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04/06/2017

New Forms to Assist with Insurance Assignments

By: T. Scott Gilligan, OFDA General Counsel

One of the more frustrating aspects of preneed funding for funeral homes can be dealing with life insurance companies.  Often, a preneed consumer, who anticipates going on Medicaid, will seek to assign the ownership of a life insurance policy to a funeral home to fund a preneed funeral.  The assignment allows the consumer to transfer ownership of an asset (the insurance policy) that would disqualify the consumer from receiving Medicaid benefits and also to fund the consumer’s funeral arrangements.

Most insurance companies are familiar with Medicaid eligibility and provide forms to assist policy holders in assigning ownership of policies to funeral homes.  However, there are still a handful of insurance companies that, for reasons not easily understood, choose to impose barriers to the assignment of the ownership of life insurance policies to Ohio funeral homes. 

On rare occasions, an Ohio funeral home will come across an insurance company that refuses to honor an ownership assignment either because they mistakenly believes it violates Ohio law or they have enacted a policy against allowing insurance assignments to funeral homes.  In the former case, we are usually able to convince the insurance company that Ohio law permits ownership assignments.  In cases where insurance companies have adopted policies against ownership assignment, we oftentimes have to threaten to file a complaint with the Ohio Department of Insurance in order to convince the insurance company to back down and allow the consumer to assign the policy in order to receive Medicaid benefits. 

Another barrier that some insurance companies will impose is more of a nuisance than an impediment.  Some insurance companies require funeral homes to submit corporate resolutions from the funeral home’s board of directors either accepting an insurance policy assignment or authorizing the funeral home to collect the insurance when the insured has died.  These requirements to submit corporate resolutions are ridiculous, but oftentimes it is easier to submit the resolution rather than trying to convince the insurance company to drop this archaic requirement. 

To assist OFDA members facing a demand from an insurance company for a corporate resolution, OFDA has placed under the preneed section of its online legal forms library two sample corporate resolutions funeral homes may use to accept the assignment of an insurance policy and to collect on an insurance policy when the insured dies.  The corporate actions, which are entitled “Action in Writing in Lieu of a Special Meeting of the Board of Directors” should be signed by all the members of the funeral home’s board of directors.  They can then be submitted to the insurance company in order to formalize the assignment of the insurance policy or to collect proceeds from an insurance policy once the insured has died. 

OFDA also provides on its website the form entitled Irrevocable and Non-Guaranteed-Price Preneed Funeral Contract Funded by the Assignment of Insurance for Medicaid Applicants (the “Medicaid Preneed Contract”).  Although the title of the form is a mouthful, the Medicaid Preneed Contract is a very valuable tool that funeral homes use to prefund not only funerals for the Medicaid applicant and their spouse, but also burial space items for their immediate family members.  This allows Medicaid applicants to spenddown large life insurance policies by designating the proceeds to fund their funerals and also burial space items (caskets, vaults, urns,  grave spaces, and markers) for immediate family members.

The problem that OFDA members occasionally encounter when the Preneed Medicaid Contract is used and the beneficiary dies, is that the insurance company indicates it will only pay the funeral home the price of the beneficiary’s funeral.  Instead of paying all of the proceeds of the policy to the funeral home, the insurance company states it will pay excess proceeds to the beneficiary’s estate.  However, the beneficiary has already designated in the Medicaid Preneed Contract that those excess funds are to be paid to the funeral home and placed into trust or insurance to fund the future purchase of burial space items for family members.  By refusing to adhere to the directions of the beneficiary in the Medicaid Preneed Contract, the insurance company negates the legitimate Medicaid spenddown that the beneficiary undertook to help surviving family members.

If an OFDA member runs into this situation, please contact OFDA and we will intercede with the insurance company.  Most times, we are able to explain to them how the Medicaid Preneed Contract works and that solves the problem.  One tool we use, which is also available to all OFDA members on the website, is the OFDA Member Guide to Pre-need Funeral Funding and Medicaid Regulations.  The Guide explains how Medicaid regulations allow insurance proceeds to be used for burial space purposes for immediate family members.  

OFDA members with questions regarding this article may contact Scott Gilligan at 513-871-6332.