Many people plan their financial future: investing in a home, saving for a child’s education and purchasing insurance is all done in preparation for tomorrow. Pre-arranging a funeral may be viewed as another step in that process.
There are many reasons why a person may choose to consider pre-arranging a funeral. Primarily, it provides a sense of security. Security in knowing your wishes are known and will be followed; security in knowing that your loved ones will be relieved of making difficult decisions while grieving; and security in knowing that you can finance your funeral preferences in advance.
If you do choose to pre-arrange your funeral, it is important that you plan ahead. Remember these steps when you begin to pre-plan:
- Educate yourself about the available options.
- Discuss your wishes with your loved ones.
- Seek professional consultation.
- Select an appropriate funding option in consultation with your funeral professional.
Many people associate pre-planning with pre-funding. It is important to remember, however, that you may pre-plan your funeral without pre-funding it. Or, when pre-planning, you may choose to pre-fund partially or in full. Your licensed funeral director will explain all of the options available to you.
Although you are not required to pre-fund, many people choose the option of pre-funding while pre-planning. Why? For the same reasons they pre-plan: to relieve their loved ones of the emotional and financial stress of making difficult decisions while grieving.
To assure having sufficient funds at the time of need, funeral homes are required to either:
- Place at least 80% of the funds in trust within 15 days after the close of the month of receipt of funds
- File a surety bond with the Regulated Industries Unit of the Iowa Securities Bureau
- Fund the contract from insurance proceeds
- Deliver the funeral merchandise to the consumer, which includes appropriate storage in an approved location
Iowa Prepaid Funeral Trust
Funds must be deposited in a state or federally insured bank, savings and loan association, credit union, trust department thereof, or a trust company authorized to do business in the State of Iowa. These financial institutions are required to file an annual report of all pre-need trust funds to the Regulated Industries Unit of the Iowa Securities Bureau. The same rules apply to grave markers with the exception that, if funds are deposited at a financial institution, the required minimum is 125% of the wholesales cost of the cemetery merchandise.
Perpetual care cemeteries promise to provide eternal care and maintenance of the cemetery. To guarantee this, cemeteries are required to place at least 20% of the price of a burial space into the trust fund once full payment for the space has been received. The trust is administered under the jurisdiction of the district court of the county where the cemetery is located. Perpetual care cemeteries may have a separate perpetual care fund for markers.
If a funeral home or cemetery goes out of business and the obligations to provide the merchandise and services has not been assumed by another funeral home or cemetery holding an establishment permit, all funds held in trust, including accrued interest or earnings, shall be repaid to the purchaser under the agreement.
Public assistance laws change periodically, but they usually take into account that funeral expenses may be pre-paid. Your licensed funeral director will be able to guide you through options regarding Title XIX and other public assistance programs.
Pre-need arrangements may be funded through life insurance policies. The agent selling the insurance policy must hold an insurance license issued by the Iowa State Insurance Division. You may ask the agent to see his/her license before you make arrangements.
Contracts to be funded by a life insurance policy or annuity contract must disclose:
- That a life insurance policy is funding the agreement;
- The relationship between the soliciting agents, the provider of the funeral or cemetery merchandise or services, the administrator, and any other person;
- The relationship of the life insurance policy to the funding of the pre-arrangement and any guarantees relating to the pre-arrangement;
- The impact on the pre-arrangement of the following: changes in the life insurance policy, including:
- changes in the assignment, beneficiary designation, or use of proceeds;
- any penalties to be incurred by the policyholders as a result of the failure to make premium payments;
- and the penalties to be incurred or cash to be received as a result of the cancellation or surrender of the life insurance policy;
- A list of merchandise and services which are applied or contracted for in the pre-arrangement and all relevant information concerning the price of the funeral services, including an indication that the purchase price is either guaranteed at the time of purchase or to be determined at the time of need;
- All relevant information concerning what occurs and whether any entitlements or obligations arise if there is a difference between the proceeds of the life insurance policy and the amount actually needed to fund the agreement;
- Any penalties or restrictions, including geographic restrictions or the inability of the provider to perform on the delivery of merchandise, services, or the pre-arrangement guarantee;
- And, that a sales commission or other form of compensation is being paid and the identity of individuals or entities to whom it is paid. Many of these disclosures are required in advertising materials.
Most funeral homes in Iowa sell pre-need that will provide funeral services, funeral merchandise, and/or cemetery services or merchandise upon the death of the person named in the agreement. There are some things to consider when entering into an agreement.
In Iowa, every funeral home and cemetery selling pre-need funeral and cemetery contracts must be registered with the Regulated Industries Unit of the Iowa Securities Bureau. Each individual who sells pre-need contracts also must be issued a sales permit. You may ask to see a salesperson’s current permit. In addition to registering with the Bureau, funeral homes and cemeteries must files reports of sales annually with them.
At the time you make a pre-arrangement, you will receive a fully completed receipt or copy of an agreement as well as a Notice of Cancellation form. You may cancel the contract at any time prior to midnight of the third business day after the date of the transaction.
By Iowa law, there are specified disclosure requirements for pre-arranged agreements. For example, each agreement must state: Whether it is a guaranteed price agreement or a non-guaranteed price agreement;
Whether it is revocable or irrevocable, and identify who has the authority to revoke the agreement;
The amount or percentage of money to be placed in trust and explain the disposition of the interest and disclose what fees and expenses may be charged;
And indicate whether a cancellation fee will be charged.
Guaranteed and Non-Guaranteed Price Agreements
If you choose a guaranteed price agreement, the seller guarantees to provide the funeral services, merchandise, and/or cemetery merchandise identified for the amount paid on the agreement, plus interest. Except for cash advance items that the funeral establishment or cemetery pays to other individuals or businesses (grave opening and closing, copies of death certificates, organist, clergy, vocalist, flowers, etc.), there will be no additional costs for the specified services or merchandise. However, if there is an excess of funds after the services and merchandise are provided, the surplus belongs to the funeral home and/or cemetery.
In a non-guaranteed price agreement, the price of funeral services, merchandise, and/or cemetery merchandise is determined at the time they are provided. The amounts paid by the purchaser are treated as a deposit. If the amount paid under the agreement, plus interest, exceeds the total cost at the time of the funeral, the excess is refunded to the estate. If the amount paid under the agreement, including interest, is insufficient to pay for funeral services, merchandise, and/or cemetery merchandise, the purchaser’s estate, relative, or friend must pay any additional balance due.
Revocable and Irrevocable Agreements
In a revocable agreement, the purchaser may withdraw from the obligation at some time in the future. However, even in a revocable agreement, there are usually penalties for cancellation.
An irrevocable agreement is binding upon both parties to fulfill the terms of the agreement. Each party can be forced to abide by its terms. In case of default by the purchaser, the seller is under no obligation, unless otherwise stated in the agreement, to refund any money paid on the agreement. Only by mutual consent can the obligations under the agreement be changed.
Questions to Ask
- Below are some questions you may wish to ask your licensed funeral director before signing a pre-need contract:
- Are the services and merchandise specified?
- Is the cost of each service and merchandise item specified in your contract?
- Is the total purchase price and the terms under which it is to be paid stated?
- What are the conditions under which you may cancel the contract?
- Under what conditions, if any, may a substitution be made?
- Is the agreement revocable or irrevocable, and who has the authority to revoke the contract?
- Will any penalties accompany the cancellation of the contract?
- Is the contract a guaranteed or a non-guaranteed price contract?
- What amount or percentage of your money paid for the pre-need contract is to be placed in trust?
- What is the disposition of interest and what fees and expenses, if incurred, may be charged?
- Is the contract funded by a trust fund or insurance?
- What happens if the funeral home or cemetery sells or closes the business?
- Can you cancel or transfer your contract if you move out of state?
- Are you selecting a perpetual or a nonperpetual care cemetery?
- If the cemetery merchandise selected is warehoused, where is it warehoused?
- What happens if the death occurs outside the area normally served by the funeral home or cemetery?