It’s certainly not breaking news. But it has been important and timely and will remain important and timely for many years. A very high percentage of the universal life policies in force today are in trouble due to the abhorrent sales pitches of those life insurance agents who were more worried about their bottom line than their client’s family and future.
Those pitches centered around two things. Agents sold the idea that universal life would build tremendous cash value and that it was a policy that would be there for life. What a package! What they didn’t tell potential clients was that there was no guarantee of cash value accrual and also no guarantee that if the policy started bleeding cash due to lower interest rates, that the policy would stay in force at all let alone for life. By the way the majority of estate preservation policies sold in the last 20 years used these types of universal life policies
Now keep in mind that sold correctly with enough premium dollars going in, a universal life policy could be guaranteed to remain in force forever and even be guaranteed to build cash value to some degree.
But also keep in mind that most life insurance is sold in competitive situations and that universal life policies have guaranteed and non guaranteed values. Logically the price is higher to guarantee values like cash and the longevity of the policy.
So, a dirtball agent who wanted to win the day for himself would show a client a non guaranteed policy illustration and talk a lot about how “the company has historically done well and there’s no reason to believe that will change”, and “things would really have to go down the tubes before the guaranteed values will come into play”. Some would simply not show the guaranteed values. It just muddied the waters.
Probably 90% of universal life policies sold in the 80’s were sold like this and the majority since then have gone the same route. It was more prevalent during the 80’s just because assumed interest rates were so high that agents were selling universal life as an early retirement vehicle. You could put in squat and be a millionaire in 20 years according to them.
So these “Bad UL’s looked great on the non guaranteed side and fell to pieces (death benefit went away)in short order on the guaranteed side. On the flip side a “Good UL stays together (death benefit remains intact) on the guaranteed side.
Bottom line. I’ve made a lot of this issue over the years and probably will until I die or retire. What people need to know is that 1. you can’t hang on to it long enough for it to get better and 2. you can replace it with an appropriate product and get back on solid ground right now. There are far too many people out there thinking they can keep dumping cash into a failing universal life policy and someday, somehow, things are just going to be OK. Unfortunately…..NOT!
July 2nd, 2009
No one loves a good value better than me. I don’t take lightly buying almost anything and I really don’t take lightly committing myself to making payments for something like life insurance.
Having said that, there is a problem when people want to suck the marrow out of the shopping experience, making sure that every stone is turned and every possibility is researched.
I was talking with someone today who was taken for a ride on a universal life policy he bought 15 or so years ago. Promised that it would last forever and it is imploding before his eyes, price going up and guarantee non existent at this point. I offered several fully guaranteed options to him and he was having a hard time, even though he called the agent a crook, wrapping his mind around changing. Wanted to think about it a while longer. So I shared a story with him from last year. He is now considering the merits of making that change while he knows what his health is.
It never seems very far between stories gone bad because of shopping to long or dragging a person’s feet just a little too long. I worked with a man near retirement age last year, and the year before. He wanted an insurance policy that would allow him to maximize his retirement options. He kept putting it off because he wanted to make sure he purchased just the right amount. He was debating between $500,000 and $600,000. We worked this over for almost a year and a half. I kept explaining that he could put $500,000 in force and if, in the end, he wanted $600,000, we could add $100,000 or replace the first policy with a new one for the full amount. He didn’t have any life insurance in force and I made it clear that the suggestion above was a prudent approach.
He called one day and I had a hard time understanding him. His speech was slurred. He had a massive stroke and wanted to know if those rates I had quoted him were still good. Of course with the health change they weren’t and the options that he had kicked around for over a year went out the window.
Bottom line. I’m not against people shopping and spending their life in pursuit of the perfect policy at the perfect rate. But prudence dictates doing that from a position of power. Have insurance in force and then take your time researching the world. You can always replace a policy with a better one.
July 2nd, 2009
I would be the last person in the world to say that habits are easy to change, especially bad, life long, ingrained habits. But no kidding, there are some cases I really can’t wrap my mind around.
The one that caught my “you’ve got to be kidding” attention today was a 68 year old man who has smoked most of his life, but has cut way back. Used to be two packs a day, now down to less than a half pack. He called to see if he could get better rates now than the policy he took out 10 years ago.
10 years ago, other than being a smoker he didn’t have any health issues. Since then he has battled glaucoma, losing one eye. He is now treated for high blood pressure and high cholesterol. 4 years ago he was diagnosed with emphysema and is on oxygen at night.
And he continues to smoke! And I wonder in these situations if the person has any idea what’s in store because of the choice to continue to smoke. It just truly baffles me.
And from a life insurance standpoint he’s up a creek. His current term insurance policy is at the end of the guarantee period and he can’t afford to do a conversion. To put it very bluntly, he can’t get a new insurance policy. He would be declined for traditional insurance because of the combination of his health problems and still smoking. If he can’t afford a conversion to a universal life policy he sure can’t afford something like AARP guaranteed issue whole life.
Bottom line. Really, the bottom line is two fold. Take care of your long term life insurance needs when you’re still healthy. I know there are things that can just jump up and bite you that don’t allow planning time, but if you’ve been smoking two packs a day for decades, you gotta know something is coming. And the second thing is, wake up! These are some amazing things we have, these bodies, but they won’t take abuse forever and just keep on ticking.
July 1st, 2009
There is a misconception about the life insurance underwriting stance on applications during pregnancy. For the most part, at least during the first two trimesters companies don’t have any issues with approving applications.
The tricky part comes in the third trimester and companies are kind of split on whether they will accept and process applications for women at this point. Some say no and their stance is based on pregnancy complications and also, because of the hormonal war going on, whether they can get lab results that have a close enough relationship to normal.
The companies that will process third trimester applications are generally more comfortable with the lab issue, knowing that there will be some fluctuation and it can be weighed against labs prior to or at least very early in the pregnancy. Generally their only caveat is that there can’t be any current complications and usually they don’t want to see any history of complications in previous pregnancies.
One issue that can come up is weight and if your weight in the third trimester moves you into a different rate class based on the company’s build chart. Some companies will work around the weight gain based on historic weight and not penalize you. Other companies will approve you based on your current weight and allow a reconsideration with a weight check a year later.
Bottom line. Make sure your agent does their homework before having you take an exam so they don’t send an application to a company that will postpone approval and tell you to wait until after the birth. Be sure to note on the application and to the examiner that you are pregnant and when the due date is.
June 30th, 2009
In researching a post written a few weeks ago on how to bind a life insurance application I failed to find any companies still using the tool of choice from the past, the Conditional Receipt. All of the companies I found in my original sweep were using the far friendlier Temporary Insurance Agreement.
I know it probably sounds like I should take up something exciting like jig saw puzzles, but I spend quite a bit of time just cruising life insurance applications to see what questions they ask, how they ask them and how they structure their application. Always on the hunt for an advantage for clients! There are a lot of companies that couch questions in such a manner that it is obvious they are using the infamous “don’t ask, don’t tell” approach. They intentionally leave an opening for lenient underwriting.
But, back to my previous post and my application cruising. Yesterday I finally found a company still using a Conditional Receipt. It was like a blast from the past, a document that should come with warnings and disclaimers abounding if an agent is truly doing their job. Western Reserve Life has yet to join the majority of companies in replacing this relic. In my mind a conditional receipt is so fraught with loopholes as to be almost useless in providing temporary insurance.
Conditional receipts are infamous, not for their binding ability, but rather for the conditions that run a muck in the document that allow the company not to pay in the event of a death during the application process. They mince no words in their initial shot across the bow, “No coverage will become effective prior to the delivery of the policy applied for unless and until all conditions of this receipt have been fulfilled exactly.
Standard in the Temporary Insurance Agreement and the Conditional Receipt is that all checks should be made out to the company and not to the agent. Western Reserve’s conditional receipt goes a step further and states that if you “leave the payee blank…you may jeopardize the insurance for which you have applied.”
The conditional receipt defines the effective date as “the later of application date and the date of the last medical examination, tests and other screenings required by the company.” This is distinctly different from the TIAA in that completion of exams and testing isn’t required in all of them. But the implications of the effective date really come with the conditions. The conditional insurance is only in effect so long as, and I will paraphrase, the conditions are met.
1. If you die during the application the company will continue to underwrite as if you were alive. You have to be found to be insurable exactly as applied for. If you applied for preferred and they found that you would be approved at standard, too bad for your beneficiaries. No insurance.
2. All statements and answers in the application must be true. This may not seem like an untenable threshold, but it is much stricter than the material misrepresentation threshold used for the two year incontestability period. If I were going to put all of my confidence in a conditional receipt for my family’s future, I would have an attorney review the application with me.
3. This one is no big deal. Basically says the company has to receive a check with the conditional receipt that doesn’t bounce.
4. All medical exams, tests and other screenings have to be completed. This can be a problem. It is fairly common for initial lab results to require a new test. Can’t do that new test if you’re dead. The company might see an abnormality on your ekg that is the fault of the examiner and if you die before they can get a new ekg, too bad for your family.
5. Shouldn’t be a big deal requiring that “all parts of the application, supplements, questionnaires, addendums and amendments” are signed, but remember you are dealing with a human agent and in a 20 or 30 page application missing one form is fairly common.
And then they summarize, “if one or more of the Receipt’s conditions have not been met exactly, the company will not be liable.
Bottom line. If you have the need to bind a life insurance application give careful consideration to the document used. As discussed the TIAA is a much fairer avenue than a conditional receipt. I would go so far as to say, as I have to many customers in the past, that unless there is an absolute need to attempt to bind insurance, don’t even both with a conditional receipt. In today’s market if there was a need to bind I would recommend going with a company that has a very open ended temporary insurance agreement.
June 30th, 2009
Just recently I was helping a client with bipolar disorder get life insurance for his young family. He had been declined before and told me that he wanted $500,000 of term insurance.
After shopping the case we got an offer of potential preferred best rates from one company. Based on their potential good rates I also quoted him $1,000,000 of 20 year term. The price was actually very close to what he expected he would have to pay for $500,000, if he got approved at all.
Once the approval came through at the best rate class I again gave him the option of how much insurance he wanted to have issued and, even though the difference was fairly minor in monthly outlay he and his wife chose to accept the $500,000.
You should know that I never, ever suggest that someone put a budget buster in force. If I know anything for a fact in this business, I know that life insurance somehow becomes expendable in a tight budget. It’s almost like when the bill comes due and it doesn’t look like it will be a good fit with this month’s budget, they check their pulse and decide they are immortal for a while and drop the insurance.
But in this case both amounts of insurance were easily budgeted. They said the reason they didn’t choose the higher amount was that they believed they wouldn’t need the higher amount down the road. And maybe they do and I didn’t fuss with them about it, but here is my advice if this situation comes up for you.
If there truly is very little difference in cost between one half and one million in coverage and it is easily budgeted, take two $500,000 policies and down the road if things really work out the way you expected them to, drop one. If things don’t go as planned, kind of the way it did for almost everyone in the country last year, you have the extra coverage at an excellent premium.
Bottom line. Value can come in a lot of forms. When presented with a true value, consider whether doing the minimum is truly prudent.
June 29th, 2009
In an article called Generations at Risk in a recent trade publication called insurancenewsnet magazine, LIMRA, an industry research organization divided the generations and laid out some interesting facts about our take on life insurance and where we buy it.
Probably the most important fact was that, whether Boomers, Gen X or Gen Y, we still remain under insured in relation to the financial loss that would occur upon death. Fully one third of adults in our country carry no life insurance at all. One in four men overall don’t carry life insurance, while two thirds of men 18-24 don’t insure themselves or don’t have insurance in force carried by their parents. For women it is one in three overall and half in the 18-24 group.
Most adults who do have life insurance get it through their workplace in the form of group insurance. Those who carry only group insurance on average carry the lowest amount compared with other adults.
The difference in buying habits is no surprise with us Boomers still tending to buy life insurance in a traditional way, while Gen X and Y are more likely to purchase via the internet. The sad part for us as Boomers is that the youngsters probably have it right on this subject. I know. Kind of kicks my gag reflex too, but the fact is that the traditional agent is generally not a well equipped and versatile independent agent.
On the flip side of that is the fact that Boomers tend to be more life insurance savvy and are less likely to be taken by some of the on line mega agency nonsense.
Bottom line. Generations will always do things in different ways, but the thing that is remaining constant is the under insured picture.
June 26th, 2009
Reliastar has come up with a new approach to rate changes reminiscent of last fall’s presidential campaign. Their word to agent’s, Change is Good!
They show the good side of their announcement, that some of their rates in a few selective places will actually be coming down very slightly. Others, which they don’t show, will be going up.
Bottom line. Chalk up another change in the term insurance world. It keeps on churning and and looking less and less like the term insurance free fall of the last 15 years.
June 26th, 2009
It took an event like the current recession for many people to finally recognize the importance of life insurance in financial and retirement planning.
Financial planners have always advocated the use of life insurance to cover the “what ifs” in your overall plan. “So, everything is going as planned and you’re meeting all of your investment objectives, but what ifyour husband dies prematurely and you don’t have his continued income to keep things going in the right direction?”
Well, what if a recession comes along and wipes out half of your life’s savings and then your husband or wife dies and leaves you without their income to help make up the loss? Well, what if you carry enough life insurance to make up the loss until the loss is made up? Then if your husband or wife dies you will only have a tragic emotional loss to deal with and not a financial catastrophe. I hope I don’t come across as callous about this, but one thing you don’t have any control over and the other you do.
So, if it makes sense to protect against that uncertainty during a recession, the same logic rings true during more normal times. Whether it’s a sudden loss due to an economic meltdown, or a loss that just gets worse each year due to the loss of an income, it’s still a loss.
Bottom line. Just in case there is anyone out there who hasn’t figured this out yet, even with recent term insurance price increases, term life is so affordable that it actually trumps the old saying, “if it sounds too good to be true……”. Life insurance really is that good a value.
June 25th, 2009
Life insurance is, always has been and always will be, about offsetting those financial losses that come with premature death. The problem that most people have with the concept is, that in spite of all of the evidence to the contrary, they seem to have a hard time believing that premature death is an issue.
Well, today we’ve all been witness to people that we knew, maybe not personally, but nevertheless, people we knew dying far too young.
We woke this morning to news that Farrah Fawcett had succumbed to long battle with cancer. At age 62, just 6 years old than me, she died. Women are supposed to live to 79 these days. She wasn’t supposed to die.
And then just minutes ago we found out that Michael Jackson passed away at age 50 apparently from a heart attack. There are plenty of opinions about how Michael Jackson lived his life, but there’s no turning your face away from the fact that three children just lost their 50 year old Dad.
Bottom line. There are plenty of days for being in denial about mortality. This wouldn’t be one of them.
June 25th, 2009
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