Testimony to House Financial Institution on HB 3436

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file time: 2008-02-16

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Testimony to House Financial Institution on HB 3436 

Stephanie Newberg

Texas Department of Banking

April 16, 2007

 

Texas Department of Banking  
 
 

2  

Prepaid Funeral Contracts 

Purpose of Chapter 154 of the Texas Finance Code: Provide regulatory framework to allow a person to arrange and pay for a funeral in advance. Provide safeguards to protect prepaid funds and ensure funds are available to pay for prearranged funeral services. Two regulatory objectives to achieve purposes of Chapter 154: Make sure prepaid contract is performed in accordance with terms meaning the funeral goods and services selected by purchaser are provided as specified in the contract. Make sure funds are available to pay for contracted goods and services at the time of need.  
 
 
 
 

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Partial Listing of Funeral Goods and Services Selected on a Prepaid Contract 

BASIC SERVICES OF FUNERAL HOME

STAFFAND OVERHEAD        $___________ 

EMBALMING: (explanation below)

Embalming services               $___________ 

OTHER CARE OF BODY:

Bathing body              $___________ 

USE OF BUILDING AND STAFF:

Viewing/Visitation (# days________) $___________

Funeral service at funeral home $___________

Funeral service at other facility $___________

Graveside service  $___________ 

TRANSPORTATION SERVICES:

Transfer of remains to funeral home

     (________ mile radius)  $___________

Hearse (funeral coach)  $___________

Flower car   $___________ 

GOODS:

Casket00000000000000000000000. $___________

00/font> Wood     Type: ________________________  00/font> Steel:

00/font> 16 ga     00/font> 18 ga     00/font> 20 ga    00/font> ___ ga  00/font> Stainless00/font> Seal    00/font> Nonseal     00/font> Protective      00/font> Nonprotective     00/font> N/A

Interior Lining: 00 Crepe  00Velvet  00Satin  00Other_______

Shell:    00Square    00Round     Exterior color: (opt)_______ 

Outer burial container (explanation below)000.$_________

00/font> Liner  00/font> Vault     00/font> Box     00/font> Other (describe):

00/font> Seal   00/font> Nonseal 00/font> Protective    00/font> Nonprotective     00/font> N/A  

GOODS (cont):

          

Alternative Container (describe)________ $___________

Urn (Name and Primary Construction) $___________

Shipping Container (describe) $___________

Clothing (describe)  $___________

Stationery/Cards (describe)

_____________________ (#_________) $___________

Acknowledgement cards (describe)

_____________________ (#_________) $___________

Other   $___________ 

OTHER SERVICES:

Forwarding remains to another funeral home

  (describe method)  $___________ 

Immediate Burial, with:

Purchaser-provided casket $___________

Alternative container  $___________

Funeral Home00 container

  (describe)  $___________ 

Direct Cremation, with:

Purchaser-provided container $___________

Alternative container  $___________ 

CASH ADVANCE ITEMS: We charge You for our services

in obtaining the items with the boxes marked:

Example (Cemetery Opening/Closing Fee) $___________

Example (Flowers)___________________ $___________

______________________________ $___________ 
 

Texas Department of Banking

 
 
 
 
 

4  

Options to Fund Prepaid Contracts 

PrePaid Funeral

Customer

Wishes to prearrange and

prepay for specific funeral

goods and services 

Two options to

fund the prepaid

funeral contract:

(1) trust-funded; or

(2) Insurance funded 

Trust Contract

Seller /  Funeral

Provider 

Insurance Seller

Affiliate / Subsidiary

of Insurance

Company 

Financial

Institution

(funds deposited) 

Insurance

Company

(issues insurance policy) 

Funeral Provider 

Texas Department of Banking

 

Texas Department of Banking  
 
 

5  

Prepaid Contract Industry Statistics       (As of 12/31/2005) 

$1,939,899,062 

461,786 

57 

Insurance Funded 

Dollars 

Number of Contracts 

Number of Permits

 

Texas Department of Banking  
 
 

6  

Problems with Insurance Funded Contracts Under Current Regulatory Scheme 

Insurance Funded Permit Holders (seller) claim no legal responsibility or ability to ensure the prepaid contract is honored at the time of death:  
Example:  At the time of need, a funeral provider who sold the prepaid contract as Seller00 agent, overcharges a family $500 for a casket specified and purchased on the prepaid contract.  Seller states it only 00ells00prepaid contracts and as such is not responsible for actions of funeral providers.  

Texas Department of Banking  
 
 

7  

Problems with Insurance Funded Contracts Under Current Regulatory Scheme 

Insurance Funded Permit Holder walks away from contracts and regulatory responsibility, once sales/profits diminish.  
Magna Financial Services, Inc., San Antonio Abandoned permit in 2001 with 1,169 contracts representing a total death benefit = $4,087,660.  
The IEIS Fidelity Plan, Inc., Austin Abandoned permit in 2004 with 1,957 contracts representing a total death benefit = $6,948,575.  
No one other than the Department is available to ensure that the contracts are honored at the time of need.  

Texas Department of Banking  
 
 

8  

Problems with Insurance Funded Contracts Under Current Regulatory Scheme 

Insurance Funded Permit Holders include a 00ump00on prepaid contracts, without disclosure and harm to the purchaser, that allows the funeral provider to receive additional funds at the time of death.  
 
Example: Purchaser buys a $5,000 funeral funded with a single pay life insurance product.  The cost of the single pay policy is $4,500, but $5,000 is collected from the purchaser which buys an insurance policy worth $5,600.  The funeral provider has made $600 in earnings the moment the contract is signed and the insurance policy is paid.

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