Joint
Notice — Texas Department of Banking
Texas Department of Insurance
To: Texas Funeral Homes with
Outstanding Prepaid Funeral Benefit Contracts sold through National
Prearranged Services, Inc. (NPS)
May 7, 2008
On April 9, 2008, the Texas Department of Banking
(DOB) entered into an Agreed Order with NPS to stop selling prepaid
funeral contracts (PFCs) in Texas and at the same time the Texas
Department of Insurance (TDI) issued a Hazardous Financial Condition
Order (HFCO) against Memorial Service Life Insurance Company (Memorial)
and Lincoln Memorial Life Insurance Company (Lincoln). Both Memorial
and Lincoln are prohibited from writing any new insurance policies
in any state.
Prior to TDI issuing the April HFCO, both Lincoln
and Memorial were under confidential supervision by TDI. During
this period, the TDI supervisor issued a directive for the insurance
companies to cease writing any new insurance business in all states
as of March 17, 2008. Be assured that the TDI and the DOB continue
to work with NPS, Memorial and Lincoln seeking a reasonable resolution
to the current problems.
Both TDI and DOB have received numerous calls
from funeral homes and Texas consumers inquiring about the status
of the outstanding PFCs sold by NPS and the respective insurance
polices funding the PFCs. A recap of the frequently asked questions
and answers follow:
Frequently Asked Questions and Answers:
Q: How should I respond if a consumer asks me whether
he/she should continue to make payments?
A: The DOB and TDI advise consumers
to continue making their periodic premium payments to keep the
PFC and policy in-force. In the event that Lincoln and Memorial
encounter severe financial difficulties and are placed in liquidation,
the insurance guaranty association can pay benefits under policies
that are in-force.
If a Texas consumer stops paying premiums,
the PFC will be voided and the policy will lapse and become a Reduced
Paid-Up (RPU) policy. The
RPU value in almost all cases will be less than the premiums the
consumer has paid on the policy. The companies are unable
to process and pay on such policy surrenders at this time. In
the event of liquidation, the insurance guaranty association can
pay benefits under RPU policies, assuming the RPU benefit is a
contractual obligation under the policy or contract.
Q: Can I advise a consumer to cancel their PFC and insurance policy?
A: Funeral homes should not advise
Texas consumers to cancel their PFCs and related insurance
policies if the intent is to sell the consumer a new
PFC with a different permit holder and insurance company.
This practice could harm the consumer since the cancellation
benefit obtained from the insurance company will be
significantly less than what the consumer has paid
in. Remember,
the companies are unable to process and pay on policy surrenders
at this time.
However, if a consumer insists on canceling their PFC and insurance
policy, it is recommended that the funeral home obtain a signed
statement from the consumer acknowledging that the cancellation
request is being made at his/her request, and that he or she understands
that the companies are unable to pay surrenders at this time. The
statement should also note that the cash surrender value of the
policy will be less than premiums that have been paid in and that
the cancellation was not initiated by the funeral home and/or a
sales representative.
Q: Do consumers continue to send
payments to the same address and made payable to the same company?
A: Yes.
Q: Do funeral homes continue to send
claims to the same place and who is going to answer my questions?
A: Although NPS had a significant staff reduction
on April 11, 2008, they are confident the remaining staff will
be able to process your claims and assist you with questions. However,
it is our understanding that current call volume is very high and
NPS is asking for your patience and understanding. You may
also contact NPS by email at customerservice@n-p-s-inc.com.
Q: A consumer bought a PFC from NPS on or after March
17, 2008. What happens to the PFC?
A: NPS has agreed to refund all amounts collected
from consumers for PFCs sold since March 17, 2008, and is in the
process of doing this. If you have a customer who has not
received their refund, please ask them to contact the DOB.
Q: What is the likelihood that Memorial or Lincoln
will pay the promised insurance policy benefits to funeral
home providers or Texas consumers?
A: Memorial and Lincoln are paying death benefits
under policies. If Memorial and Lincoln encounter severe
financial problems and are liquidated, the insurance guaranty
association will pay benefits under policies that are in-force
at the time the death or surrender occurs.
Many consumers and funeral homes assigned their benefits under
the insurance policies to NPS. In order to ensure that benefits
reach the funeral home as quickly and as directly as possible,
Memorial and Lincoln are working on having the benefits re-assigned
to consumers and funeral homes. The assignments do not currently
present major issues for consumers because NPS and Memorial are
currently being managed together. Consumers will be updated
promptly should events change which may affect these assignments.
Q: What is the likelihood that NPS will pay funeral
homes the growth promised to service the PFCs?
A: As of today, NPS does not have the financial
strength or capacity to pay funeral homes the promised growth.
Q: If NPS cannot pay a funeral home the promised growth,
is the funeral home still required to honor the PFC?
A: Yes, the funeral home still has a contractual
liability to honor the PFC at the time of need and also must
provide NPS the paperwork required to verify the contract has
been fulfilled. You must furnish the described PFC benefits
specified in the contract, or provide their equivalent in quality,
for the contract price as promised.
Q: Are the children/grandchildren
death benefit policy riders still in effect?
A: Riders are part of the insurance
policies. To the extent that the policy is in force at
the time of death, the policy riders are also in force.
Q: Who should I contact for more
information?
A: Consumers and insurance
agents with questions about the status of the Memorial or Lincoln
should contact TDI’s
Consumer Protection at (800) 252-3439. If you have questions about
NPS or the Texas PFC permit, please contact the DOB toll-free at
(877) 276-5554, at the menu prompt select (3) for Inquiries/Complaints,
or call (512) 475-1285 directly.
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