In this article we examine one of the most popular companies in the MLM network marketing industry, Prepaid Legal Services. According to recent Internet search statistics, there is great interest in knowing whether Prepaid Legal is a viable business or not, so we were interested and wanted to investigate the subject. We will examine the company and what lies behind so many questions about its legitimacy.
The company relies on MLM network marketing, which many automatically equate with pyramid schemes, like the one made famous by Bernie Madoff. But the FTC ruled in 1979 that network marketing was a completely legal business model if a company’s payments to distributors were made based on product sales vs. hiring bonuses. While some companies may tread this line closely, Prepaid Legal does not appear to be in this category at all, although a report available online specifically links their model to an endless chain scheme, which could soon collapse. We view this as speculative, but we will investigate further in a follow-up article.
The company was founded in 1972 as Sportsman’s Motor Club. Today, they market and underwrite prepaid legal service plans using a network of more than 50 independent law firms in the US and Canada. Pre-Paid Legal began using network marketing in 1983. The company went public on the NASDAQ in 1984, and two years later it was listed on the United States Stock Exchange.
Perhaps the current interest stems from the claims of some former multi-level marketing distributors that the company’s recruiting video may not give a true picture of the efforts required to be successful. For example, one points out that their policies have a cancellation rate of 52% in the first year, 65% in the second year, 72% in the third year, etc. 100 memberships sold today will result in fewer than 10 (based on the company’s quarterly reports) in seven years. Some speculate that policy buyers may initially have legal problems, such as a traffic ticket or need a prepared will, but have no ongoing need for services thereafter.
Additionally, according to the company’s filings with the SEC, there is a high failure rate for multi-level marketing associates. According to their published figure, 97% do not actually sell policies (only 3% make 10 sales) of the 450,000. In addition, 93% of the 455,000 associates do not make any sales. One reviewer also reports that there may be an ongoing effort to shore up the stock with a buyback by the company. If these reports are true, could the company’s survival really be in doubt? Additionally, the SEC and FTC have been investigating Prepaid Legal, although the FTC recently closed its investigation.
Despite the abundance of enthusiastic testimonials from Prepaid Legal customers and MLM associates, there are also many questions about this company. This may clarify why recent Google search results indicate a high interest in the term “prepaid legal scam” today. We suggest that if you plan to join any company, you first do your due diligence using reliable sources and draw your own conclusions. We cannot advise anyone whether to join or not. But we recommend not making decisions based solely on company presentations. Regardless of the truth behind these facts and / or rumors, there are certainly divided opinions on the question of whether or not the legal prepaid service should be considered a viable business opportunity.