Funeral Bonds for Licensed Providers

Not all states require funeral home owners to purchase a funeral surety bond. However, many states do. If you operate a funeral home in one of those states, you’ll have to purchase a funeral bond before you can offer pre-arranged funeral services. The bond protects the state from liability for having issued you a license to operate a funeral home and offer pre-need funeral arrangements. It also protects those who purchase such prepaid arrangements (or their heirs) against financial loss due to your unlawful or unethical actions.

Even if your state does not require a funeral bond, it can be a good idea to buy one if you plan to provide pre-need funeral arrangements. Being bonded tells the public that you can be trusted to honor their wishes when the time comes and that it is safe to entrust you with their money in the meantime. That level of trust can be a significant competitive advantage in marketing prepaid funeral arrangements.

The surety bond agreement for a funeral bond is a legally binding contract. In states where funeral bonds are mandatory, there are three parties to the contract:

• The state agency requiring the bond and establishing the required bond amount is known as the “obligee,”
• The funeral home owner purchasing the bond and legally obligated to pay valid claims is the “principal,” and
• The company underwriting and issuing the bond is called the “surety.”

In states where purchasing a funeral bond is voluntary, the obligee and the principal are one and the same—the owner of the funeral home.

In issuing a funeral bond, the surety is promising to extend credit to the principal in the event that it’s needed to pay a valid claim. The usual practice is for the surety to pay the claim on behalf of the principal, which creates a debt that the principal must repay to the surety, which often can be done in installments. Thus, the claimant receives prompt payment and the principal is not required to come up with a large sum of money in one lump sum.