25,000. 55 ICFA Survey and Indiana Code 30-2-10-5(6). 56 New York Consolidated Laws, General Business, Art. 28-A, Sec. 453(1)(a) and (2). The full refund is not available to those who select irrevocable trusts in order to qualify for Medicaid. 57 Phone interview with Bonnie Tippy, New York State Funeral Directors Association, July 17, 2000. 58 New York State Funeral Directors Association, “Insurance as a vehicle for prefunding funerals: Position of the New York State Funeral Directors Association,” May 1997. 59 ME Chapter 21 Subchapter I, 32 Sec. 1401. 60 ME Chapter 21 Subchapter I, 32 Sec. 1402.

 

 

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