After almost 16 years, the NPS receivership is coming to a close.  But the final chapter will mark a messy end for funeral homes that have consumers with an orphaned NPS contract and those funeral homes that did not heed the SDR’s 2020 notice about lost earnings. 

One of the receivership’s final steps will be to return consumer funds held in escrow for orphan NPS contracts.  Orphan NPS contracts were those that did not have a related Lincoln Memorial life insurance policy.  Without a LML policy, or the indicia of the intent to purchase a policy, the various insurance guaranty associations were not obligated to provide coverage for the NPS preneed contract.  NPS had very bad recordkeeping and the receivership needed time to review LML records for documentation that supported coverage.  In 2010, a court order was issued with regard to the orphan NPS contracts.  Consumers who were making installment payments on an orphaned contract were instructed to continue making payments or face having the contract terminated. 

This created a dilemma for funeral homes that had to advise their consumers:  continue making payments to the receivership or start over with a new preneed contract.  Our advice to funeral homes was to look at each contract to determine how much had already been paid, and then discuss the risks with the consumer.  For consumers with a few hundred dollars paid to NPS, the better course may be to start over.  With more substantial payments to NPS, the consumer would be advised to continue paying in hopes that coverage would be eventually approved.

And over the years, coverage was eventually extended to some orphaned contracts.  Today, it is not clear how many orphan contracts remain, but the payments made during those receivership years are being returned.  At least in Missouri, questions are being raised whether special protections should be extended to the consumers.  With the exception of rollover contracts, our conclusion would be that this is a matter for the consumer and funeral home to work out. 

For the most part, Missouri funeral homes have attempted to do right by the NPS contract holder by providing credits or discounts.  It would be an overreach for regulators to take the position that funeral homes must honor an NPS contract without regard to what will be received for the service.  The consumer had an option in 2010 to start over.  Many consumers took that option.  Those that did not, will now receive a refund and will need to start over.   Funeral homes will likely work with consumers by making the refund go as far as possible. 

The rollover contracts are the exception to this approach.  Rollover contracts are those that were sold by a funeral home as the preneed seller, and then subsequently transferred to NPS for additional compensation.  In the rollover, the funeral home made a bad decision and has an obligation to perform the contract regardless of payment at the time of need.

The other closing spoiler is lost earnings for funeral homes.  In 2020, the receivership sent out this notice to NPS providers.  Many funeral homes did not take the notice seriously.  Missouri funeral homes were advised by industry representatives that there would not be any receivership assets left to split among funeral home providers.  Those statements proved false, and word leaked in 2023 that some funeral home providers would receive significant lost earnings distributions.  This resulted in dozens of objections be filed with the receivership.  Those that we reviewed have been rejected for failure to heed the 2020 notice.  That is leaving a bitter taste for many funeral homes.