As insurance becomes an increasingly popular method for clients to fund their eventual funerals, policy-makers in some provinces are re-evaluating the rules associated with the distribution of funeral insurance products.
In one province, this means stricter rules for financial advisors selling these products; in another, it may mean new competition in the distribution of funeral insurance, as regulators strive to balance sufficient availability of the products with appropriate consumer protection.
“It’s kind of that balance between providing for a fairly open market for [clients],” says Greg Pollock, president and CEO of Toronto-based Advocis, “while, at the same time, trying to ensure good standards and suitability with respect to the sale of product.”
In Ontario, the provincial government is taking steps to restrict the marketing of funeral insurance products. In July 2012, the government introduced amendments to the Insurance Act to prohibit life insurance agents from contacting a person, either by telephone or in person, to sell funeral insurance unless the person has asked the agent to contact him or her for that purpose.
Advisors also are prohibited from contacting, by any means, any person who is in a hospital, long-term care home or hospice to sell funeral insurance unless the person has asked the agent to contact him or her for that purpose.
These changes parallel new rules pertaining to individuals licensed under the provincial Funeral, Burial and Cremation Services Act. Funeral insurance can be purchased through either a licensed insurance advisor or in a funeral home in Ontario – as well as in most Canadian provinces.
The new rules affect any advisors who sell “final expenses” insurance policies – life insurance policies whose proceeds are intended to be used for funeral services.
“It’s any insurance that’s being sold for the purposes of purchasing these services,” says Izabel Scovino, senior manager, insurance and deposit institutions policy, with the Financial Services Commission of Ontario (FSCO) in Toronto.
The restrictions pertain to contact with both existing and prospective clients, Scovino adds: “Presumably, it’s anyone whom they’re trying to sell this insurance to.”
Pollock considers this aspect of the new rule unusually strict: “It is fairly restrictive.”
Jack Bendahan, a senior life insurance advisor with LifeMan.ca in Markham, Ont., suspects that the new rules may have been introduced in response to some brokers engaging in aggressive sales practices: “Maybe they’re preying on people in long-term care facilities, or people who are sick.”
Most of Bendahan’s business is generated from individuals contacting him to request a quote or information. Thus, he doesn’t expect the new rules to affect his sales practices.
Advisors in Ontario now also are required to inform prospective purchasers of funeral insurance in writing that purchasing such insurance is not the purchase of funeral services. This is an attempt to avoid any potential confusion about the nature of the product.
“That’s to ensure that the person who purchases the insurance understands that what they’re purchasing is a life insurance product,” Scovino says, “and they have not actually purchased a pre-arranged funeral-service package.”
Meanwhile, in Nova Scotia, the provincial government has proposed to broaden the availability of funeral insurance by allowing it to be sold in funeral homes as part of a broader review of funeral-sector legislation.
Clients planning ahead for the costs associated with a funeral currently have two options: they can prepay the full amount directly to a funeral home, which then holds the funds in trust; or, clients can purchase an insurance policy, with the proceeds to be used for funeral expenses.
@page_break@ Consumers in Nova Scotia who want to fund a funeral through insurance are able to do so only through a licensed insurance agent. In a consultation document, the Nova Scotia government notes that the availability of these products in funeral homes may benefit consumers: “In jurisdictions in which both the sale of funeral insurance and prepaid funeral contracts is permitted at funeral homes, insurance is a popular way to fund prepaid contracts. Consumers may find funeral insurance to be more transferable than a trust fund and may feel that there is added security…. Funeral insurance may also allow a consumer to fund a contract with smaller payments over a longer period of time.”
Advocis supports the Nova Scotia proposal. Many financial planners, Pollock says, advise their clients on options for funding funerals. However, for Canadians who don’t work with advisors, he adds, funeral homes are an obvious place in which to seek advice about such plans.
“We certainly want to see consumers having choice,” Pollock says, “and reasonably easy access to products out there.”
However, he adds, it’s critical to ensure the appropriate measures are in place to protect consumers. For instance, Pollock believes funeral directors who sell funeral insurance should be required to hold a restricted or limited insurance licence to ensure they are knowledgeable regarding the products and be subject to oversight and regulatory discipline.
“We think,” Pollock says, “that they should be subject to some of the conditions that life agents are subject to.”
Advocis also suggests that funeral directors be restricted to selling insurance-funded, pre-arranged funeral plans and no other types of insurance.
“What we don’t want to see,” Pollock says, “is funeral directors seeing this as an opportunity to begin to encroach into the marketplace that insurance advisors find themselves in today.”
These regulatory developments come as funeral insurance grows in popularity. In Ontario alone, there is approximately $1.8 billion in both trust-funded and insurance-funded prepaid funeral contracts, with more than half of the contracts funded by insurance.
And in the past few years, there’s been noticeable growth in assets in the insurance channel, says Harry Renaud, president of Guaranteed Funeral Deposits of Canada, a Toronto-based not-for-profit organization that manages a portfolio of prepaid funeral funds on behalf of hundreds of funeral homes in Ontario.
“Certainly, in the past couple of years,” Renaud says, “and looking forward, insurance is outpacing trusts. There’s no question about that.”
This shift is being driven by the growing awareness of the importance of funeral preplanning – especially among younger consumers, Renaud says, adding that insurance is a more attractive option to younger consumers, as the premiums are more affordable and they have more time to let the assets in the policy grow.
“If you’re younger,” he says, “it’s a less expensive premium. Over time, it’s going to grow and it’ll cost you less.”
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