A life insurance funded burial contract involves an individual assigning either the
proceeds or ownership of an insurance policy to a third party, generally a funeral
provider, as payment for a burial contract. As indicated in SI 01130.425B, in this type of burial arrangement, the focus is on the assignment of the insurance
policy rather than the contract. This is because the contract itself--apart from the
insurance policy assigned to fund it--has no resource value. Therefore, as discussed
more fully in the subsections below, it must be determined whether such an assignment
is revocable under state law, thus providing the individual with access to the cash
value, if any, of the insurance policy.
However, prior to reaching the issue of revocability, it should be noted that Michigan
law gives the purchaser of a life insurance policy at least 10 days to cancel the
policy and recover the full premium paid. During this period, the policy is a resource,
and its value is the amount of premium paid. After the initial cancellation period,
follow the instructions below.
1. Assignment of Ownership
Michigan law does not specifically prohibit an individual from assigning ownership
of a life insurance policy to a funeral provider. To be valid, however, the insurance
policy must be held in escrow for the benefit of the individual. In addition, unless
the Department of Human Services (DHS) has certified the arrangement as irrevocable
(see POMS SI CHI01130.424), the individual may, at any time, revoke the assignment and receive at least 90
percent of the insurance policy’s cash surrender value. Therefore, the insurance policy
is a resource up to at least 90 percent of its cash surrender value. If it is necessary
to determine the exact amount, please refer the matter to the Regional Office. Follow
the instructions in SI 01130.425C.1 to determine the effect of burial exclusions.
2. Assignment of Proceeds
An assignment of the proceeds of an insurance policy is always revocable. Thus, the
entire cash surrender value of the insurance policy is resource. Follow the instructions
in SI 01130.425D.1 to determine the effect of burial exclusions. However, if the insurance policy is
placed in a trust in conjunction with a revocable assignment of proceeds, see B. below.