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 and cemetery goods are merchandise items such as urns, caskets, burial clothing, burial vaults, grave memorials and catafalques.  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.  Cemetery services means cremations, grave openings and closings, and installation of grave memorials.  Goods and services may be included in prepaid contracts in any mix the buyer requests 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 a separate transaction.

Who can sell prepaid 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 (www.michigan.gov/licenselookup).  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 cancelled. 

Who can provide the goods and services?

Persons selling prepaid contracts do not have to be the same persons who are responsible for delivering the goods and services ordered in the contracts.  The persons who are to 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 provide it. 

What is done with the purchase money?

All money received as a 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 (escrow agents), are the only parities 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 within 30 days of the change. 

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 of contract.  The goods and services contracted for must be delivered as ordered at the time of death, regardless of whether prices have increased.  If the goods and services chosen are no longer available at the time of death, goods of a comparable quality must be substituted.  Due to the risk the 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 however, is 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 additional money is provided by the family or other source. 

Can prepaid contracts be cancelled?

Prepaid contacts may be cancelled as follows:

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

After Death of the Beneficiary:   The contract buyer or the contract buyer's estate may cancel the prepaid contract only where there are no remains of the deceased; where the remains of the deceased cannot be recovered; or where a prepaid contract was not utilized due to lack of knowledge by the person or persons entitled to make funeral arrangements of the existence of the prepaid contract. 

Contract Sellers or Providers:   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 cancelled within 10 business days after it is purchased, 100% of the amount paid, not including commission, is refunded.  Refunds for cancellation made more than 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 cancelled 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 contract moves a distance too far to be served by the provider(s) listed in a prepaid contract, the contract may be cancelled with a 30 day written notice. 

How does the act regulate the sale of prepaid contracts?

Registrants are required to have an annual attestation by a license Michigan Certified Professional Accountant. 

Contract buyers must 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 regarding their account. 

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 dispute by working directly with the provider or seller involved.  If these efforts are not successful, consumers may file a complaint with this department at www.michigan.gov/bcs, Consumer Services and Enforcement Division, Complaints.  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. 

Are insurance policies considered the same as prepaid funeral contracts? 

Insurance policies are not considered prepaid contracts, nor can insurance companies be used as escrow agents. 

The Office of Financial and Insurance Regulation (OFIR) is the State of Michigan agency responsible for regulating Michigan's financial industries including consumer finance, financial institutions, insurance and securities.  For more information you may visit their website at:  www.michigan.gov/ofir. 

Prepaid Funerals and State Assistance and Eligibility:

Please contact the Department of Human Services for additional information at www.michigan.gov/dhs.