In this article we take a look at one of the most popular companies in the MLM network marketing industry, Prepaid Legal Services. Based on recent Internet search statistics, there is significant interest in whether Prepaid Legal is a scam, and this peaked our interest to find out why. We take a look at what may be driving this issue as well as some company background.
The company is part of the MLM network marketing industry, which many automatically equate with pyramid schemes, like Bernie Madoff's famous financial scam. But in 1979, the FTC ruled that network marketing is a legitimate business model if a company's payments to distributors are made based on product sales vs. recruiting bonuses. We can easily point out popular network marketing companies using what are obvious recruiting bonuses. Prepaid Legal isn't in that group, although one report available on the Internet specifically relates its structure to an endless chain scheme, that is soon apt to collapse. We don't agree with this, and will address it in a future article.
The company began in 1972 as the Sportsman’s Motor Club. At present, they underwrite and market pre-paid legal services plans through a network of more than 50 independent legal firms throughout the U.S. and Canada. Pre-Paid Legal started utilizing network marketing in 1983. The company's IPO was in 1984 on the NASDAQ, and two years later moved to the American Stock Exchange.
Perhaps current "scam" interest is coming from a claims by some former multi level marketing distributors who point out that the company’s recruiting video may not give a true picture of the efforts needed to succeed. For example, one points out that their policies have a 52% cancellation rate in year one, 65% in year two, 72% in year three, etc. 100 memberships sold today will result in less than 10 (according to the company’s quarterly reports) in seven years. Some speculate that policy buyers may initially have legal issues, such as a traffic ticket or need a will prepared, but don’t have any actual continuing need for legal services.
Also, per the company's SEC filings, associate failure rates are very high. According to their published figure, 97% don't actually sell policies (only 3% make 10 sales) of the 450,000. In addition, 93% of the 455,000 associates make no sales at all. One person asserted that by reading company reports it appears that company stock buy-backs may artificially be inflating its price. If these reports are true, perhaps this company may be in danger of not surviving long-term. Also, the SEC and FTC have been reportedly investigating Prepaid Legal, although the FTC’s recently closed its investigation.
Despite an abundance of glowing testimonials from Prepaid Legal's multi level marketing associates and customers, there are also many questions about this company. This may explain why current Google search results are showing high interest in the term “prepaid legal scam” at the present time. We can only recommend that if considering joining any company to do your own research and get all your questions answered adequately, preferably from independent sources. We can’t advise any individual whether or not to join. But we recommend against making any decision solely based on company presentations. Whether truthful and factual or merely rumors being spead by those with a prsonal agenda, there are certainly strong opinions on either side of the question if Prepaid Legal could be considered with multi level marketing scams or not.
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