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Attempt to Eliminate Preneed Funeral Bonds in Alabama Defeated

Thursday, March 15, 2012  

As introduced, HB 338 provided that surety bonds and letters of credit no longer would be accepted in lieu of trust funds for preneed funeral agreements. Bonds and letters of credit in place when the bill is enacted could have been maintained until the bond is cancelled or withdrawn, or if the bond is no longer accepted by the Insurance Commissioner.

AIA state counsel testified against the elimination of surety bonds at a hearing conducted by the House Insurance Committee (Committee) on March 14, 2012. SFAA and AIA were able to dispel several myths about the bond with our quick research and data. Notably, we provided evidence debunking the belief that Alabama is the last state to allow a bond in lieu of a trust fund. We pointed to several states that recently enacted a bond requirement, offered data on premiums and losses on such bonds countrywide, and highlighted North Carolina’s recent review of its bond requirements for preneed funeral providers, which resulted in the retention of the bond requirement in that state. As a result, the bill sponsor and the Committee agreed that the provision eliminating the bond going forward as an option will be removed from the bill and a substitute bill will come before the Committee next week. SFAA and AIA will continue to monitor this bill to ensure that the preneed funeral bond requirement is preserved.

The bill also would clarify the amount of a bond used as an alternative to trust fund requirements for a preneed funeral contract. The bill would require an initial bond to be based on the amount of preneed liability expected to be incurred in the next quarter and the liability incurred in the previous quarter. Current law bases the bond amount on the preneed funeral provider’s annual liability. The bill would revise the amount of the bond trustees of a cemetery authority must post to require a bond in an amount equal to $100,000, or the amount in each endowment care fund for which the board acts as trustee as of December 31, 2011. Thereafter, the amount of the bonds shall be increased on January 1 of each succeeding year to equal the amount in each endowment care fund as of the immediately preceding December 31, 2011. Current law requires a $25,000 bond. The bill also would authorize cemetery authorities to provide performance bonds from a surety company acceptable to the Insurance Commissioner in lieu of making payments to a preconstruction trust fund.

 

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