Update 5/3/08 - The next time a funeral home tells you it’s a great idea to “guarantee today’s prices” by prepaying your funeral, pull out this article. Funeral Consumers Alliance has long warned against prepaying for your funeral, but even we’re surprised at how widespread the scams and stolen consumer money have become in the preneed industry. The latest preneed company teetering on the brink --- along with hundreds of millions of dollars consumers have prepaid for “peace of mind” --- is National Prearranged Services.
NPS and its affiliated life insurance company, Lincoln Memorial Life Insurance, are under investigation by regulators in at least 10 states. Alleging the companies have been draining money out of consumers’ prepaid insurance contracts, regulators in Texas, Missouri, Kentucky, Iowa, Ohio, have told the company to stop selling policies while officials examine their books.
It’s not clear how many consumers are affected, but according to the Kansas City Star, at least 46,000 Missouri residents have bought NPS policies. The Texas departments of banking and insurance says at least 39,000 Texans have bought them too.
So what has NPS been up to? According to an article in the Kansas City Star, a pyramid scheme:
“The allegations suggest a pyramid scheme has been in place for at least eight years by the insurer and National Prearranged Services of St. Louis that used payments from new customers to pay off existing ‘pre-need’ funeral customers’ guaranteed burial plans.”
The Missouri Board of Funeral Directors and Embalmers’ Web site says this:
“. . . NPS may have shortages in their preneed trust accounts. Specifically, the Board has reason to believe that the trust accounts contain a substantially and significantly lower amount than the 80 percent of preneed funds [paid by consumers] that are statutorily required to be in trust . . .The trust may also have far less than the amount of preneed funds that were transferred to the trust by other preneed sellers/funeral establishments through ‘rollovers.’ Frankly, serious questions have been raised as to whether NPS will have sufficient funds to continue to pay its obligations on preneed claims.”
According to the Kansas City Star, Hannover Life Reassurance Company sued NPS last year, claiming NPS converted whole life insurance policies into less-valuable term life insurance, then took the extra money to pay for “high commissions and marketing fees.” Hannover was apparently NPS’s “reinsurance company,” which means Hannover provided insured NPS against NPS’ own losses.
The Ft. Worth Star Telegram Watchdog columnist Dave Lieber described it this way:
“Here’s what appears to have happened: NPS used money it made from funeral contracts to buy whole life insurance policies, but eventually the company decided to convert these whole life policies into term life policies. This gave the company money up-front because it could borrow money based on the policy. But eventually more money was required to cover the cost of ballooning payments for the term life policies.”
Funeral homes sold NPS policies to customers, depending on policy growth to cover the rising costs of providing funerals to the customer. But it looks like NPS policies probably won’t pay out more than their face value at the time of death, if that. Some funeral homes may try to get families to pay more for the funeral at the time of death so the funeral home doesn’t have to take the hit. Don’t let them. If your family member signed a contract for a price-guaranteed funeral, the funeral home is obligated to provide that funeral without charging you more. Be sure to read your contract carefully and know your rights.
It’s impossible to say how much value your prepaid policy with NPS has, or how much it will have at the time of your death. We can’t tell you whether to continue paying on your policy, or try to cash it out and get what you can now. Some state regulators advise consumers to keep paying policy premiums, others say nothing. Since state regulators are taking over the company and lawsuits against it are pending, we have no idea yet what your best options are. If you’ve got an NPS policy, you should contact the regulators in your state for advice. Be warned, though: many state agencies are giving out only tentative information and may not have much practical advice for you yet. Below is a list of some of the state regulators in charge of the investigation. If you don’t see your state on the list below, do a Google search for your state’s funeral board and insurance department.
Missouri Board of Embalmers and Funeral Directors
Texas Department of Banking - Here's a press release on NPS
Ohio Department of Insurance - the ODI put out a press release detailing the scam NPS was running on consumers.
Iowa Insurance Division - the IID has a press release with answers to consumer questions here.
Kentucky Office of Insurance
Illinois Comptroller’s Office Q&A for NPS and Lincoln Memorial customers
- The state believes the companies are in serious financial trouble, though we don't know what "Routine oversight activities by TDI revealed a significant amount of surrendered transactions by the companies at the end of 2006" means.
- The state has ordered the company to stop selling life insurance in Texas.
- The state is requiring the companies to come up with a plan to make sure they pay out on life insurance policies consumers have already bought to finance their funerals.
- The state claims consumers can expect the companies will pay out the full face amount of the policy, but that funeral homes and consumers can't expect any new growth. For the consumer, this means the policy won't keep growing to keep pace with inflation. It also means that funeral homes who've sold prepaid funerals to consumers with guaranteed prices will have to eat the difference if the customer's funeral ends up costing more than the policy pays out. (Note to consumers - be sure you read your original contract. If it's price-guaranteed, that means the funeral home has to provide the funeral you contracted for, even if your life insurance policy falls short!)
If you've got further questions about your policy or what all of this means, contact the Insurance Dept.'s Consumer Protection office at 800-252-3439, or the Dept. of Banking at 877-276-5554. Funeral directors should contact the Dept. of Banking.
Here's the original press release. (Note to the Texas Departments of Banking and Insurance - we appreciate that you're doing your job to protect consumers, honestly. But please, please learn to write press releases in clear, plain English that the public understands. It really does matter.)
Texas Department of Insurance
Texas Department of BankingFOR IMMEDIATE RELEASE FOR MORE INFORMATIONApril 9, 2008 John Greeley(512) 463-6425
Joint News Release Russell Reese (512) 475-1324Insurance, Banking Departments Issue Orders on CompaniesInvolved With Pre-Need Funeral ContractsAUSTIN – The Texas Department of Insurance (TDI) has issued a Hazardous Financial Condition Order for Memorial Service Life Insurance Company, Lincoln Memorial Life Insurance Co., and National Prearranged Services, Inc. pursuant to Chapter 404 of the Texas Insurance Code. At the same time, the Texas Department of Banking (DOB) entered into an Agreed Order with National Prearranged Services, Inc., to cease selling prepaid funeral benefits contracts pursuant to Chapter 154 of the Texas Finance Code.
National Prearranged Services (NPS) of St. Louis sells pre-need funeral contracts in several states and is licensed in Texas by the DOB to sell insurance-funded prepaid funeral benefits contracts. NPS has approximately 39,000 insurance-funded prepaid funeral benefits contracts outstanding in Texas. NPS is a general agent for Lincoln Memorial Life Insurance Company and Memorial Service Life Insurance Company. NPS is ultimately owned by a Trust created by the Cassity family in the state of Missouri.
Lincoln Memorial Life Insurance Company and Memorial Service Life Insurance Company were placed in supervision by TDI in October 2007. Routine oversight activities by TDI revealed a significant amount of surrendered transactions by the companies at the end of 2006. In March 2008, TDI issued an order for the companies to cease writing new business in Texas. These actions were confidential, by statute.
The TDI-issued Hazardous Financial Condition Order requires the companies to establish a plan to pay policyholder claims and to address existing contracts.
The DOB-issued Agreed Order requires NPS to cease selling prepaid funeral benefits contracts in Texas. The DOB Order also requires NPS to take actions to comply with Chapter 154 of the Texas Finance Code for outstanding contracts and to return all prepaid funeral benefits contracts and associated payments received since March 17, 2008 to the purchasers. Finally, the DOB Order requires NPS to initiate actions to remove NPS as the policy beneficiary for polices issued in conjunction with Texas prepaid funeral benefits contracts.
“While every effort was made to secure the companies and return them to normal operations, the decision was made to take this regulatory action,” said Texas Insurance Commissioner Mike Geeslin. “As we move forward, our goal is to use every law on the books to protect consumers, coordinate with other regulators and states and – most importantly – keep all parties informed as issues develop.”
“It is imperative that we work closely with NPS and the funeral providers to ensure all Texas consumers receive their prepaid funeral goods and services as originally promised,” said Texas Banking Commissioner Randall James.
TDI, the DOB and regulators in other states will continue to work with NPS, Memorial Service Life Insurance Company and Lincoln Memorial Life Insurance Company for a reasonable resolution for consumers in Texas and elsewhere.
Texas consumers with pre-need funeral contracts funded by insurance policies written by Memorial Service Life can expect that the policies will be paid up to the face amount. However, it is unlikely that funeral providers will receive any additional compensation in the form of a policy or contract growth payment from NPS which will affect the 650 Texas funeral homes who have agreed to service the prepaid contracts as the funeral providers.
Consumers and insurance agents with questions about the status of a pre-need funeral contract should contact TDI’s Consumer Protection at(800) 252-3439 or the DOB at (877) 276-5554
. Funeral home operators/agents should direct questions to the DOB.
# # #
ORIGINAL STORY published April 5, 2008 - If you've got a prepaid insurance plan for your funeral from National Prearranged Services or its subsidiary, Lincoln Memorial, Texas regulators won't tell you if your policy's in trouble, according to Ft. Worth Star Telegram columnist Dave Lieber. In a recent Watchdog column, Lieber said the Texas Dept. of Insurance won't comment on whether or why the state has ordered the companies to stop selling in Texas.
Texas officials decline to comment on the financial status of NPS, which also goes by Forever Enterprises. Thanks, then, go to the Kentucky Office of Insurance, which tells us on its Web site that Kentucky has suspended NPS from selling because of a similar action in Texas. According to Kentucky, the Texas Insurance Department issued a directive to NPS' subsidiary to cease writing new business in Texas effective March 21.
Reason cited: "Lincoln Memorial's hazardous condition as well as other issues related to premium receivables."
This is interesting, considering the Texas Department of Banking's Web site lists Lincoln Memorial Life Insurance company as "active" with "normal operations." Check for yourself on their site, but beware it must be one of the most user-unfriendly government sites ever. Looks like the Dept. wants to make it hard to get information by any means.
Sure enough, the Kentucky Dept. of Insurance lists a cease and desist order against Lincoln Memorial dated March 27, 2008. The order states, "Whereas, as a result of Lincoln Memorial's hazardous financial condition as well as other issues related to premium receivables, the Texas Department of Insurance issued a Directive to Cease Writing New Business to Lincoln Memorial effective March 17, 2008."
What's going on, Texas? What about the consumers holding NPS or Lincoln Memorial policies? Why has the state ordered the company to stop selling, but still lists it as "active" with "normal operations?" Lieber writes:
The Watchdog asked Texas banking and insurance regulators for any information about NPS. They all declined to answer any questions, citing confidentiality laws.
"The fact that it came out in another state's document, we have no control over that," said John Greeley of the Texas Insurance Department. He couldn't comment further, he said, because "among the range of actions we can take, some of the actions are confidential." State insurance lawyers were unavailable for comment, he said.
Gee thanks. Care to explain to policyholders why something so important as ordering a company to stop selling insurance is "confidential?" FCA of North Texas' Jim Bates (also a board member of FCA National) told the Star-Telegram, "I can't figure it out, there's just something wrong about that. We should be given information about what our government agencies are working on."
Hear, hear. Note to Texas regulators - your job is to protect the public. That includes warning consumers who may be depending on a bad insurance policy to pay for their funerals.
Hats off to Watchdog Dave Lieber - we need assertive press men like you to keep government accountable. Keep their feet to the fire.
Got information on National Prearranged Services or Lincoln Memorial? Leave us a comment below or email us at This e-mail address is being protected from spambots, you need JavaScript enabled to view it
This link is to a the NPS website and their map page of the states where they do business.
She's out of a job now, and her funeral director customers are left holding the bag. The preneed purchasers will probably get their funerals, but at the heavy expense of the funeral directors who fell for this Ponzi scheme.
Will P.
Posted on May 2, 2008 by Bill Stalter
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On Wednesday, April 30th, the Missouri Department of Insurance fired off the first salvo in the legal proceedings to recover funds from Lincoln Memorial Life Insurance Company. In an effort to prepare those affected by the NPS meltdown, the Missouri State Board of Embalmers and Funeral Directors and the Division of Professional Registration have issued press releases that explain critical issues related to this situation. The tenor of these press releases is substantially different from those previously released by other states’ regulators. Consumers and funeral directors need to review these releases carefully.
If it hasn’t been apparent to funeral directors before now, Missouri’s filings against Lincoln Memorial Life reflect that the NPS trusts are full of term insurance policies. Some reports indicate that the policies may be lapsing soon. While Missouri Department of Insurance has filed its actions against Lincoln Memorial Life, the eventual target will be the NPS/Lincoln corporate officers and directors. Because regulators must pursue their claims through the authorities granted by the statutes governing insurance and preneed, funeral homes need to consider banding together in an action that focuses on the authorities granted to the replacement management team installed by the Texas regulators.
The Missouri regulators and their legal staffs have been overwhelmed by the situation. These offices were understaffed to begin with, and the magnitude of the investigation, legal proceedings and inquiries has stretched their resources to the limits. This all may make for good campaign rhetoric in the upcoming fall elections, but the industry needs to take actions to help recover improperly diverted funds.
The rumors of law firms offering to initiate class action lawsuits have already begun to circulate. But, most funeral directors probably appreciate that building a coalition to preserve the NPS assets and working towards an equitable division of the proceeds would better serve their interests. To be fair, consumers need an explanation about the third party preneed transaction and their exposure for the NPS failure.
The majority of preneed contracts are between the funeral home/cemetery and the purchaser, wherein the funeral home/cemetery is the primary obligor. The essence of the contract is two promises: the purchaser to pay a specific amount of money and the funeral home/cemetery to provide certain described services and goods when the purchaser (beneficiary) dies.
NPS is (was) a third party preneed seller. Funeral homes and cemeteries use third party sellers for a handful of valid purposes. Often, smaller death care companies may not have the volume of preneed sales to justify the expense of contracts, administration and compliance and so they contract with third party preneed sellers. Some states require the death care company to be the obligor of the preneed contract, but many do not. In states where law requires the death care company to be the obligor, the third party seller acts in an agency capacity to the funeral home and cemetery. It that situation, the death care company has an obligation to honor the contract regardless of most circumstances (like the failure of the trust).
However, states such as Missouri and Texas, allow the third party seller to be the obligor of the preneed contract. In these types of preneed transactions, there are four sets of promises: the purchaser to pay money to the third party seller, the third party seller to cause the funeral home to provide a funeral by paying it money, the funeral home to provide the funeral, and the third party seller to pay money to the funeral home. However, the terms of the payment between the third party seller and the funeral home are not generally disclosed in the preneed contract, but rather in a separate agreement between the third party seller and the funeral home/cemetery (called an associate agreement or provider agreement).
NPS used a multitude of different preneed contract forms and associate agreements (most of which were infamous for their ambiguity or brevity). NPS relied upon these ambiguities to transfer preneed contracts from one funeral home to another funeral home if the circumstances benefited NPS. Consequently, the agreements were intended to be difficult to enforce, which cuts two ways.
Regulators did not seem to appreciate this fact when early press releases were issued to calm consumers. Those press releases suggested that funeral homes would have to honor their NPS contract “pursuant to their terms”. While funeral directors cannot afford to walk away from their families, regulators need to follow the lead taken by Missouri’s State Board of Embalmers and Funeral Directors by being more forthright with consumers. If the NPS/Lincoln proceedings take years to resolve (instead of months), the parties will need an understanding of their respective rights and obligations in reaching fair and equitable settlements.