Archive for July 23rd, 2007
Every profession has it’s share of dirt balls that will make a buck no matter who it hurts. The truth is that most of the unscrupulous types don’t last in the life insurance business, and leave damaged customers behind trying to make sense of what happened.
A rather fresh example of this is a friend who came to me recently. She and her husband are in their 70’s and both are in pretty poor health. They just got a notice from their life insurance company that their policy had lapsed after 55 years of paying premiums. When they took out a whole life policy 55 years ago, it was for $10,000 of insurance on him and she was a rider on the policy for $7500. This policy, really nothing more than a final expense life insurance policy, at least had a guaranteed level premium and death benefit to age 100.
In 1988 Mr Unscrupulous Agent, representing Great West Life Assurance, called them and said he could increase their coverage, and their payments would be even lower. He got them to use the $5000 cash value from their policy to fund the new policy. The new policy had an $18,000 death benefit for him and $10,000 for her. The agent assured them that the policy would last forever because of the dividends or interest that would be credited to the policy.
Well, Mr Unscrupulous was a nice enough guy, and they believed him, so they bought the new policy. Because of the large cash input up front, the policy held out very well as interest rates dropped and dropped and dropped. This year though, they got a notice saying their $150 a year premium was going to be $425.87. This was more than my friends can afford so they asked me to try to mediate a solution.
Great West Life Assurance, sadly a product of my own home state, Colorado, said that was the way it was. Tough luck for my friends. They went on to say that since the policy was now out of cash, next year’s premium would be about $1800 just to keep up with mortality costs. Mortaility cost increases with age, so it would be higher each successive year.
It is the contention of Great West that my elderly friends should have been able to tell there was a problem based on their annual statements. They should have seen that it was running out of cash. Even though the agent is long since gone, they should have been able to understand the intricacies of a universal life policy and have recognized that there was a problem and they should have known to call the home office before it ever reached this point. It was their own fault, and no, there was really nothing they could do about it. The Colorado Insurance Division is now reviewing the information.
55 years of faithfully paying premiums to a company and the company isn’t willing to clean up the mess that this agent made. If the agent had been client oriented and not commission driven, he could have told them to invest that $5000 and even at a modest return, by next year they would have had almost enough cash to replace what they used to have in insurance. Or better yet, he should have just left them alone. They had life insurance that was guaranteed and he ruined it. Great West allowed him to ruin it.
Because of health reasons, my friends are uninsurable now. They paid for 55 years and now their family will have to take care of final expenses.
Bottom line. Don’t take your own universal life policies for granted and if your parents have life insurance policies, dig them out and review them. Find out what is guaranteed and what isn’t.
July 23rd, 2007
When we live, eat and breath life insurance every day, even the best intentioned of life insurance agents may get caught assuming that you already know what is basic to them. The problem comes when you have a misconception of the truth and it changes the whole picture for you. Here are six examples of common misconceptions.
1. That you really know what term insurance means! It never occurred to me that someone might think that if they have a 20 year term, they are stuck paying for 20 years whether they need the life insurance anymore or not. The only one locked into the term life policy is the company. They are contractually obligated to offer the insurance at a guaranteed rate for the term requested. As a policyowner you can cancel the policy at any time with no penalty. If someone thought they were buying into something that they couldn’t get out of for 20 or 30 years, that could be of some concern.
2. That someone would think that life insurance without an exam means that there is no medical underwriting? No! It simply means that the company is willing, at a higher price than most people would normally need to pay, to forego the information they would receive from an exam and lab work. They still can and do order medical records. The end result is still underwritten based on your medical history. (This is not to be confused with guaranteed issue life insurance covered in a previous post)
3. That you don’t understand you will be tested for nicotine! During our initial interview we always ask “have you ever used tobacco or nicotine products of any kind”. It’s a broad question meant to help us guide you to the best possible price. Tobacco or nicotine products would include cigarettes, cigars, chew, nicorette gum, the patch, etc. I have seen more than a few people surprised when they come back positive for nicotine because they didn’t divulge tobacco or nicotine use other than cigarettes. Some smoke cigarettes and just think it won’t be discovered.
4. That the insurance company won’t acquire your medical records! When a person applies for life insurance they sign an authorization for the release of records, but they often don’t think that through. It is not uncommon for pertinent information to be left out of an initial interview or exam because it was ” a long time ago” or they “didn’t think it was important”. We always end our interview with, “is there any thing else that might be contained in your medical records that could possibly affect your rate?”
5. That if you pay money with the application, it binds the company to coverage! What we are talking about here is call a “conditional receipt”. The operational word there is “conditional”. If you were to die during the application process, the policy would pay as long as all the conditions of the conditional receipt are met. Generally that means that any required exam has to be completed and the big one that most people don’t understand is that the policy has to be approved as applied for. If you apply at preferred rates and then you die having met all the other conditions, the company will obtain your medical records and finish underwriting the policy. If, after reviewing everything, you are approved at worse than a preferred rate, the money is returned to your beneficiary since the last condition was not met. Your coverage does not go into force.
6. That if you are declined, you are black balled! My agency has built it’s foundation on finding coverage for those who have been declined by another company. Being declined by one company has no bearing on what another company will do. Each company has different underwriting criteria and the truth is that they don’t care what other companies think. I have seen declines from one company turn into preferred rates from another company.
Bottom line. If you have any sense that you don’t fully understand something, ask your agent to explain it until you do understand.
July 23rd, 2007
In a post on March 4 of this year, Children’s life insurance. Keep it in perspective!” I broached the sensitive subject of life insurance for your children. Most parents would rather just turn their back on the whole subject. How morbid a thought? Quite honestly it seems that many parents think they may be tempting fate by purchasing life insurance for their child. Never mind that they have life insurance on themselves with no concerns that it will lead to their own demise.
My point in that post, and I believe one that is worth revisiting, is the idea that life insurance on your children is only slightly about them dying prematurely, and almost all about locking in their insurability for their adulthood.
Let’s put this in perspective. What if I told you that for $250.00 total, a one tme payment, you could ensure that your child could purchase 100,000 life insurance at fair rates when they turn 23, no matter what their health is. Let’s pretend for a moment that the guaranteed insurability is the only benefit. Do you think it might be worth considering? I recently wrote a $100,000 policy on a 21 year old whose cancer, diagnosed at age 16, was in remission. He wasn’t uninsurable, but the rates were astronomical for a 21 year old. If he would have had a guaranteed insurability rider from a children’s policy, his need for insurance at age 21 would have cost 1/3 of what he now pays.
So, take it out of the morbid context of the thought of your child dying. Bottom line is that you can, for very little money, purchase them a valuable asset for their future. Read the March 4 post for more detail.
July 23rd, 2007
