What is a prepaid funeral contract?

A prepaid or preneed funeral contract is a legal agreement between a buyer and a seller that "funeral goods and services" bought and paid for before death will be delivered at the time of death. The person for whom the funeral services are to be provided is the beneficiary.

What "goods and services" may be included in prepaid contracts?

Funeral goods are merchandise items such as urns, caskets and burial clothing. Funeral services are the functions associated with burial or cremation, which may include such activities as collection, preparation and viewing of the body and the use of a hearse. Goods and services may be included in prepaid contracts in any mix the buyer wants and should be itemized and described in detail in the written prepaid contract. Cemetery plots may not, however, be included and must be purchased in separate transactions.

Who can sell these contracts?

Anyone registered with this department may sell prepaid contracts. To make sure that the seller is registered consumers should ask for the seller's registration number, or check the department's license database. In addition to the money paid for the goods and services, sellers may charge a commission of up to 10% of the contract price. Although the commission is not refundable, it is a factor in determining how much will be refunded if the contract is canceled.

Who can provide the goods and services?

Persons selling prepaid contracts do not have to be the same persons who are responsible for actually delivering the goods and services ordered in the contracts. In these instances, the persons who are to actually supply what has been ordered, the providers, must be identified by name in the written contract. If a license is required to provide a particular service the provider named in the contract must be licensed to perform it.

What is done with the purchase money?

All money received as payment for prepaid funeral contracts, except for the commission, must be deposited in a bank, credit union or other insured financial institution or, if the buyer agrees and signs a separate paragraph in the prepaid contract, with a cemetery or mortician's association of 250 or more members. This process is called escrowing. The institutions with which the escrowed funds are deposited, the escrow agents, are the only parties who may invest or disburse the escrowed money. Buyers must be provided the name and address of the escrow agent handling their account and notified of any change in their escrow agent.

Are there different kinds of prepaid contracts?

Prepaid contracts must be one of two types: a guaranteed price contract or a nonguaranteed price contract. The type of contract being sold must be indicated, in writing, on the contract itself.

A guaranteed price contract allows the buyer to choose the exact goods and services desired and pay for them at purchase. The goods and services contracted for must be delivered as ordered at the time of death, regardless of whether prices have increased in the meantime.

If the goods and services are no longer available, goods of a comparable quality must be substituted. Because of the risk providers take in contracting for goods and services which may cost more at delivery than when the contract is signed, any money left in the escrow account, after the goods and services have been paid for and delivered, goes to the provider.

A nonguaranteed price contract allows the buyer to choose the goods and services desired and pay an amount toward their purchase.

If, at death, the escrowed purchase money, plus any income it has earned, is equal to or more than the cost of the goods and services, they may be supplied as ordered. If the escrowed amount is, however, less than what the goods and services cost, the quantity and/or quality of goods and services will be reduced until the available amount is sufficient or the additional money is provided by the family or other source.

Can prepaid contracts be canceled?

Prepaid contracts may be canceled as follows:

Before Death of the Beneficiary: To cancel, the buyer must submit a written 30 day notice to the seller of a nonguaranteed price contract or the provider of a guaranteed price contract.

After Death of the Beneficiary: Prepaid contracts may be canceled upon notice to the seller of a nonguaranteed price contract or the provider of a guaranteed price contract by the person who bought the contract, the deceased's heir, or the person legally entitled to make arrangements.

Contract sellers or providers may cancel prepaid funeral contracts only if a contract being paid for in installments is ninety days or more in default or the contract buyer has violated the terms of the prepaid agreement.

How are refunds computed?

If the contract is canceled within ten (10) business days after it is purchased, 100% of the amount paid, not including the commission, is refunded. Refunds for cancellation made more than ten (10) days after purchase are computed as follows:

• If a commission of more than 5% of the contract price was paid, all money in the escrow account is refunded.
• If 5% or less of the contract price was paid in commission, at least 95% of the escrowed amount is refunded.
• If no commission was charged, at least 90% of the amount in the escrow account is refunded.

What happens if a provider goes out of business?

If the provider named in the prepaid contract goes out of business before the contract is performed, another provider may be substituted if the buyer agrees or the contract may be canceled with refunds computed as previously outlined.

Can the beneficiary be changed?

Buyers may change the beneficiary of a prepaid funeral contract from the person originally named as beneficiary to another person by notifying the seller.

What happens if the beneficiary moves?

If the beneficiary of a prepaid funeral contract moves a distance too far to be served by the provider(s) listed in a prepaid contract, the contract may be canceled.

How does the act regulate the sale of prepaid contracts?

In addition to registration, the Prepaid Funeral Contract Funding Act also requires that persons selling the contracts or providing the goods and services keep extensive records of all their transactions. These records are required to be available for examination by the department at any time. Providers and sellers must also have their prepaid records reviewed every three years by a certified public accountant who must submit a written report to the department. Sellers and providers must also notify the department of any change in escrow agents.

Buyers may also monitor their own prepaid funeral account by checking the annual statement they receive. The statement must indicate the balance of the account, the amount of interest earned during the year, any fees which were deducted, and the name and address of the person to contact for additional information.

Violation of these and any other of the Act's requirements may result in criminal penalties, including imprisonment, and administrative penalties, which may include loss of registration.

What should consumers do if there is a problem with prepaid contracts?

Consumers with disputes with a seller or provider should make every effort to resolve the difficulty by working directly with the provider or seller involved. If these efforts are not successful, consumers may file a complaint with this department. If the dispute is based on whether or not a party has met its obligations as set forth in the contract, the escrow agent may be asked to submit the dispute to arbitration or to file a legal action.

Prepaid Funerals and State Assistance and Eligibility

If you receive state or federal assistance in any of the following programs - Medicaid, State Disability Assistance (SDA), Family Independence Program (FIP), or Supplemental Security Income (SSI) - a prepaid funeral contract will not be considered an asset and will not jeopardize your eligibility for assistance IF:

• it is with a state licensed funeral provider;
• you did not pay more than $2000 for it;
• you paid for the contract with your own money;
• it is a guaranteed price contract;
• it is certified as "irrevocable" by the MI Family Independence Agency (FIA).

FIA offices have certification forms available. Please call your local FIA caseworker for additional information.