Get two facts before anything else: is the contract revocable or irrevocable, and is it funded by a trust deposit or by a life insurance policy assigned to the funeral home. Those two answers determine every option that follows, and most families cannot answer either one without pulling the paperwork. The funeral home is required to have given you a copy at signing and will generally provide another on request.
The reason this comes up is a familiar mismatch. Someone prepaid a funeral in 2009, circumstances changed, and the family now wants either the money back or a different funeral home. Or someone is planning for Medicaid and has been told to make the contract irrevocable. Or an adult child has found a small life insurance policy in a parent’s file and discovered a funeral home is listed as the assignee, and wants to know whether it can be sold.
The honest answer on that last question is almost always no, and the reasons are worth understanding rather than testing. A pre-need arrangement is a different animal from an ordinary life insurance policy, it is regulated differently, and its face amount alone usually disqualifies it from the secondary market before the assignment issue is even reached.
In This Article
Revocable or irrevocable, and why that word does the work
A revocable pre-need contract can generally be cancelled by the purchaser, with refund rules set by state law. Many states require most or all of the trusted principal to be returned, sometimes minus a limited administrative retention, and some allow the funeral home to keep earned interest. Revocable contracts remain a countable resource for means-tested benefit purposes because the purchaser can convert them back to cash.
An irrevocable pre-need contract cannot be cancelled by the purchaser, cannot be refunded, and cannot be redirected to anything other than funeral goods and services. In exchange for giving up that control, the value is generally excluded from countable resources in Medicaid eligibility determinations. That exclusion is the entire reason irrevocable contracts exist in elder-law practice, and it is why an elder law attorney will often recommend making one irrevocable in the same month a nursing home application is being prepared.
Two related federal exclusions frequently get confused with pre-need contracts and are worth separating. Under Supplemental Security Income rules that most states follow for Medicaid, a designated burial fund of up to $1,500 per person may be excluded, and separately, life insurance is excluded when the total face value of all policies on a person is $1,500 or less. That second rule is narrow and catches many families by surprise; it is explained at the $1,500 face value rule. Burial spaces, meaning plots, crypts, markers, and opening and closing, are excluded separately and without a dollar cap.
The four funding methods
How the money is held determines what you can and cannot do with it.
- Trust-funded. The funeral home deposits some statutory percentage of your payment into a trust account at a bank. State requirements vary widely, from full deposit of principal to substantially less, with the remainder retained by the provider. The trust grows, and at death the funeral home draws it. Refund rights on a revocable contract come out of this trust.
- Insurance-funded. You buy a small whole life or final expense policy, often from a carrier that specializes in this market such as Homesteaders Life Company, and either name the funeral home as beneficiary or assign the policy to it. Many of these products include an increasing death benefit intended to keep pace with funeral inflation.
- Annuity-funded. Less common. A single premium annuity is purchased and assigned. Growth is credited to the contract.
- Totten trust or payable-on-death account. A bank account titled in trust for the funeral home. Simple, and easy to make irrevocable through a state-specific form.
Insurance funding is where the confusion with ordinary life insurance begins, because the customer does hold a genuine life insurance policy. What they usually do not hold is control of it, which is the subject of the next section. If the policy came from a specialist carrier, the product mechanics are covered generally at whether a final expense policy can be sold.
Assignment: what the funeral home is actually holding
There are two very different instruments, and pre-need paperwork uses both.
An absolute assignment transfers ownership of the policy to the assignee. After an absolute assignment the funeral home is the owner, not merely a payee. It controls beneficiary changes, surrender, and any disposition. The original purchaser retains essentially nothing. The mechanics are set out at what an absolute assignment does.
A collateral assignment is narrower. It secures a specific obligation and entitles the assignee to be paid from the proceeds up to the amount owed, with any remainder going to the named beneficiary. It does not transfer ownership. The same structure appears in commercial lending and is described at how a collateral assignment to a lender works.
Which one you signed matters enormously. Under a collateral assignment, the owner still owns the policy and could in principle sell, surrender, or borrow against it, though any such transaction would have to satisfy the assignee’s claim first. Under an absolute assignment, the owner has no policy to dispose of. Read the assignment form itself; the title at the top of the page usually says which it is, and the funeral home should provide a copy.
A third possibility exists and is often mistaken for an assignment: the funeral home is simply the named beneficiary. In that case the purchaser still owns the policy outright and can change the beneficiary at will, subject to whatever the pre-need contract separately obligates them to do. That is a contract question rather than an insurance question.
| Feature | Pre-need funeral contract | Ordinary life insurance policy |
|---|---|---|
| Typical face or value | $3,000 to $20,000 | $25,000 to several million |
| Who controls it | Often the funeral home by assignment | The policy owner |
| Primary regulator | State funeral board or insurance dept. | State insurance department |
| Medicaid treatment | Excluded if irrevocable | Cash value generally countable |
| Can it be sold on the secondary market? | Effectively never | Possible if age, health, and size fit |
| Refundable | Only if revocable, per state law | Cash surrender value, if any |
Why it is almost never saleable
Four independent barriers, any one of which is usually decisive.
Face amount. Pre-need policies are typically written between $3,000 and $20,000, sized to a funeral rather than to an estate. Institutional buyers in the life settlement market generally set minimum face amounts around $100,000, with a small number of providers considering $50,000 in unusual circumstances. Below $25,000 there is effectively no market at all, regardless of the insured’s age or health. The general threshold problem is covered at policies too small to sell.
Assignment. If ownership has been absolutely assigned, the purchaser cannot convey what they do not own. A licensed provider will require a clean chain of title and will not close over an unresolved assignment.
Irrevocability. Where the contract was made irrevocable for Medicaid purposes, converting it to cash would defeat the exclusion that was the point of the arrangement and could create an eligibility problem in the month of receipt.
Product design. Many pre-need policies are guaranteed issue or simplified issue with graded death benefits in the first two or three years. Buyers price on mortality relative to premium outlay, and these contracts are engineered so the premium closely tracks the benefit. There is very little spread for a third party to capture.
The same reasoning applies to the old industrial and burial policies families still find, which is covered separately at old industrial burial policies.
What the Funeral Rule entitles you to
The Federal Trade Commission’s Funeral Rule, codified at 16 C.F.R. Part 453, took effect in 1984 and was amended in 1994. It gives consumers several rights that are directly useful in a pre-need dispute.
A funeral provider must give you a printed General Price List to keep when you discuss arrangements in person, must provide price information over the telephone on request, and must give a Casket Price List and an Outer Burial Container Price List before showing those items. You may buy only the goods and services you want, with limited exceptions, and the provider may not refuse to handle a casket purchased elsewhere or charge a fee for doing so. Every itemized statement of goods and services selected must disclose the basis for any legal requirement the provider cites.
What the Funeral Rule does not govern is pre-need contract formation, trusting requirements, refund rights, portability between funeral homes, or what happens if the funeral home is sold or closes. Those are state law, administered variously by a state funeral board, a cemetery and funeral bureau, or the department of insurance. If a provider is refusing to honor a contract or refusing to transfer one, the state regulator, not the FTC, is the place to complain.
Portability deserves special attention. Some contracts are transferable to another provider on request; many are not, or are transferable only at a cost. If a family is moving states or has lost confidence in a provider, that clause is the first one to read.
Options ranked, honestly
- Leave it alone. If the contract is irrevocable, was made irrevocable deliberately for Medicaid eligibility, and the funeral home is solvent and local, doing nothing is the correct answer. It is already accomplishing its purpose.
- Request a full copy of the contract, the assignment, and the trust statement. Free, and it resolves most questions. Ask specifically whether it is a guaranteed price contract or a non-guaranteed one, because that determines whether your family owes a shortfall at death.
- Transfer to a different provider, if the contract permits. Cheaper and faster than cancelling, and it preserves the trust growth.
- Cancel and take the refund, only if revocable and only after learning the exact refund amount in writing. Retained interest and administrative deductions can be meaningful.
- Make it irrevocable, if a Medicaid application is coming and it is currently revocable and countable. This is a planning decision that belongs with an elder law attorney, not with the funeral director. Broader context at nursing home Medicaid spend-down.
- Keep paying an insurance-funded plan. Many are limited pay, meaning premiums end after a set number of years while coverage continues.
- Surrender the funding policy. Possible only where the purchaser still owns it. Cash values on small final expense policies are low, and doing this typically breaches the pre-need contract.
- Sell the policy. Realistically unavailable for the reasons above. Do not spend weeks pursuing it.
When selling is the wrong answer
This is one of the few situations where the honest advice is nearly categorical, so it is worth stating plainly rather than hedging.
- The policy is assigned or irrevocably committed. There is nothing to sell, and any party suggesting otherwise is either confused or acting improperly.
- The face amount is under $25,000. No institutional market exists at that size. Time spent shopping it is time not spent on the actual problem.
- Medicaid eligibility depends on the exclusion. Converting an excluded irrevocable burial arrangement into countable cash in the month received is exactly the outcome the planning was designed to avoid, and it can delay eligibility. The general framework is at when life insurance counts as a Medicaid asset.
- The purchaser is close to end of life. The contract is about to do its job. Disrupting it days or weeks beforehand creates a funding gap at the worst possible moment for the family.
- The only complaint is with the funeral home, not the funding. Then the remedy is transfer, a complaint to the state funeral board, or a Funeral Rule complaint to the FTC, not a transaction in the policy.
Where a family does hold a genuinely separate, unassigned life insurance policy of meaningful size, that policy is a different conversation entirely and may well be worth reviewing. Pine Lake Life Solutions offers a free, no-obligation policy review, and the policy cover page is enough to start. We are an educational resource and a broker-side advocate; we do not purchase policies. Call (305) 209-7183.
Frequently Asked Questions
Can I cancel a pre-need funeral contract and get my money back?
Only if the contract is revocable. State law then governs how much of the trusted principal must be refunded and whether the provider may keep earned interest or an administrative fee, and the rules differ substantially by state. If the contract was made irrevocable, usually for Medicaid eligibility, no refund is available to you and that is the intended design.
The funeral home is listed on my parent’s policy. Can we still sell it?
Read whether the funeral home is the owner by absolute assignment, a secured party by collateral assignment, or simply the named beneficiary. Only in the third case does your parent still control the policy. Even then, the face amount on a pre-need policy is almost always far below the minimum institutional buyers will consider, so a sale is generally not achievable.
What happens if the funeral home goes out of business?
It depends on funding. Trust-funded contracts are backed by money held at a bank, and state law usually provides for transfer to a successor provider. Insurance-funded contracts are backed by an insurance carrier, which is unaffected by the funeral home’s failure, though the assignment may need to be redirected. Contact your state funeral board or insurance department promptly.
Does a pre-need contract count against Medicaid eligibility?
A revocable contract is generally a countable resource because it can be converted to cash. An irrevocable pre-need contract for funeral goods and services is generally excluded, subject to state-specific value limits. Burial spaces such as plots, markers, and opening and closing are excluded separately. Confirm the specifics with an elder law attorney in your state before filing.
Is a guaranteed price contract better than a non-guaranteed one?
Usually, because it fixes the cost of the specified goods and services regardless of later price increases, and the family owes no shortfall. Non-guaranteed contracts apply whatever the trust or policy has grown to against prices at the time of death, which can leave a balance due. Check which type you hold before assuming the funeral is fully paid.
What does the FTC Funeral Rule actually require?
It requires providers to give you a printed General Price List to keep, to quote prices by telephone, to supply casket and outer burial container price lists before display, to let you buy only the items you want, and to accept a casket bought elsewhere without a handling fee. It does not govern pre-need contract terms, refunds, or portability, which are state law.
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Related Reading
- Medicaid Face Value 1500 Rule
- Can I Sell A Final Expense Policy
- What Is An Absolute Assignment
- Collateral Assignment To A Bank
- Policy Too Small To Sell
- Industrial Burial Policy Old
- Nursing Home Medicaid Spend Down
- Life Insurance Counts Medicaid Asset
Pine Lake Life Solutions does not purchase life insurance policies and does not provide legal, tax, or investment advice. Information provided is for educational purposes only. Eligibility for any option, including life settlements, is not guaranteed and depends on individual circumstances, policy terms, underwriting, and market conditions. Consult independent legal, tax, or financial professionals before making decisions regarding a life insurance policy.