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A Cautionary Tale About a Highly Specific Form of Insurance

We’re all guilty of falling into the rut of thinking there are just three kinds of insurance — auto, home, and health. And it is true that those types of coverage are the ones we deal with most often, but then a story like this comes along, and I’m reminded how many different ways there are to hedge your bet against risk and how many ways there are for unscrupulous providers to take your money.

Last week I read an account of six officials of a company, National Prearranged Services, Inc., that were indicted for allegedly pocketing $600 million in insurance money for their personal use. Thankfully, they were stopped from selling more policies in 2008 when the Texas Department of Insurance forced the firm into liquidation, but the 50-count federal indictment is testament to what they did with customer money.

The prosecution is saying that 150,000 people who bought funeral policies were affected by the scheme. Each of them paid $5,000 to $10,000 in the belief they were protecting their relatives from the exorbitant costs of burials in the United States. Not only did the defendants supposedly take the money, they made more money by borrowing against the policies.

The boarder cautionary tales for insurance customers here are just legion. Much of the burden for protecting yourself lies with you — doing your research, comparing policies and rates, going to your state insurance board’s website and looking for issues with a company, asking for referrals. This is one area of personal business dealings where there is no such thing as too much caution.

Let’s face it. These folks saw a perfect opportunity. When the policy holder is dead, there’s no story to be told but the company’s.

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