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.