CPC Preneed Financial Planning & Contracts 1 — Questions and Answers
Question 1: What is the primary purpose of a preneed funeral contract?
- To allow families to pre-select and pre-fund funeral services at today's prices (Correct answer)
- To give funeral homes advance revenue for operating expenses
- To assign cemetery property rights before death
- To establish a legal will substitute
Correct answer: To allow families to pre-select and pre-fund funeral services at today's prices
A preneed funeral contract allows individuals to select and fund funeral services in advance, often locking in current pricing to protect against future cost increases.
Question 2: Which type of preneed funding vehicle provides the strongest consumer protection under most US state laws?
- Cash paid directly to the funeral home
- Irrevocable funeral trust (Correct answer)
- Life insurance policy assigned to the funeral home
- Revocable savings account
Correct answer: Irrevocable funeral trust
An irrevocable funeral trust places funds in a regulated trust account that legally cannot be accessed by the funeral home until services are rendered, providing the highest consumer protection.
Question 3: When a preneed contract is funded by a life insurance policy, the funeral home is typically named as:
- Primary beneficiary
- Contingent beneficiary
- Irrevocable beneficiary (Correct answer)
- Policy owner
Correct answer: Irrevocable beneficiary
Funeral homes are typically named as irrevocable beneficiaries on life insurance-funded preneed contracts to ensure the death benefit is directed to cover funeral expenses.
Question 4: What term describes the price guarantee in a preneed contract where the funeral home agrees to provide services at the contracted price regardless of future cost increases?
- Fixed price guarantee
- Guaranteed price contract (Correct answer)
- At-need price lock
- Cost-of-living adjustment clause
Correct answer: Guaranteed price contract
A guaranteed price contract commits the funeral home to honor the contracted prices for selected goods and services regardless of price increases at the time of death.
Question 5: Under a non-guaranteed preneed contract, who bears the financial risk if funeral costs rise above the funded amount?
- The funeral home
- The state preneed board
- The deceased's estate or family (Correct answer)
- The trust company
Correct answer: The deceased's estate or family
In a non-guaranteed preneed contract, the family or estate is responsible for any difference between the contracted amount and the actual cost of services at the time of death.
Question 6: Which federal regulation governs the disclosure and pricing requirements for preneed funeral contracts when sold across state lines?
- FTC Funeral Rule (Correct answer)
- RESPA
- Truth in Lending Act
- FCRA
Correct answer: FTC Funeral Rule
The FTC Funeral Rule requires funeral providers to give itemized pricing information and governs disclosure requirements for funeral goods and services, including preneed arrangements.
CPC Preneed Financial Planning & Contracts 1
What is the primary purpose of a preneed funeral contract?