Preneed FAQs - Consumers

Q. Who receives the interest on the trust funds?

A. The interest earned is the property of the preneed contract seller.

Q. Does a preneed contract qualify as a method for spending down assets for Medicaid?

A. Yes, if the preneed contract is irrevocable and cannot be cancelled. Contact the Alabama Medicaid Agency at 1-800-362-1504 for further information.

Q. Can a preneed contract be used at any funeral home or cemetery?

A. Funeral homes or cemeteries are not obligated to accept a contract issued by another preneed seller or to perform services or provide merchandise at the prices listed in the other preneed seller’s preneed contract.

Q. Are the proceeds of an insurance funded preneed contract taxable?

A. Insurance policy proceeds are not currently considered taxable income for U.S. Internal Revenue Service purposes.

Q. Can I borrow the cash value of my insurance policy?

A. Yes, but only if you are the owner of the insurance policy. However, the estate must make up the difference in policy value (the amount available at death will be the face amount less amount borrowed) at the time of death.

Q. What if I cancel my life insurance policy that funds my preneed contract?

A. The insurance policy may be subject to surrender charges and perhaps a reduced cash value. The preneed contract will terminate when the insurance policy is cancelled. The cash value may be substantially less than the premiums paid.

Q. What if I fail to pay my insurance premium on my life insurance funded preneed contract?

A. Depending upon the nonforfeiture benefit elected, the insurance company may continue the policy by paying the premium out of the cash value of the policy. Once the cash value is exhausted, the life insurance policy will be canceled causing termination of the preneed contract. You should refer to your insurance contract for specifics.

Q. What if I cancel my life insurance funded or trust funded preneed contract prior to need?

A. Preneed purchasers have the right to terminate a contract any time prior to use, provided it has not been irrevocably assigned. A life insurance funded or trust funded contract may be cancelled within 30 days of the date purchaser signed the contract. If this is done, there will be a 100% refund of all monies paid. If a trust funded preneed contract is cancelled after 30 days, the preneed seller may impose a cancellation fee. If a life insurance funded preneed contract is cancelled after 30 days, the purchaser/ funeral beneficiary may retain ownership of the insurance policy. If the life insurance is cancelled, the owner of the policy is entitled to only the cash value of the policy which may be substantially less than the premiums paid.

Q. I specified that my preneed contract be funded with a trust. The trust intends to purchase an insurance contract on my life with the preneed funds. Do I have to consent to the purchase of the insurance contact?

A. Yes. There is a form that must be furnished to you to obtain your consent.

Q. Am I entitled to a copy of the insurance contract without cost?

A. Yes

Q. Can I borrow the cash values of the contract?

A. No

Q. Will any contract proceeds be paid to me, my estate or my heirs?

A. No. The trust is the owner and beneficiary of the contract.

Q. If I do not consent to the trust purchasing insurance on my life, can the trust still invest in an insurance policy on my life?

A. No