What Is a Preneed Funeral Contract?
A preneed funeral contract, also known as a prepaid funeral contract or prearrangement funeral service contract, refers to a contract that is entered into before the funeral services are needed. It requires a funeral director to obligate a funeral home to provide specified funeral services and/or merchandise in the future upon the death of the contract beneficiary.
Typically, this contract is entered into between the individual and the funeral director. Through this agreement, the individual pays in advance for the funeral service and goods he/she will receive upon their death. The funding is normally done through a trust, annuity, or insurance policy. Funeral trusts and preneed funeral insurance are the most popular methods of funding preneed funeral agreements.
Even though preneed agreements differ depending on the funeral home, the individual gets to decide the services he/she wants, and they can select the casket and style of funeral service. The payment can be made on a monthly installment basis or lump sum. At the time of the beneficiary’s death, considering that the package was completely paid for, the family of the deceased will not have to worry about not only making funeral service arrangements but also paying for them. The prepaid funeral agreement may be revocable or irrevocable.
Who Enters the Preneed Funeral Contract?
This contract is entered into between an individual and a seller(funeral home provider). The individual who enters into the contract may or may not be the beneficiary. The funeral director refers to an individual who has a valid funeral director license.
Purpose of the Preneed Funeral Contract
The purpose of a pre-need funeral contract is to make prepaid pre-arrangements for funeral service upon the death of the contract’s beneficiary. In this contract, the funeral home provides a guarantee to the individual that the cost of funeral services and equipment to be provided in the future upon the death of the beneficiary shall not be in excess of the amount paid on the agreement, plus any accrued charges thereon.
In a preneed funeral agreement, the individual enters into a legal contract to fund the funeral arrangements ahead of time or long before death has occurred. They commit to a specific funeral provider and make payments to a third party over a set time period. The individual can plan their funeral ahead of time. The family of the deceased will not have to worry about the finances as the trustee or insurance company will manage the funds and use them to make payments to the selected provider at the time of the funeral.
Contents of the Preneed Funeral Contract
The following information must be contained in a contract for preneed funeral services:
- Name and address of the funeral home or cemetery.
- Name and address of the contract buyer.
- Name and address of the contract beneficiary.
- Details of the financial institution involved.
- Funeral goods and services to be provided upon the death of the beneficiary.
- The total cost of the funeral goods and services.
- Interest and fees
- Payment of taxes by purchaser or trust.
- A guaranteed price agreement.
- Funding method.
- Name and address of trustee or insurance company.
- Deposit payment details, whether partially or fully funded.
- Initial right of cancellation.
- The clause concerning transfer to another funeral home.
- Termination clause
- Other terms
- Signatures of the purchaser and funeral home.
- Date of signing of the contract.
How to Draft a Preneed Funeral Contract?
While drafting a preneed funeral agreement, there are a few things you should put into consideration.
- Go through all desired contract options.
- The funeral home needs to furnish a comprehensive and detailed list of options and costs.
- Determine that the parties involved can legally participate in the contract.
- A confidentiality clause may be added to protect sensitive information.
- You should consider adding a termination of the contract clause.
- Ensure that the agreement is made within the bounds of the applicable state laws.
- Signatories- An unsigned or partially signed contract will not be effective.
Before signing the contract, either or both parties may need to negotiate. The buyer can negotiate the cost and payment terms, and the funeral home can negotiate the effect of missed or delayed payments. The services and merchandise that the provider proposes to provide need to be identified. Also, the parties should lay out the payment terms. When both parties are satisfied with the clauses laid down in the contract, they can sign the contract.
Benefits & Drawbacks of Preneed Funeral Contract
Benefits:
- Preneed funeral contracts are beneficial because they provide peace of mind to the individual as they know that their funeral arrangements have been made in advance.
- The grieving family is spared the stress of dealing with the funeral arrangements and costs.
- The beneficiary can choose the kind of service and merchandise he/she wants.
- Depending on the agreement, the individual can transfer another funeral home.
- The cost of guaranteed services shall always be covered by the funeral home.
Drawbacks:
- Upon signing a preneed contract, you may have to set aside a part of your asset dedicated to honoring the agreement. Hence, you forfeit control over those assets as you cannot access them even in emergency situations.
- The service provider may no longer be operational when they are expected to carry out their end of the tasks. To minimize the chances of this happening, include a clause in the original contract wherein the contract can be transferred to another provider.
- According to the preneed contract, the items are expected to be delivered or stored well in advance. In such a case, large goods like caskets may attract storage or warehousing costs and are also susceptible to deterioration over time.
- A preneed contract may impose flexibility limitations as you change your future funerary requirements.
What Happens in Case of Violation?
A preneed recovery fund(1) may be established by the state. The purpose of this fund is to compensate or reimburse the buyer of the contract who has suffered a financial loss as a result of fraud or breach of the agreement. The contract buyer can sue the funeral home for breach of trust and violation of the law governing preneed funeral contracts.
When entering into a preneed funeral contract, both parties need to make sure that the contract terms and conditions are fair and reasonable. The contract should include essential clauses for revocability, terms of termination, amendment, initial right of cancellation, and transfer to another funeral home. Consequences of breach of contract should also be mentioned.