Q: |
Who must obtain a certificate of authority? |
A: |
The Alabama Preneed Funeral
and Cemetery Act (the “Act”) defines the term “person” as any individual, firm,
corporation, partnership, joint venture, limited liability company, association,
trustee, government, governmental subdivision, governmental agency, or other
entity or any combination thereof. All “persons” selling funeral or cemetery
merchandise or services pursuant to preneed contracts must have a valid
certificate of authority. |
|
Q: |
Who is eligible to obtain a certificate of authority? |
A: |
Only a licensed funeral
director, licensed funeral establishment, cemetery authority or third party
seller may obtain a certificate of authority. Only licensed funeral directors or
licensed funeral establishments can sell funeral services preneed. Licensed
funeral directors, licensed funeral authorities, cemetery authorities, and third
party sellers can sell funeral merchandise and cemetery merchandise
preneed. |
|
Q: |
When must a preneed sales agent registration form be completed? |
A: |
The “person” selling
preneed will either be an individual (i.e., a sole proprietorship) or some other
type of entity. Regardless of which is the case, each preneed certificate holder
will be granted one “free” preneed sales agent registration. Even though the
preneed certificate holder is entitled to one preneed sales agent registration
without paying the $25.00 registration fee, the preneed sales agent must be
registered in accordance with the Act, even if the preneed sales agent is the
same person as the certificate holder. |
|
Q: |
Who can be a trustee? |
A: |
The Act provides that any
“person” can be the trustee of a funeral or cemetery merchandise or services
trust. Deposits into a funeral merchandise or services trust must be made within
the State of Alabama. Because of the important interests protected by the Act,
trusts with corporate trustees (i.e., banks, savings and loan associations,
trust companies, or other financial institutions) will be approved relatively
quickly by the Commissioner of Insurance (the “Commissioner”). Funeral or
cemetery merchandise or services trusts with individual trustees will be
examined much more closely by the Commissioner. The submission of funeral or
cemetery merchandise or services trust agreements with individual trustees will
substantially delay (well beyond the Act’s May 1, 2002 effective date) approval
of such trust agreements by the Commissioner. With regard to endowment care
cemetery trust funds established by the Act, the trustee must either be a bank,
trust company, savings and loan association, other financial institution, or a
board of trustees at least three of whom reside within the State of
Alabama. |
|
Q: |
If a certificate holder
chooses to participate in a trust created or sponsored by an association of
which it is a member, does that certificate holder need to submit a separate
trust document? |
A: |
No. The trustee of the
association trust will submit the association trust document on behalf of all
the association’s members. Approval will be given to the master trust agreement.
Certificate holders who choose to participate in such trusts must, however,
submit to the Commissioner an executed joinder agreement or a participation
agreement bearing the name of the sponsoring association. |
|
Q: |
Does each licensed funeral
director, licensed funeral establishment, cemetery authority, or third party
seller owned by the same corporation, partnership or sole proprietor need a
separate certificate of authority? |
A: |
Not in all cases. The Act
provides that where a person selling preneed funeral or cemetery merchandise or
services is part of a “common business enterprise” and wishes to operate using a
different name than that used by the certificate holder, then, if the
requirements set forth in the Act are met, that person can be authorized to sell
preneed as a “branch registrant”. The Act requires that the branch registrant
meet all requirements of a certificate holder EXCEPT that the branch registrant
need not demonstrate that, standing alone, it can pay its liabilities as they
become due during the ordinary course of business and also need not show that it
has sufficient funds available during the calendar year to perform its
obligations under outstanding preneed contracts. With regard to the phrase
“common business enterprise”, each funeral director, funeral establishment,
cemetery authority, or third party seller that is separately incorporated must
have its own certificate of authority. If associated entities file a combined
Federal income tax return and operate using the same name, only the entity
filing the tax return is required to have a certificate of authority. It is
important to remember, however, that only licensed funeral directors, licensed
funeral establishments, cemetery authorities, and third party sellers can hold
certificates of authority. If the entity filing a combined federal income tax
return does not qualify as one of these entities, an entity “down the line” will
have to be the certificate holder. |
|
Q: |
Can a preneed sales agent
represent or sell for different funeral directors, funeral establishments,
cemetery authorities, third party sellers, or their branch registrants at the
same time? |
A: |
Yes. However, the preneed
sales agent must be registered as a preneed sales agent with each certificate
holder for whom he or she sells preneed funeral or cemetery
contracts. |
|
Q: |
The financial information
that must be sent with the application must be current as of what
date? |
A: |
For the initial certificate
of authority, the Commissioner requests the information be current as of
December 31, 2001. For those entities which regularly generate financial
statements at the end of their fiscal year and whose fiscal years ended at some
time prior to December 31, 2001, the Commissioner will accept financial
statements current as of the end of the applicant’s fiscal year provided that
the applicant provides updated financial statements at the end of its current
fiscal year. |
|
Q: |
If an entity operates both
a funeral establishment and a cemetery authority, does it need only one
certificate of authority and one financial statement? |
A: |
Yes. The entity will,
however, need separate trusts, one for funeral services and merchandise and one
for cemetery services and merchandise. If they choose an alternative, they will
need two surety bonds or two letters of credit. |
|
Q: |
If a certificate holder is
using life insurance to fund the preneed contracts, is a trust fund
needed? |
A: |
The trust requirements of
the act become effective 30 days after the preneed contract is paid in full.
Thus, for purposes of the preneed law, so long as the life insurance policy is
purchased prior to the date the trust requirement becomes effective, the trust
requirement is avoided. Please note, however, an insurance producer is subject
to the requirements of the insurance laws and must remit premium collected in
accordance with the insurance company's requirements, which may be less than 30
days. |
|
Q: |
Must the financial data
filed with the application for the initial certificate of authority be filed on
the forms provided by the Insurance Department? |
A: |
The financial data may be
filed on those forms provided by the Insurance Department or on forms that are
essentially the same and provide essentially the same information as the forms
provided by the Insurance Department. |
|
Q: |
Must the financial
information required for the issuance of the initial certificate of authority
need to be audited? |
A: |
No. However, every effort
should be made to make sure that the financial information provided is a
complete and accurate record of the financial status of the proposed certificate
holder. |
|
Q: |
If an entity uses only life
insurance to fund the preneed contracts, does the preneed sales agent need an
ordinary life insurance license? |
A: |
Yes. The preneed sales
agent must be licensed as an insurance producer [agent] to sell ordinary life
insurance. The preneed sales agent must also be registered as a preneed sales
agent in accordance with the Act. |
|
Q: |
If an entity satisfies the
Act’s security requirements by placing funds paid pursuant to a preneed contract
in trust, must the preneed sales agent be registered pursuant to the
Act? |
A: |
Yes. |
|
Q: |
If the trustee of a preneed
funeral or cemetery merchandise or services trust invests trust funds by
purchasing life insurance policies on the life of the preneed purchaser, must
the certificate holder have an individual who is licensed as an ordinary life
insurance producer [agent] present at preneed sales? |
A: |
Yes. The law defines
“insurance producer” [formerly known as insurance “agent”] as “a person required
to be licensed under the laws of the State of Alabama to sell, solicit, or
negotiate insurance.” The term “sell” is defined as “to exchange a contract of
insurance by any means, for money or its equivalent, on behalf of an insurance
company.” The term “solicit” is defined as “attempting to sell insurance or
asking or urging a person to apply for a particular kind of insurance from a
particular company.” The term “negotiate” is defined as “the act of conferring
directly with or offering advice directly to a purchaser or prospective
purchaser of a particular contract of insurance concerning any of the
substantive benefits, terms, or conditions of the contract, provided that the
person engaged in that act either sells insurance or obtains insurance from
insurers for purchasers.” Thus, if anyone at the entity is selling, soliciting
or negotiating for insurance, that person will need an ordinary life insurance
agent’s license. |
|
Q: |
If the entity plans to fund
the preneed contracts with a surety bond or a letter of credit, can the trust
fund language and life insurance language be removed from the first page of the
preneed sales contract and the terms “surety bond” or “letter of credit” be
substituted? |
A: |
Yes. |
|
Q: |
May the portion of the
contract for preneed cemetery merchandise and services dealing with the
purchaser be changed to provide for two individuals if two interment rights are
being purchased? |
A: |
Yes. The contract should
show two purchasers along with a social security number and address for each
purchaser. |
|
Q: |
Question 9 on the
application for certificate of authority and branch registration forms, as well
as the historical sketch of principals forms attached thereto, inquire as to
whether the applicant (or principal) have previously been the subject of a
bankruptcy proceeding. Does a “Yes” response to this question disqualify the
applicant? |
A: |
No; however, additional
information must be provided. If this previous bankruptcy proceeding was in no
way associated with the business of insurance or preneed funeral or cemetery
business, you may complete the affidavit below in lieu of filing a more detailed
explanation.
Bankruptcy Affidavit - Word -
PDF |
|
Q: |
Can a cemetery existing
prior to the act’s effective date cease doing business prior to the effective
date and thus avoid the requirements of an endowment care cemetery
fund? |
A: |
Yes. If the cemetery stops
charging fees prior to May 1, 2002, the requirements to establish and maintain
an endowment care fund do not apply. Please note, however, that the requirements
of Section 27-17A-48 to maintain a list of the names and addresses of the owners
and also to maintain a record of the property owners will still apply to any
owner of a cemetery. Thus, a cemetery authority cannot avoid these requirements
by merely ceasing to charge fees but would have to transfer ownership to another
entity. |
|
| If you have other questions
in this regard, please contact Robert Turner, Acting Supervisor, by phone at
(334) 241-4190 or by E-Mail at
requestlifehealth@insurance.state.al.us |