The two faces of NPS: insurance vs. trust

Posted on September 16, 2008 by Bill Stalter

Concurrent with the hearing held on her Liquidation Plan, the Special Deputy Receiver posted a financial report to the Lincoln Memorial Life/NPS website. As with most financial statements, explanatory notes at the end of the report provide some insights to the failed NPS empire. While prior documents have disclosed that the companies have a deficient of nearly one billion dollars, the SDR report breaks that number down in terms of trust funded contracts and insurance funded contracts. 

Insurance funded preneed contracts account for almost $600 million of the unfunded deficit, twice the number of that for trust-funded contracts ($289 million).   The explanatory notes identify six trusts maintained by NPS. The notes identify Trust VI as that of Iowa, and the size of Trust IV would suggest that it was for Missouri. One of the other trusts may be a special account, and if one were to assume the other three are other ‘state trusts’, that would leave the other 15 NPS states as exclusive insurance funded states. There is no doubt that NPS exploited Missouri’s laws regarding trust funded contracts, but a greater harm was done to consumers through NPS' exploitation of state laws governing insurance funded contracts.

 

Of the NPS trusts, the Missouri deficit is the largest by far ($248 million). This number has been isolated to Missouri regulators as justification for raising the state’s trusting requirement to 100%. That argument ignores the fact that Iowa also has an 80% trusting requirement, yet only has a deficit of $23.5 million (a tenth of Missouri’s). The difference can be attributed to the difference in oversight and regulatory requirements. The argument also ignores the fact that Kansas, a state with a 100% trusting requirement, has a deficit of approximately $22 million (all of which is based on insurance-funded contracts).

 

Another explanatory note that may suggest that Missouri’s oversight is lacking is a note payable of $10 million owed by NPS to the Missouri preneed trust.  

 

Missouri’s Chapter 436 problems will not be fixed by going to a 100% trusting requirement. Oversight should be the state legislature’s top priority, and Missouri preneed sellers need to begin providing ideas and answers.  

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NPS Installment Contracts and the Liquidation Plan

Posted on August 19, 2008 by Bill Stalter

While approval of the SDR’s Liquidation Plan is imperative to providing funds for NPS contracts that are being serviced, and will be serviced during the next few years, funeral directors and consumers are raising valid questions about the Plan.   For the consumer who purchased a trust-funded contract from NPS on installments, the Plan fails to adequately address their situation.

Plan Paragraph 10.4 addresses the consumers who are making periodic payments on an NPS contract. The paragraph states in part:

 

            (ii) all payments must continue to be paid to the applicable Participating Association or else the coverage provided under the Policy will lapse; and

 

            (iii) the amount of the payment due to NPS (and, after assignment, to the Participating Association) may be prorated and reduced to the extent that the face amount of the Preneed Funeral Contract exceeds the death benefit face amount of the Covered Obligation.

 

The problem for consumers with installment contracts is that NPS charged fees that are not reflected in the “face amount of the Preneed Funeral Contract”.   NPS employed an installment plan that incorporated finance charges and a mortality expense, for terms of up to 10 years. Depending upon the age of the consumer and the term of payment, he or she may end up paying thousands of dollars in excess of the contract’s face amount. There is no justification for the additional mortality expense if the NPS trust was purchasing life insurance.

 

If a consumer purchased a NPS trust-funded contract on installments within the past few years, he/she may want to review the contract with their funeral director to determine whether to continue making payments. For those who have paid in more than the contract’s face amount, consumers may want to seek further guidance from the SDR about the proration language of Paragraph 10.4.

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