Insurance policy does not fall under Pre-Need Act

A Marion Superior Court correctly ruled that a company that sells an insurance policy with the option to assign it to a trust to use the funds for funeral services is not subject to the Pre-Need Act, the Indiana Court of Appeals ruled.

The State Board of Funeral and Cemetery Service issued a cease and desist order to Settlers Life Insurance Co. after it determined the company was selling insurance policies that are simultaneously assigned into irrevocable funeral trusts that restrict dispersal of trust funds to funeral expenses designated as pre-paid services or merchandise by I.C. 30-2-13-8 without the certificate of authority required by I.C. 30-2-13-33. The issue came to the board’s attention from Frain Mortuary in Winamac – the mortuary believed Settlers was in violation of the Pre-Need Act.

Evan Hughes bought at $10,000 insurance policy from Settlers, payable upon proof of her death. Because she did not have the funds to pay for her burial, she opted to assign the policy irrevocably to a National Guardian Life Insurance Co. Trust. Upon her death, the insurance proceeds could only be paid for funeral and burial goods and services as listed in the trust.

Frain Mortuary received Hughes’ policy on transfer from Settlers.

After the board issued its order, Settlers filed a petition for judicial review, in which the Marion Superior Court overturned the order, and issued a declaratory judgment stating that the Pre-Need Act does not apply to the type of policy Settlers sells.

The plain language of the Pre-Need Act supports Settlers’ argument that its at-need product is not covered by the Act, Judge John Baker wrote in State Board of Funeral and Cemetery Service v. Settlers Life Insurance Company, 49A05-1307-PL-365. Settlers’ product does not obligate it to provide pre-paid services or merchandise; instead, it pays a death benefit for funeral expenses that may be used at any mortuary. Settlers isn’t defined as a seller under the Act, and its product is not designed to cover pre-need purchases, the court held.

“While we agree that Settlers’s product may not meet the needs of those who wish to prepay their funeral expenses, it is because we find that Settlers sells a product that fulfills a different purpose than pre-need products. It is not a product for those who wish to pre-purchase their funeral services; it is a product that is meant to provide funds to purchase funeral expenses on an at-need basis,” he wrote.