Preneed FAQ's
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| FAQ Main Page |
General Questions
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| Q. Who must obtain a certificate of authority? |
| A. The Alabama Preneed Funeral and Cemetery Act
(the "Act") defines the term "person" as any individual, firm, corporation,
partnership, joint venture, limited liability company, association, trustee,
government, governmental subdivision, governmental agency, or other entity or
any combination thereof. All "persons" selling funeral or cemetery merchandise
or services pursuant to preneed contracts must have a current valid certificate
of authority. A cemetery authority owned or operated by a governmental agency
or religious institution does not need a certificate of authority -
§27-17A-10(d). |
| Q. Does this include the preneed sale of burial
rights? |
| A. Yes. The preneed sale of burial rights is
subject to the Act. |
| Q. Does a cemetery authority selling burial
rights need a certificate of authority even if the contract is paid in full at
the time of purchase? |
| A. Yes, if the contract is sold preneed. |
| Q. Do sellers of memorials need a certificate of
authority if the memorial is delivered to the purchaser? |
| A. Yes, if the contract is sold preneed. |
| Q. Who is eligible to obtain a certificate of
authority? |
| A. Only a licensed funeral director, licensed
funeral establishment, cemetery authority or third party seller may obtain a
certificate of authority. Only licensed funeral directors or licensed funeral
establishments can sell funeral services preneed. Licensed funeral directors,
licensed funeral authorities, cemetery authorities, and third party sellers can
sell funeral merchandise and cemetery merchandise preneed. |
| Q. Does each licensed funeral director, licensed
funeral establishment, cemetery authority, or third party seller owned by the
same corporation, partnership or sole proprietor need a separate certificate of
authority? |
| A. Not in all cases. The Act provides that where
a person selling preneed funeral or cemetery merchandise or services is part of
a "common business enterprise" and wishes to operate using a different name
than that used by the certificate holder, then, if the requirements set forth
in the Act are met, that person can be authorized to sell preneed as a "branch
registrant". The Act requires that the branch registrant meet all requirements
of a certificate holder EXCEPT that the branch registrant need not demonstrate
that, standing alone, it can pay its liabilities as they become due during the
ordinary course of business and also need not show that it has sufficient funds
available during the calendar year to perform its obligations under outstanding
preneed contracts. |
| Q. The financial information that must be sent
with the application must be current as of what date? |
| A. Financial information must be current as of
the end of the last fiscal year, if the fiscal year is other than a calendar
year. Otherwise, the financial information must be current as of the end of the
prior calendar year for which application is being made. In other words, if
application is being made for calendar year 2007, the financial information
must be current as of December 31, 2006. |
| Q. Must the financial information filed with the
application for the certificate of authority be filed on the forms provided by
the Insurance Department? |
| A. The financial information may be filed on
those forms provided by the Insurance Department or on forms that are
essentially the same and provide essentially the same information as the forms
provided by the Insurance Department. The financial information must be on a
GAAP basis and must include footnotes and a cash flow statement, in addition to
a balance sheet and income statement. The required GAAP equity must comply with
Rule 482-3-001. |
| Q. Does the financial information required for
the certificate of authority need to be audited? |
| A. No. However, every effort should be made to
make sure that the financial information provided is a complete and accurate
record of the financial status of the proposed or current certificate holder. |
| Q. May the portion of the contract for preneed
cemetery merchandise and services dealing with the purchaser be changed to
provide for two individuals if two interment rights are being purchased? |
| A. Yes. The contract should show two purchasers
along with a social security number and address for each purchaser.
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| Q. Is the sale of a double memorial and two grave
spaces, such as would be sold to a husband and wife, considered preneed if the
sale occurs at the time of death of one of the individuals? |
| A. If a portion of the sale is preneed the
entire sale is considered preneed and subject to the Act. The sale of the
additional burial space is preneed, even if it is just the additional expense
of burying the first individual deeper so the second to die can be buried on
top. Also, if there is an agreement to deliver services in the future, for
example engraving the date of death of the second to die, that portion of the
contract is considered preneed. Funds received for the burial space,
merchandise, and services delivered at the time of death of the first to die
are not subject to the trusting requirements. However, funds received for
merchandise and services to be delivered in the future must be trusted
according to the requirements of the Act. |
| Q. Both the initial and renewal application for
certificate of authority and branch registration forms, as well as the
historical sketch of principals forms attached thereto, inquire as to whether
the applicant (or principal) have previously been the subject of a bankruptcy
proceeding. Does a "Yes" response to this question disqualify the applicant? |
| A. No; however, additional information must be
provided. If this previous bankruptcy proceeding was in no way associated with
the business of insurance or preneed funeral or cemetery business, you may
complete the affidavit below in lieu of filing a more detailed explanation.
Bankruptcy Affidavit - Word -
PDF
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Preneed Sales Agent Questions
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| Q. Do persons selling preneed contracts for
burial rights need to be registered as preneed sales agents? |
| A. Yes, and they must be affiliated with the
certificate holder they represent. |
| Q. When must a preneed sales agent registration
form be completed? |
| A. The "person" selling preneed will either be
an individual (i.e., a sole proprietorship) or some other type of entity.
Regardless of which is the case, each preneed certificate holder will be
granted one "free" preneed sales agent registration. Even though the preneed
certificate holder is entitled to one preneed sales agent registration without
paying the $25.00 registration fee, the preneed sales agent must be registered
in accordance with the Act, even if the preneed sales agent is the same person
as the certificate holder. |
| Q. If an entity satisfies the Act’s security
requirements by placing funds paid pursuant to a preneed contract in trust,
must the preneed sales agent be registered pursuant to the Act? |
| A. Yes. |
| Q. Can a preneed sales agent represent or sell
for different funeral directors, funeral establishments, cemetery authorities,
third party sellers, or their branch registrants at the same time? |
| A. Yes. However, the preneed sales agent must be
registered as a preneed sales agent with each certificate holder for whom he or
she sells preneed funeral or cemetery contracts. The preneed sales agent must
have written consent from each certificate holder that he or she represents. |
Trust Requirements
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| Q. Do sellers of memorials need to place in trust
the funds collected for memorials delivered to the purchaser? |
| A. If the memorial is delivered to the purchaser
there is no need to trust. See Section 27-17A-42(b). There is also no need to
trust if, instead of actual "delivery" to the purchaser, the memorial "is
placed in storage with a responsible third party bonded and insured for the
wholesale value thereof and evidenced by a receipt specifically identifying the
item, the specific preneed contract, the location of the item, and the identity
and address of the bonding and insuring parties." See Section 27-17A-44(b). |
| Q. Who can be a trustee? |
| A. The Act provides that any "person" can be the
trustee of a funeral or cemetery merchandise or services trust. Deposits must
be made into an Alabama bank or trust account. The trust itself does not need
to be domiciled in Alabama, but the trust must be governed by Alabama law.
Because of the important interests protected by the Act, trusts with corporate
trustees (i.e., banks, savings and loan associations, trust companies, or other
financial institutions) will be approved relatively quickly by the Commissioner
of Insurance (the "Commissioner"). Funeral or cemetery merchandise or services
trusts with individual trustees will be examined much more closely by the
Commissioner. The submission of funeral or cemetery merchandise or services
trust agreements with individual trustees will substantially delay approval of
such trust agreements by the Commissioner. With regard to endowment care
cemetery trust funds established by the Act, the trustee must either be a bank,
trust company, savings and loan association, other financial institution, or a
board of trustees at least three of whom reside within the State of Alabama and
are bonded to honestly perform the duties of trustee under a formal trust
agreement. The amount of bond on each trustee shall be a minimum of $25,000.00,
but in no event shall the bond on each trustee be less than the amount held in
the endowment care trust. |
| Q. If a certificate holder chooses to participate
in a trust created or sponsored by an association of which it is a member, does
that certificate holder need to submit a separate trust document? |
| A. No. The trustee of the association trust will
submit the association trust document on behalf of all the association’s
members. Approval will be given to the master trust agreement. Certificate
holders who choose to participate in such trusts must, however, submit to the
Commissioner an executed joinder agreement or a participation agreement bearing
the name of the sponsoring association. |
| Q. If an entity operates both a funeral
establishment and a cemetery authority, does it need only one certificate of
authority and one financial statement? |
| A. Yes. If the funeral establishment and
cemetery authority are part of the same legal entity and operating on the same
property, only one certificate of authority is required. Also, in that case,
only one trust will be required. If the funeral establishment has one location
and the cemetery is at another location, two separate trusts will be required -
one for funeral services and merchandise and one for cemetery services and
merchandise. If an alternative method of funding is chosen, two surety bonds or
two letters of credit will be required. The cemetery authority must also
establish an endowment care trust. |
Life Insurance as an alternative to the Trust Requirements
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| Q. If a preneed entity is using life insurance to
fund the preneed contracts, is a trust fund needed? |
| A. No trust is needed if life insurance is used
to fund the preneed contracts. |
| Q. Does a certificate holder or trust have an
insurable interest in the life of the preneed purchaser? |
| A. No, insurable interest is defined as an
interest based upon a reasonable expectation of pecuniary advantage through the
continued life, health, or bodily safety of another person and consequent loss
by reason of his or her death or disability or a substantial interest
engendered by love and affection in the case of individuals closely related by
blood or by law. Thus, a certificate holder or trust does not have an insurable
interest in the life of the preneed purchaser and neither a certificate holder
or a trust can purchase life insurance on the life of a preneed purchaser. |
| Q. If a person has an insurable interest in a
preneed purchaser, does the preneed purchaser need to give consent on the life
insurance application? |
| A. Yes, unless there is an exception to the
consent requirement. The only exceptions to the consent requirement are where a
power of attorney has been executed, there is a legal guardianship or the
person is a spouse of the preneed purchaser. A minor child does not need to
give consent if the parent of the minor child is purchasing life insurance on
the minor child. |
| Q. Can a preneed entity hold the life
insurance premiums? |
| A. No, checks for life insurance premiums must
be made payable to the insurance company, not the preneed entity. |
| Q. If a preneed entity uses only life
insurance to fund the preneed contracts, does the preneed sales agent need an
ordinary life insurance license to sell life insurance? |
| A. Yes. The preneed sales agent must be licensed
as an insurance producer [agent] to sell ordinary life insurance. The preneed
sales agent must also be registered as a preneed sales agent in accordance with
the Act. However, the assignment of an existing life insurance policy to fund a
preneed contract does not require an ordinary life insurance license. |
Surety Bond or Letter of Credit as Alternatives to the Trust Requirements
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| Q. If the entity plans to fund the preneed
contracts with a surety bond or a letter of credit, can the trust fund language
and life insurance language be removed from the first page of the preneed sales
contract and the terms "surety bond" or "letter of credit" be substituted?
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| A. Yes.
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Additional Cemetery Requirements
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| Q. Can a cemetery existing prior to the Act's
effective date cease doing business prior to the effective date and thus avoid
the requirements of an endowment care cemetery fund? |
| A. Yes. If the cemetery stopped charging fees
prior to May 1, 2002, the requirements to establish and maintain an endowment
care fund do not apply. Please note, however, that the requirements of Section
27-17A-48 to maintain a list of the names and addresses of the owners and also
to maintain a record of the property owners will still apply to any owner of a
cemetery. Thus, a cemetery authority cannot avoid these requirements by merely
ceasing to charge fees but would have to transfer ownership to another entity. |
| Q. Are all cemeteries endowment care
cemeteries under the Act? |
| A. No, there are three exceptions. Only those
cemeteries operated by governmental agencies, those cemeteries operated by
religious institutions or those cemeteries which do not charge fees are exempt
from the endowment care cemetery requirement to establish an endowment care
trust. |
