Alabama Preneed Funeral Bond
If you sell preneed funeral merchandise and services in Alabama, you need a surety bond. The Alabama Board of Funeral Service requires preneed certificate holders to secure their outstanding liabilities, and a surety bond is one of four approved ways to do it. Without one, you cannot legally sell preneed contracts in the state.
We write Alabama preneed funeral bonds and can often get them approved the same day. Call us at 800-333-7800 or request a free quote online to get started. Surety Bond Authority has been writing surety bonds since 1971.
What Is an Alabama Preneed Funeral Bond?
An Alabama preneed funeral bond is a surety bond that guarantees a funeral home or cemetery will fulfill its preneed contracts. When consumers pay in advance for funeral merchandise, services, or cash advances, they are counting on the provider to deliver on those promises when the time comes. The bond protects those consumers financially if the provider fails to follow through.
The bond is a three-party agreement. The preneed provider (called the "certificate holder" in Alabama) is the principal. The Alabama Board of Funeral Service is the obligee. And a surety company backs the bond. If the certificate holder defaults on its preneed obligations, the surety must step in and remedy the default by delivering the preneed funeral merchandise and services in accordance with each contract.
The bond is made payable to the State of Alabama for the benefit of the Board and all purchasers of preneed merchandise, services, and cash advances.
Who Needs This Bond?
Any business in Alabama that holds a certificate of authority to sell preneed funeral merchandise and services contracts must secure its outstanding preneed liabilities. Alabama law provides four options for doing so: insurance or annuity funding, a trust fund, a surety bond, or a letter of credit. A certificate holder may use any combination of these, as long as the Board has approved the funding vehicle before it is used.
This bond is specifically for providers who choose the surety bond option. Many funeral homes and cemetery operators prefer the surety bond because it does not require them to deposit preneed payments into a separate trust account. The bond provides the same consumer protection while allowing the provider to maintain greater flexibility with its working capital.
The Legal Framework
Alabama's preneed bonding requirements are governed by the Alabama Preneed Funeral and Cemetery Act, now codified at Title 34, Chapter 13, Article 5 of the Code of Alabama. The surety bond requirements are found in Section 34-13-195.
If you have been in the Alabama preneed industry for a while, you may remember when this law lived under Title 27, Chapter 17A, and oversight was handled by the Alabama Department of Insurance (ALDOI). In 2023, the Alabama legislature passed the Alabama Preneed Funeral and Cemetery Act of 2023, which transferred regulatory authority from the Department of Insurance to the Alabama Board of Funeral Service. The substantive bond requirements carried over, but the statutory references changed.
Attorneys and compliance officers working with Alabama preneed providers should be aware of this change, especially when reviewing older bond forms that still reference Title 27 and the ALDOI.
How the Bond Amount Is Determined
Unlike many surety bonds that have a fixed dollar amount, the Alabama preneed funeral bond amount is tied directly to the certificate holder's outstanding liabilities. The bond must be in an amount not less than the aggregate value of outstanding liabilities on undelivered preneed contracts for merchandise, services, and cash advances.
Here is how "outstanding liabilities" is defined under the Act: it is the original retail amount of services and cash advances, plus the actual cost to the certificate holder to provide the undelivered merchandise sold on each contract written after April 30, 2002. If the preneed contracts are indexed to changes in the consumer price index, the bond amount must also reflect any CPI-related increases in those liabilities.
The bond amount is not static. The certificate holder must report its outstanding liabilities semi-annually (compiled at the end of its fiscal year using generally accepted accounting principles) and update the report quarterly. The bond amount increases or decreases as those liabilities change. This means the bond grows with the business. As the certificate holder writes more preneed contracts, the bond amount goes up. As contracts are fulfilled or terminated, it goes down.
The Board must approve both the form and amount of the bond before it can be used.
Cancellation and Resignation Rules
The Alabama preneed funeral bond has specific rules around how and when it can be cancelled or terminated. These protections exist to ensure that consumers are never left without coverage.
Surety resignation. The surety company may resign by providing 60 days' written notice to both the Alabama Board of Funeral Service and the certificate holder. After resignation, the surety is not liable for contracts entered into after the resignation date. However, the surety remains on the hook for all contracts issued or covered before the resignation. The bond stays in force until every outstanding liability covered before the resignation has been fully paid, fulfilled, or terminated.
Bond cancellation. Cancellation requires the express written consent of the Board, plus 60 days' written notice. If the bond is cancelled, the certificate holder has 30 days from the first notice of cancellation to provide the Board with a replacement bond. The replacement bond must cover all of the aggregate outstanding liabilities of the cancelled bond as of the cancellation date. The bond cannot be cancelled without a replacement being in place.
Failure to maintain a bond. If a certificate holder using the surety bond option fails to keep a bond in force, the provider must immediately stop selling preneed contracts until the bond is restored or another approved funding vehicle is in place.
How to Get an Alabama Preneed Funeral Bond
Surety Bond Authority has been writing bonds since 1971. We work with funeral homes, cemetery operators, and their advisors across Alabama. Here is what the process looks like:
Step 1: Contact us. Call us at 800-333-7800 or request a quote online. We will need to know about your business, your current outstanding preneed liabilities, and the bond amount required.
Step 2: Underwriting. The surety reviews the certificate holder's financial position, business history, and volume of outstanding preneed contracts. Because the bond amount is tied to liabilities rather than a fixed sum, the underwriting process pays close attention to the provider's financial stability and track record of fulfilling contracts.
Step 3: Board approval and issuance. Once the surety approves the bond, the form and amount must be submitted to the Alabama Board of Funeral Service for approval. After the Board signs off, the bond is in effect and the certificate holder can use it to satisfy the preneed funding requirement.
Every situation is different. Call us to discuss your specifics and we will walk you through it.
Frequently Asked Questions
What is an Alabama preneed funeral bond?
It is a surety bond required by the Alabama Board of Funeral Service for preneed certificate holders who choose the surety bond option to secure their outstanding preneed liabilities. The bond guarantees that the provider will fulfill its preneed funeral merchandise and services contracts.
How much does the bond cost?
The premium depends on the bond amount (which is tied to your outstanding preneed liabilities), your financial strength, and other underwriting factors. Every situation is unique. Call us at 800-333-7800 for a free, no-obligation quote.
How is the bond amount calculated?
The bond amount must equal or exceed the aggregate value of your outstanding liabilities on undelivered preneed contracts. This includes the original retail amount of services and cash advances, plus the actual cost to provide undelivered merchandise on contracts written after April 30, 2002. The amount is updated quarterly based on your reporting.
Is the surety bond the only way to satisfy Alabama's preneed funding requirement?
No. Alabama allows four funding vehicles: insurance or annuity funding, a trust fund, a surety bond, or a letter of credit. You can use any combination of these, as long as the Board of Funeral Service has approved each one. Many providers prefer the surety bond because it does not require setting aside funds in a trust.
What happens if my surety company resigns or the bond is cancelled?
If the surety resigns, it must provide 60 days' written notice. The surety remains liable for all contracts covered before the resignation date. If the bond is cancelled, you have 30 days to provide the Board with a replacement bond covering all outstanding liabilities. You cannot operate without an approved funding vehicle in place.
Who regulates preneed bonds in Alabama?
The Alabama Board of Funeral Service. Regulatory authority was transferred from the Alabama Department of Insurance (ALDOI) to the Board of Funeral Service under the Alabama Preneed Funeral and Cemetery Act of 2023. The Board must approve both the form and amount of the surety bond.
How long does it take to get an Alabama preneed funeral bond?
We can often approve preneed funeral bonds the same day. The bond must also be approved by the Alabama Board of Funeral Service before it takes effect, which adds some additional processing time on the state's end.
Get Your Alabama Preneed Funeral Bond Today
Surety Bond Authority has more than 50 years of experience writing surety bonds for funeral homes and cemeteries across the country, including Alabama. Whether you are applying for a new preneed certificate of authority or replacing an existing bond, we will get it done. Call us at 800-333-7800 or contact us online to get started.
