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Model Guidelines for State Laws and Regulations

These guidelines are advisory in nature and set out general concepts rather than precise statutory language. The ICCFA is not recommending that the guidelines be codified into law as a whole. Instead, the guidelines are intended for consideration as a series of options to be selectively chosen by interested parties to address particular concerns.

Prepaid Contracts

      
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Developed by the Government and Legal Affairs Task Force of the
International Cemetery and Funeral Association

The nature of contracting for cemetery and funeral merchandise and services on a preneed basis is different from most other consumer transactions because it involves paying for something today which isn't expected to be received for some period of time--perhaps decades. Therefore, it is important to have safeguards to protect the consumer's interests.

The transaction is further complicated by the fact that it is designed to be completed only when one of the parties, the purchaser or a third party beneficiary, has died. Consequently, the relatives or close friends of the deceased are the ones who will actually know whether the transaction was completed as specified in the prepaid contract. This combination of factors creates the potential for misunderstanding about what the deceased wanted or expected. The risk of misunderstanding can be substantially reduced by the use of clearly-worded, detailed prepaid contracts between sellers and purchasers.

Since the proliferation of preneed sales is a fairly recent development, there has been little statutory guidance about what provisions should be specifically included in the prepaid contract. Certain guidelines should augment general contract disclosures to better inform consumers of the nature of the prepaid contract transaction.

PRINCIPLES

  1. Prepaid contracts should conform to all applicable state and federal statutes and regulations.
     
  2. Prepaid contracts should be written in plain English, and clearly state the merchandise and services that purchasers are buying and their prices. Use of legal or industry-specific jargon should be avoided, to the extent possible.
     
  3. Charges should be itemized. The itemization should be in greater detail than just a recitation of prices. It should include a complete description of the services to be rendered and an unambiguous description of the merchandise to be delivered.
     
  4. When prices of merchandise or services to be delivered in the future are not guaranteed, or an additional payment may be required in the future, a statement to that effect should be included in the prepaid contract and initialed by the purchaser.
     
  5. There should be an explanation of how the purchaser's funds will be protected to assure the seller's performance in compliance with the prevailing prepaid contract law.
     
  6. The contract must clearly state what happens if merchandise is not available at delivery time and substitution is necessary. In the event of a manufacturer's discontinuation of a model, the description of the merchandise should be sufficiently complete for the authorizing agent to make a decision, based upon objective criteria, about the comparability of a needed substitution.
     
  7. No substitution should be possible without the consent of the purchaser, or upon his or her death, the authorizing agent who lawfully controls the final disposition of the remains. However, the authorizing agent should not be allowed to initiate a material change which is inconsistent with the purchaser's wishes, for the purpose of obtaining a refund, based upon the statutory requirement to adhere to the directions of the deceased. In this regard, the prepaid contract could contain a provision, which is initialed by the purchaser, either prohibiting any changes, or alternatively, specifying what instructions could be modified and by whom.
     
  8. The seller may enter into a written agreement with the purchaser of a prepaid contract providing for payment of a finance charge on any amount due to the seller. The prepaid contract should conform to all other applicable state and federal statutes and regulations governing imposition of finance charges.
     
  9. There should be a clear disclosure of any applicable law allowing for cancellation by the purchaser within the first few days of entering into a prepaid contract. The prepaid contract should clearly explain whether and under what terms the prepaid contract may be cancelled, after that initial cancellation period, if any.
     
  10. Regulatory authorities should be encouraged to allow placement of all required disclosures together as an addendum to the prepaid contract, rather than requiring disclosures on the face of the prepaid contract. The following should be required when an addendum to the prepaid contract is allowed:
    a) The seller should be required to obtain a signature of the purchaser on the addendum, in addition to prepaid contract;
    b) The addendum should be in an easy-to-read format with pages the same size as the prepaid contract;
    c) The type size should be no smaller than 10 points and the printing should be high contrast for easy readability;
    d) Subheadings to identify groupings or types of disclosures should be provided for clarity.
     
  11. The purchaser of a prepaid contract may irrevocably waive and renounce his or her right to cancel the prepaid contract. This is essential to purchasers trying to satisfy eligibility requirements for Medicaid and Supplemental Security Income benefits. The waiver and renunciation may be included as a provision of the prepaid contract or made as an addendum, providing that it is signed by the purchaser. The irrevocability of the prepaid contract should not affect the right of the purchaser to change the provider of the prepaid contract.
     
  12. Copies of the prepaid contract and supplemental material, such as information on credit life insurance and transfer or exchange plans, should be provided to the purchaser at the time of the preneed sale.
     
  13. Copies of the prepaid contract and at need documentation should be provided to the authorizing agent at the time of making at need arrangements to ensure that the merchandise and services match those specified in the prepaid contract. A list of items substituted should be a written part of the at need documentation.
     
  14. Copies of all prepaid contracts and at need documentation should be retained by the seller for a specified period of time after performance.
     
  15. Upon performance, or cancellation of a prepaid contract by mutual agreement between the seller and the purchaser, or upon unilateral cancellation by the seller by reason of default of the purchaser, or other valid cancellation by reason of transfer to another provider, or otherwise, the seller should submit sufficient documentation to the trustee to enable withdrawal of all funds contributed, and all earnings attributable to the prepaid contract.