The people peddling prepaid funeral contracts preyed on that desire for peace of mind. National Prearranged Services promised customers that they’d lock in prices and have their funerals paid in full whenever they died. Instead, they scammed around 150,000 customers for as much as $10,000 each. The company operated for sixteen years, from 1992 to 2008, promising customers that their money was going into trusts or life insurance policies. They went into neither.
Investigators found that money from customers went straight into real estate and personal purchases by company employees and officers. In classic Ponzi scheme fashion, if they needed to pay for a funeral, money from new contracts went back out to cover those costs.
Six company officers, who happen to all be related, have been charged in this case. They dispute the government’s estimate that as much as $600 million has been lost. The first family member pleaded guilty this week to six counts of mail fraud, wire fraud and misappropriation of insurance premiums. She could be sentenced to as long as 30 years in prison and pay a $1 million fine, but her attorneys say that at age 69 and in frail health, that is not an appropriate sentence.
Planning your funeral ahead of time is a good idea, but prepaying for it isn’t necessarily a good idea, according to the Federal Trade Commission. A better choice is a trust or life insurance policy that you and your family control and that will cover the service you want. Businesses may change hands, your contract may not cover every expense, and sometimes costs actually go down over time.