Philippines At-Need and Pre-Need Funerals

Some of the differences between Philippines

'at-need' and 'pre-need' funeral arrangements

   'At-need' arrangements are handled by thebereaved soonest AFTER death while 'pre-need' arrangements are made by anyone wishing to prepare and pay in advance PRIOR to one's own or or some other person's death.

·      The pre-need concept was originally based on:' a) ‘preparing and paying now for a later delivery’ business model, and b) on the pre-need company’s coursing to a funeral home a better share of its market. Later, pre-need plans were also used to interfere in the ‘at-need’ business. Pre-need plans purchased in bulk when prices are low, are warehoused until the later opportunity arises, then offered to a bereaved prior to the finalization of an ‘at-need’ contract. The sudden appearance of a pre-need plan may be linked to parties with knowledge of an impending or recent death; to parties who are set-up for financial gain from a funeral. 

·    
      Pre-need is fiduciary in nature where: 

a) monies are entrusted to a party (the pre-need company), 

b) a trustee (reputable banks) is contracted to maintain such funds in a trust fund, and 

c) sound arrangements exist between service providers and the pre-need company in connection with the future delivery of a service. Pre-need plans may also be purchased in ‘value’ form where a sum of money is later delivered instead of a service. In either case, whether a pre-need service plan or value plan, the funds paid in advance are held in trust by professional trustees and not a pre-need company. In theory, the service plan offers better value as the plan holder is saved from future increases in the cost of a service. The value plan under certain circumstances may be more advantageous on account of insurance features, should these features apply, and more than the face value of the value of the plan is collected.

       The pre-need concept once popular in the United States involved: 

1) a mortuary, 

2) a bank operating in the mortuary’s extended neighborhood, and 

3) a resident in the respective neighborhood. A joint bank account is opened by the resident and the mortuary where payments by the resident are deposited in the account. The payments are held in trust, earning interest, for the sole purpose of paying for a funeral service package earlier selected, decided and agreed upon by the resident and the mortuary.

·      
       In the United States today, a handful of large companies control both ‘at-need’ and ‘pre-need’ funeral arrangements and the character of 'pre-need' has changed.

·      A pre-need plan is different from an insurance policy. The pre-need plan, though, may incorporate insurance benefits but these are based on contractual arrangements with an insurance company.

·      
       The face value of a pre-need plans must be fully paid before any benefit can be delivered, provided the plan has not lapsed and is valid and outstanding.  However, an insurance policy is premised on actuarial considerations that determines premium payments which total to only fraction of the insurance policy’s face value.

·    
       Since a portion of the face value of a pre-need plan is used to defray the promotional, selling commissions and administrative expenses of the pre=need company, less than the face value is paid to the funeral home.

·      The ‘weak links in the pre-need chain’ of the past seem to be a lack of understanding of what is necessary to determine what ‘future delivery’ depends on.

 a) Outstanding plans sold should be covered by annual audit reports.  When a portion of the plans sold are ‘set-aside’ and not reflected in reports to the then SEC, this practice effectively hides these plans which are actually trust fund liabilities.

b) The pre-need company’s capacity to deliver on its service obligations should be assessed. Most pre-need companies relied on 12-month contracts with service providers, contracts not necessarily renewed by either party. Few pre-need companies had adequate ties with its service providers, nationwide.

c) The past practice of allowed the actuaries (engaged by the pre-need company) to use abnormally high interest rates to project trust fund growth. This caused an unrealistic positive effect on the financial viability of the pre-need company.

·      Republic Act 9829 or the Pre-Need Code and the Code’s Implementing Rules and Regulations are a tremendous boost towards the plan holder’s protection and strengthening the industry. However, the author believes there is room for improvement.

·      
       Considering how large the still unresolved financial scandal in the pre-need industry, much enforcement of the law is necessary, particularly in the case of the financially weak companies.

·      
       Since the 1960s when pre-need businesses appeared, more than 40 companies were formed to operate nationwide. Today, less than a hand full may be considered healthy. While the Insurance Commission (IC) is focused on strengthening the industry, a worrisome number of weak companies remain so that the IC has its “hands full” in asserting that such companies are and remain ‘above the waterline’. Presently, the Congressional Committee on Banking and Financial Institutions is taking the IC to task in behalf of the plan holders who claim to having been cheated.

·      The blog-author does not profess to be an authority on the subjects covered herein nor must he seen to be speaking for the SEC or the IC. It is only his experience, his understanding and his opinions on which he stands by are the basis for the blog’s contents.

·    
       Based on the author’s personal experience, the SEC and the IC have proven to be reliable in remedying deficiencies brought to their attention and/or uncovered by their own periodic visits and their annual reportorial requirements.  The fact though that these agencies are now faced with regulating many pre-need companies that operated without a Pre-Need law allowing for new technologies, business models and questionable practices 'to slip through the cracks', it will take time before all pre-need plan holder will be secured.  The prospects of the unhappy plan holders attaining justice would seem dim.

 (July 19, 2014 …10 am with the moon’s 1^st Qtr)

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