Illinois’ Losses Little Compared to Service’s $1 Billion Shortfall

April 27, 2009 – Losses in a pre-need funeral trust fund once administered by the Illinois Funeral Directors Association don?t look like much compared to the collapse of a pre-need funeral empire based in Missouri and Texas. Founded by a disbarred lawyer who went to prison in the 1980s after being convicted of fraud, National Prearranged Services in St. Louis once did business across the nation, pitching to funeral home directors and consumers.

Consumers would buy funeral contracts from NPS that were funded with life insurance policies that paid out to funeral homes upon death. Under state laws, funeral homes that agreed to do business with NPS were obligated to pay for funerals if something went wrong. And things went horribly wrong last year.

The insurance policies were issued by two Texas-based companies affiliated with NPS. At some point, regulators say, policies were switched from whole life insurance, which has some value so long as premiums are paid and remains in force until death, to term life insurance, which expires after a set period of time and has no value unless someone dies. Financial ruin ensued.

According to regulators in Texas who spearheaded investigations into NPS, the company and its affiliated insurance companies had a shortfall of nearly $1 billion. Texas last year ordered the two insurance companies to stop selling policies and forced them into receivership.

In Illinois, where NPS sold about 16,000 funeral contracts involving 200 funeral homes, state Comptroller Dan Hynes quietly warned funeral directors to avoid NPS in 2007 and ordered the company to stop doing business in Illinois in January 2008.

The FBI has launched a criminal inquiry, according to the St. Louis Post-Dispatch, which says that agents have contacted funeral directors to inquire about their dealings with NPS. The company?s collapse has prompted the Missouri legislature to tighten up laws governing the sale of pre-need funeral contracts.

Although NPS losses are much greater than losses from the IFDA?s troubled trust, funeral directors obligated to provide funerals aren?t losing as much money because insurance guaranty associations are paying the face value of policies from funds set up to cover policyholders in the event insurance companies become insolvent.

Article By: Bruce Rushton can be reached at 788-1542.