Colorado's Preneed Laws
According to Colorado Revised Statutes (10-15-102), the definition of "Preneed contract" means any written contract, agreement, or mutual understanding, or any security or other instrument that is convertible into a contract, agreement, or mutual understanding, whereby, upon the death of the preneed contract beneficiary, a final resting place, merchandise, or services are provided or performed in connection with the final disposition of the beneficiary's body. Consideration for a preneed contract is funds, deposits, or the assignment of life insurance benefits.
"Preneed contract" does not include a contract for merchandise whereby the buyer takes physical possession of the merchandise at the time of entering into the contract.
Legislation passed in 2013 changed some of the regulations pertaining to preneed funeral plans.
Preneed? Pre-plan? Pre-arrange? Pre-fund?
If there is an agreement to provide death care services for financial consideration (funds or insurance), it’s a Preneed Contract.
A funeral establishment that “sells or offers to sell” a preneed contract must be licensed as a "Preneed Contract Seller" through the Colorado Division of Insurance.
- A license as a Preneed Contract Seller is required if you “sell or offer to sell funeral goods merchandise, or services through a preneed contract.”
- A licensed to SELL a life insurance policy or final expense insurance policy is NOT the same as a license to sell Preneed contracts.
- A life insurance policy is a method to FUND a Preneed contract.
- Depositing funds in trust is a method to FUND a Preneed contract.
Legislation passed in 2013 changed Colorado's preneed laws.
Clarified definitions to regulate persons that “sell or offers to sell” a preneed contract (10-15-102)
- Any agreement to provide or perform services in connection with final disposition upon death of the beneficiary when consideration of funds, deposits or assignment of life insurance benefits are involved.
Eliminated mandatory audits every 5 years for Preneed Contract Sellers.
- Consumer complaint may trigger an investigation and examination of books and records of a Preneed Contract Seller.
- Commissioner shall make every reasonable effort to utilize examiners employed by the Division of Insurance (vs. independent auditor).
- The Preneed Contract Seller pays for examination charges and expenses.
Clarified portability options for customer to select a new funeral provider (10-15-105, 9a, 9b)
- Contract buyer - at any time before performance - may select another funeral provider to provide the prearranged funeral merchandise and services.
- Original preneed contract seller may retain up to 15% of the total contract purchase price.
- Liquidated damages - “reasonable value of administrative and sales costs incurred” - applies to trust-funded contracts only
- Does not prevent contract seller from advancing 25% of total contract price, but the difference must be refunded if customer requests a transfer to another funeral provider.
Closed the loop on deposit of trust funds by requiring disclosures in preneed contract (10-15-105 10a)
- Contract seller is required to disclose the name and address of the trustee who holds the preneed contract funds.
- Contract seller must notify the buyer when preneed contract funds are deposited into trust.
- Notification required only for the initial deposit that establishes the trust.
- Disclosure must advise consumer to contact the Insurance Commissioner if confirmation is not received within 60 days.
Instituted new rules for change of ownership from sale of business, 10-15-111.5
- Contract seller must report pending sale of preneed contracts to Insurance Commissioner at least 14 days before the sale closing.
- Report contract specifics, accounting of funds, “Transferee” names and addresses (new owners, officers, partners, etc.)
- Transferee must hold a valid Preneed Contract Seller’s license and be able to perform on all contracts.
- Commissioner has 60 days to approve or disapprove sale
- New owner must send written notice to each contract buyer within 30 days after approved sale regarding the change of ownership and obligation to perform.
Instituted procedures for surrender of preneed contract seller license, 10-15-116
- Must file written notice with the Insurance Commissioner
- Report assets, outstanding contracts and specifics, complete accounting of funds, etc.
- Commissioner will deactivate license if assets are sufficient to meet remaining preneed liabilities.
- Trust will remain intact and in trust after license is inactive.
- Trustee will disburse trust funds in accordance with preneed contracts until funds are exhausted.
- License of contract seller will be cancelled after trust funds are exhausted or preneed contracts are fulfilled.
Instituted procedures for surrender of preneed contract seller license 10-15-116
- Commissioner may administer preneed contracts and accounts if contract seller closes due to financial insolvency, criminal activity, or license suspension.
“Preneed” added to services of registered funeral establishment and crematory, 12-54-303
- Additional reporting question on DORA annual license renewal for funeral establishments and crematories
- “Selling preneed contracts” added to the list of reported services for each location
- Annual license fee may increase (slightly) for administrative oversight and computer database modifications
What does my funeral home need to do to comply with Preneed laws?
License as Preneed Contract Seller
- If you are a licensed Insurance Producer/Agent but do not hold a separate license as a “Preneed Contract Seller”, please contact the Colorado Division of Insurance if you wish to (continue to) sell preneed contracts.
- If you’re already licensed as a Preneed Contract Seller, remember that your annual report is required by March 31 every year.
Add disclosures to your preneed contracts
- "Funds for this preneed contract will be deposited into an established trust account at [Your Bank, 123 Main Street, Anytown, CO 80202]."
- If you have not received notification of your initial deposit from (Preneed Contract Seller) within 60 days, please contact the Colorado Division of Insurance, 1560 Broadway, Suite 850, Denver, CO 80202.
Certify your standard preneed contract with the Division of Insurance
Maintain an accurate record of preneed contracts and accounts (10-15-107)
By law, Preneed Contract Sellers are required to provide quarterly detail to trustees:
- List of outstanding preneed contracts
- Name/address of each contract buyer
- Total preneed contract price
- Accumulated receipts
- Total amount of funds trusted for each preneed contract
- Customers should be instructed to contact YOU (not the trustee) to determine their trust account balance.
Prepare procedure for trust deposit notifications to customers
- Create system to send deposit notification letter to new contract buyers after funds are deposited to establish the trust.
- Letter to existing contract buyers with funds in trust to let them know where trust funds are held.
What 2013 legislation did NOT change
- Preneed Contract Seller license fees will not change. Annual fees are defined in statute based on the aggregate price of all preneed contracts for insurance and trusts. Fees are $100 per year ($100,000 or less) up to $2,000 per year ($10 million or more).
- Preneed Contract Seller license fees do not absorb or cover the costs for examinations. If a complaint triggers an investigation and audit, the Preneed Contract Seller is required to pay for the examination expenses and charges.
- Preneed Contract Seller may advance up to 25% of total contract price to cover administrative and sales costs - for trust-funded contracts. 75% of total contract price must remain in trust. Interest earnings on trust funds may be retained by the Preneed Contract Seller.
- 15% of total contract price may be retained as “liquidated damages” if customer cancels or transfers a preneed contract to another funeral provider.
For administration of Preneed Contract Seller licensees:
DORA Division of Insurance
Corporate Affairs Supervisor
State of Colorado | Division of Insurance
Frequently Asked Questions
Do funeral home employees need to have a Preneed Contract Seller license to sell preneed contracts?
- If the Funeral Establishment is a licensed Preneed Contract Seller, its employees do not need a separate license to sell preneed contracts.
- If the employee sells insurance-funded preneed contracts, however, the employee will need to have an Insurance Producer license to sell policies.
Our Funeral Establishment uses a third party broker or marketing agency to sell insurance-funded preneed contracts. Do we need to be licensed as a Preneed Contract Seller?
- The Broker must be licensed as Preneed Contract Seller to sell preneed contracts. In this case, your funeral establishment may be considered a General Provider and doesn’t need a Preneed Contract Seller license.
- If any employees of the Funeral Establishment “sell or offers to sell” a preneed contract, then your establishment should be licensed as a Preneed Contract Seller.
Do we need to have our revised preneed contracts (with required disclosures) reviewed?