ADVISORY MEMORANDUM

TO: All pre-need establishments

FROM: North Carolina Board of Funeral Service

DATE: April 16, 2008

RE: Funeral establishment ownership of life insurance policies that fund pre-need contracts

In January of 2008 the Board began discussions of funeral establishment ownership of life policies that fund preneed contracts. These discussions included concerns for consumer protection when an establishment is made the owner of a policy and the broad powers the owner of a policy has. The Board invited comment through publication to interested parties and received a number of written replies and some public comments.

The experience of the Board staff and written comments from licensees supported that there are inconsistencies in directives from local Medicaid units regarding eligibility and insurance funded preneed contracts. In some cases directives are the establishment must be owner of policies to meet eligibility requirements while others direct an irrevocable assignment or beneficiary designation will meet the requirements. The Adult Medicaid Manual, published by the Division of Medical Assistance, NC Department of Health and Human Services, refers to funeral establishment ownership of policies (defined in the manual as an absolute assignment) as a means to meet eligibility requirements however also states an irrevocable assignment or beneficiary designation to the funeral establishment will meet the requirements and is preferable to an absolute assignment. A request was sent to the Chief of Recipient Services in the Division of Medical Assistance to review the concerns regarding pre-need regulation, consumer protection and the apparent advocacy of the Division of Medical Assistance for funeral establishments to be owners of policies.

The Board delayed action on this matter pending a reply from the Division of Medical Assistance. To date that reply has not been issued and the Board did not believe any further delay would be beneficial to consumer protection.

Therefore it is the Board’s recommendation that the establishment should not be owner of any life insurance policy funding a pre-need funeral contract unless directed by a Department of Social Services that this is necessary to meet Medicaid eligibility requirements for the contract beneficiary.