North Carolina Funeral Law Practice Exam

In the case of a funeral home substitution with a funded preneed funeral contract, when will the insurance company pay funds?

1. Upon completion of the contract

2. Immediately after the contract is signed

3. Only after the death occurs

4. When the contract is canceled

The correct answer is: Only after the death occurs

The correct answer is that the insurance company will pay funds only after the death occurs. This aligns with how preneed funeral contracts function, particularly in North Carolina. When individuals enter into a funded preneed funeral contract, they typically do so to prepare for future funeral expenses, securing their wishes and financial arrangements in advance. In this context, the insurance is specifically linked to the fulfillment of the contract upon the beneficiary's death. The funds are intended to cover the specified funeral expenses and are released only when the event—death—triggering the contract occurs. This assures that the money allocated for funeral expenses is used appropriately and as intended at the time of need. Other scenarios, such as completion of the contract, signing, or cancellation, do not align with the purpose of these contracts. Upon completion of the contract, funds would not be disbursed, as completion indicates all obligations have been settled rather than the necessary condition of death having occurred. Immediate payment after signing would contradict the purpose of securing funds for a future event, as the beneficiary is still alive. Cancelling the contract often involves a refund process and does not directly result in the payment of funds to the funeral home or affected parties for a service that has not yet occurred.