What is a key requirement for an insurance policy used to fund a preneed contract?

A key requirement for an insurance policy used to fund a preneed contract is that the seller may not withdraw any cash value. This stipulation serves to protect the integrity and purpose of the preneed contract. Preneed insurance policies are designed to ensure that the funds are available specifically for funeral services when they are needed in the future. Allowing withdrawals of cash value could jeopardize the availability of those funds, potentially leaving the contract underfunded at the time of need. This requirement is important because it helps maintain trust and reliability in the funding mechanism of preneed arrangements, ensuring that consumers are safeguarded against future financial risks concerning their funeral expenses.

In contrast, the ability to transfer ownership at any time, ease of altering beneficiaries, and the requirement for immediate reinvestment of funds do not directly address the purpose of ensuring adequate financial provision for the funeral services as laid out in the preneed contract. All of these would either introduce vulnerabilities or complicate the financial safeguarding of the funds designed for a specific intended use.