Archive for August, 2007
I shared some information not too long ago from the Life Insurance Market Research Association (LIMRA) and the bottom line was that studies showed that American families were generally under insured, knew they were under insured, but in general weren’t real sure what to do about it.
In honor of Life Insurance Awareness Month, LIMRA has put out new information that is a call to battle for every life insurance agent, and let’s face it, every person out there who knows they are under insured.
You know, I hardly ever get on anyone’s case, but it’s Friday so here goes. For all of you folks who are uninsured or under insured and just aren’t sure how to fix that problem, allow me to make a suggestion.
There are nearly as many places to buy life insurance via the internet as there are people in this country. First step I want you to take is go plug in to someone somewhere and buy some insurance. Buy enough that you definitely are not under insured any more. Notice that I am leaving the shopping and research out of this, so no matter what is suggested, buy a 10 year term so you can keep the price down.
Now, you have just solved one problem. You are no longer under insured. This is a really, really good thing. On to the next issue. How do I know I have the right amount? You need to know this, because we just plugged the hole to make darn sure the dam doesn’t leak. It’s possible you overkilled. Use this calculator and see how you feel about the amount. If you have too much, the next time it comes due, replace that policy with a smaller one.
This time around give more serious thought to term length. Now that you have the right amount you want to be sure it’s there for as long as you will need it. In a previous post I covered some ways to determine term length.
Bottom line. If you are smart enough to know you are under insured, wake up….you are smart enough to know how to patch the hole in that problem. It doesn’t have to be done perfectly. I mean really, can you imagine your wife’s disdain. “What an idiot! If he would have taken more time to plan, he would have known we didn’t need $750,000. I used that insurance calculator thing and we really only needed $680,000. Now we have more money than we need” If you fail to act it will go something like this. “What an idiot! Instead of getting off his over-analytical rear end and buying some term insurance, he leaves us with the insurance from work that replaces one year’s income. Now what are going to do.”
August 31st, 2007
I am always amazed at the thought process (or lack of) that people go through when we are discussing life insurance application questions. They must think that life insurance underwriters are really not very bright. While I have, on occasion, shared that opinion, let’s get real.
Real conversation!! A person is asked if they have, in the last five years been convicted of, plead guilty or no contest to driving under the influence of alcohol or drugs? They said, “Do you mean DUI?” Yes! “Then the answer is no.” Why, I asked, did you ask about DUI? “I was convicted of driving while impaired a little over a year ago, but that is DWI, so the answer is no!”
This person really believed they were answering the question honestly. When I explained how that would be viewed if an underwriter happened to order a motor vehicle report he sort of started getting it. When I explained that, even if it was missed in underwriting, but he died during the policy’s contestable period, and they discovered his DWI with a no answer to the DUI question, his family would likely not receive a death benefit, he still only sort of got it. He was a bit disgruntled that I told him for the purpose of this application the answer would be yes.
Another thing that doesn’t get very far with life insurance underwriters is deciding that something really isn’t that important. Leaving out details will almost always come back to bite you. When an agent asks “Have you ever”, don’t assume that it was so long ago that it doesn’t matter.
Real Conversation! So, Mr Smith, when we went through the medical questions prior to you applying and I asked about any history of cancer, you answered no. The underwriter just emailed to let me know that you had colon cancer 8 years ago. “Well, I heard that cancer didn’t matter after 5 years, so I didn’t think it was important.”
My question was “have you ever been diagnosed with or treated for cancer”. People ask me why I ask “have you ever”. It’s so I can get all the information, so I can quote accurately and do the best job of finding the best rate.
Bottom line. Don’t play word games and never assume that you know what is or isn’t important to life insurance underwriters. Overkill with information and let them throw out what they don’t need.
August 31st, 2007
A question that comes up quite often when we discuss the examination part of a life insurance application is, just what is they are looking for? They are going to take blood and urine specimens so they must be on the hunt for something! I think the best way to answer that question is to say that they are really looking for the tip of the iceberg.
Occasionally something big shows up on an insurance exam, something that the client had no idea about. Occasionally lives are saved because people who never really got physicals got an insurance exam that tipped them off to a dangerous situation.
For example, a client had an hbA1c of 11.5 on his labs. He had no idea that he had diabetes and with that lab result, he wasn’t just borderline, he was dangerously diabetic. He went straight to the doctor and 9 months later he had his diabetes well controlled and was able to get a good price on life insurance.
It is fairly common for a person to find out their PSA is elevated for the first time on an insurance exam. Many clients who would not have otherwise seen a doctor, took those results to the doctor and found out they had prostate cancer. Many of those have come back post treatment to get affordable life insurance.
Recently a person who had been treated for prostate cancer applied for insurance and on his exam he had a slightly elevated PSA. Since his treatment was a radical prostatectomy, there should never be a detectable PSA again. He has since found out that the treatment wasn’t successful and his cancer was starting to come back.
Many clients find out that they have elevated cholesterol for the first time on their insurance exam. Another common occurrence is the discovery of elevated liver functions.
The tip of the iceberg for most. A problem discovered early enough that people were able to take corrective action and in many cases, save their lives. So, back to the question about what they test for. I have attached a set of labs from an insurance exam.
labs.pdf
Most of what you see is the normal stuff. In addition to what your doctor might run in a general physical, insurance companies also test for HIV, nicotine and drugs.
Bottom line. Insurance underwriters are looking for the obvious full blown health problems, but mostly what they find is the first clue that a problem might be brewing.
August 31st, 2007
When someone exposes themselves, often the exposee really doesn’t want to see it. If someone exposed your universal life policy today, would it send you screaming into the dark.
There isn’t a week that goes by that I don’t yell at the top of my blogging lungs about the fact that millions of universal life policies that families are depending on, are doomed to fail even if you continue to pay exactly as you were told to do.
I have explained in previous posts (a lot of them), that the reason that agents sell these types of policies is simply to beat the competition on price. They never show the client the downside to the low price, or if they do, they poo-paw it off by saying how great the company is and how you can count on the current projections and not worry about the guarantees.
I have two illustrations that I would like to offer, aptly named Good UL and Bad UL, attached to this post. These illustrations are not reflective of the companies, but rather a stark look at the difference in premium and how it affects the guarantees. Both of these companies have great, guaranteed UL products. Both companies are susceptible to unscrupulous agents manipulating the numbers to have the lowest price and win the sale.
bad-ul.pdf
good-ul.pdf
Note on the bad UL, on the current or non guaranteed side, cash value and death benefits just go on and on. On the guaranteed side everything goes in the toilet after year 10. You don’t want this policy.
Note on the good UL, that while there is no cash value on the guaranteed side, it is guaranteed to have a level premium to age 100 and death benefit to age 120. You do want this policy.
Bottom line. There are more universal and whole life policies in force that fit into the “Bad UL” category than there are in the “Good UL” category. Compare what’s in these illustrations to your own policy and see if you need help.
August 30th, 2007
I guess if it’s my blog I can occasionally stray from my mission of folding back all the layers of the life insurance onion and just throw out a bizarre one.
In Eugene, Oregon recently a man was saved by his seat belt when he blacked out and ran into a parked car. Not that big a deal, right? Well, according the article in the Oregonian, he blacked out because he was choking on some fast food, and when he hit the car, his seat belt induced a Heimlich punch and he chucked the sandwich, saving his life.
Bottom line. Wear your seat belt.
August 30th, 2007
I’ve often written about the fact that smoking generally increases life insurance rates by at least 100%, all else being equal. The average is really closer to 150% to 200%. Some companies are substantially higher than that.
Life insurance underwriters don’t mince opinions about the impact that smoking has on your life expectancy. They know it increases your chances of heart disease and cancer. In a post recently I talked about prostate cancer and smoking. Even though smoking doesn’t increase your chances of getting prostate cancer, it increase dramatically the chances that the cancer will kill you.
My nephew forwarded this article from The Motley Fool recently. Titled, What Smoking Cost Me, it is written by a man who found out how seriously life insurance companies take the issue of smoking.
While most of the article is a very good lesson on the life insurance rate hazards of smoking, I take exception to the fact that this guy’s agent couldn’t find a company that would forgive his one cigarette in the past year. I understand that many companies will take that stance, but not being able to find him a company that would forgive his indiscretion…..I think a good independent agent could have done it. And then the guy chooses to give up the fight and leave his family unprotected. Double bad points for the agent.
Bottom line. Smoking has a huge impact on life insurance rates, as it should. In my experience most smokers deal with that by underinsuring themselves. So, it impact’s your health, your budget, and your family’s future.
August 30th, 2007
Kind of an ugly image, but the reality is that the US is outgrowing itself by leaps and bounds. You know I will jump on my life insurance band wagon about that, but think about the strain that this will put on the government and health care systems and the increase that will have to come in health insurance premiums to compensate.
Obesity leads to diabetes, vascular and heart diseases, and a host of other high dollar health issues. The most obese places in the country also happen to be some of the poorest places in the country. When these health issues hit the health care system, a big part of the bill will be split among us all.
According to an article by the Trust for America’s Health, adult obesity rates rose in 31 states last year. 20 of those states were repeat performers. See how your state ranks.
From a life insurance standpoint this is alarming. What is happening is that people who purchased life insurance when they weren’t obese are becoming obese and changing their mortality experience. I’m not going to set off the alarm yet, but doesn’t it make sense that if life insurance rates have been coming down for years due to people living longer, if that trend reverses due to epidemics of obesity, diabetes and heart disease, it could reverse the direction of those rates.
Just an fyi along those lines. For all of you millions who have universal life and whole life policies that are dependent on the non guaranteed side of the policy, guess what happens if the company’s mortality charges increase????
Bottom line. Look for insurance companies to underwrite weight issues more strictly in the future. They have already cracked down in the past 5 years and I’m pretty sure we haven’t seen anything yet.
August 29th, 2007
Many agents and agencies require money with your application. That is their requirement, not the requirement of the company that you are applying with. My feelings on this subject are that it takes a lot of gall to ask someone to pay for something that hasn’t been delivered and, until it has gone through underwriting, really has no set price. You may have a quote, but it is subject to an exam and medical underwriting.
Knowing that the money thing can be kind of a sticking point, when they ask for money they offer what is called a “conditional receipt” and sometimes called a “binding conditional receipt”. I’ll get a little deeper into that in a minute, but let this soak in for a minute. In an article by John Dwight Ingram in the winter 1998 Federation of Insurance and Corporate Counsel Quarterly, he states “Insurers are willing to provide temporary coverage for most applicants because in return they gain the advantage of the applicant’s psychological commitment to go through with the purchase.” The conditional receipt in the eyes of the agent and the company is a psychological tool!
Now, back to that “conditional” receipt. Agents often present this as a way to be covered instantly and have your coverage in force during the application process. Very seldom is this part of the process done correctly. Remember, the receipt is “conditional”. A good agent using a conditional receipt for respectable purposes will go through a painstaking reimen of explaining each condition.
Here is a list of standard conditions. I am paraphrasing, but if you would really like to see the full version, let me know.
1. The money has to be paid. (That’s all the agent wanted anyway)
2. All medical exams must be completed.
3. The policy has to be approved EXACTLY as applied for.
4. On the date of application your health has to be EXACTLY as you stated on the application
5. The check can’t bounce.
Generally there is also a maximum amount. The one I am looking at has a maximum amount of $500,000, so if you are applying for $2,000,000, don’t think that’s what your wife will get if you die prior to the policy being approved.
So, just a few points, and these are points that any agent who uses a conditional receipt should drive home in no uncertain terms to the client.
Number 2. All medical exams have to be completed. No big deal? What if you complete your exam and then head off to work and die in a car accident? What if the examiner drops a vial and the company doesn’t have a complete exam? What if there is protein in your urine and the company would require that you have additional urine tests to approve the application? The scenarios for a completed exam not working out are fairly large in number. The company doesn’t pay anything without all exams being completed.
Number 3. This is the big one. Your application has to be approved EXACTLY as applied for. If you applied for preferred rates and your cholesterol on your labs was 251 and you didn’t qualify for preferred rates, they don’t just approve you at the higher rate. If you died in the interim, the conditional receipt is void. No death benefit.
Number 4. Your health has to be EXACTLY as stated on the application. There is no room for forgetting something. If you, however innocently, didn’t answer some health question correctly, the receipt is void. No death benefit.
Bottom line. There are a few real reasons for using a conditional receipt. Any agent that uses them as a general practice, is using a psychological tool. In the last 10 years I have written 3 out of thousands of applications. Keep your money in your pocket until the agent delivers and if you need conditional coverage, make sure you understand what you are signing and paying for.
August 29th, 2007
Every time someone applies for life insurance they ask the question, “so, how long will it take?” After 500 years in the business I have only been right 3 or 4 times………….but in general!!
Let’s review the variables. Applying for insurance sort of insinuates that a person has to make a decision to buy. I have seen that take anywhere from minutes to years. Even though I have been blamed for that period of time also, well, out of my control, not my fault! I refuse to push anyone to buy. I am not a closer. Don’t like being closed so I don’t use “closing techniiques”.
So, let’s assume the decision has been made. Again, applying for life insurance takes two things to get the ball rolling, a signed application and an exam. Most often that is done simultaneously as the examiner takes an application with them to your exam. You donate blood and urine, tell them all about your sordid medical history, get your blood pressure taken and then they have you sign the application (which, by the way, has the authorization that allows the company to look at the lab results). I have actually had clients refuse to sign the application until they know what their lab results are. No application, no labs.
A lot of agencies require money at this point. My professional opinion is that requiring money is nothing more than a way to make you commit (at least mentally) to an end product that you haven’t seen, and at this point really don’t know the cost of. My advice. Keep your money until the agent or agency produces a policy and you review it and like it. If they require money, find an agent that doesn’t. Whether or not they have your money has no bearing on the application process. If they tell you it does, they are lying!
At this point I generally tell clients that, if there aren’t any medical records involved, it will take 2-3 weeks after the exam for the company to approve the application. If you have or have had any health issues and the company wants to see your medical records, you can add 1-12 weeks to the process. This is simply the length of time it takes your doctor to copy and release your records. The average doctor probably gets it done in 2-4 weeks.
I know that seems like a long time, and it is. The truth is that if you were lying in an emergency room in some kind of acute distress, and the ER doc needed to see your medical records, he would probably have them within the hour. Worst case, next day.
It’s for this reason that anyone applying for life insurance should take the time to call their doctor’s office and let the keeper of the records know that it is personally very important to you that they release all the information in a timely manner, say one week. If they sound like you are stretching their imagination with that request, suggest that you can stop by and get the records so you can make a copy. Doctors aren’t real keen on you having a copy of your medical records and often this will prompt them to move a bit quicker. Not a bad idea to follow through on getting a copy though. I had client’s who were caught in a record twilight zone after Katrina. If they would have had a copy it would have saved them months.
Oh, the answer to the question! Having already warned you that I’m almost never right, on average it takes 4 to 6 weeks after the exam and application are completed to get a policy approved.
Bottom line. If you need it next week, you started too late. You can do what’s called a conditional receipt, some call it binding the insurance, but that can be another whole can of worms. I’ll cover that in another post.
August 28th, 2007
When it comes to reasons why life insurance quotes change, right up there with being 10 pounds off on knowing your true weight, is not having a clue what your cholesterol is and finding out on the exam that it’s out of whack.
So what’s the fuss with cholesterol? Growing up in the 60’s and 70’s you never heard anyone talk about high cholesterol. Of course people were falling over left and right due to heart attacks, but back then we all assumed that there must just be some major flaw in hearts in general. People with flawed hearts had attacks and if you didn’t have a flaw, you didn’t.
The whole concept of cholesterol, good cholesterol (hdl), bad cholesterol (ldl) and triglycerides (MCBS, multiple cheeseburger syndrome) caught us all off guard. It was no longer a genetic flaw in our heart, but rather our own behavior, or a genetic predisposition to out of whack lipids that was causing our hearts to, well, just stop.
Life insurance underwriters didn’t miss this one. Remember, the life insurance business is all about risk estimation and with cholesterol it became something of a no brainer. If your cholesterol was high and your good cholesterol was too low to offset it, your chances of having a heart attack were significantly higher.
Obviously the American Heart Association has a few things to say about cholesterol. It seems for them, and I guess it’s obvious, the best thing you can do is keep track of it (yes guys, that means we have to get checkups).
The great thing is that our country is riddled with easy to use health fairs. No doctor, usually no appointment and once a year you can find out where all of your labs stand. Knowing that your cholesterol is creeping up before it gets too high can actually keep you from having to medically treat it. Often a change of diet, or some moderate exercise, or some needed weight loss will bring those numbers right back into line.
How much do you know about cholesterol? Take this quick quiz from the American Heart Association. You might be surprised.
What does elevated cholesterol mean to your life insurance rates? Just a quick sample of rates for a 50 year old guy. Applying for $250,000 of 20 year term we will assume that the only thing out of whack is his total cholesterol. No other risk factors. I will use a middle of the road company in the cholesterol corner, Banner Life.
1. Cholesterol under 220, rate is $515 annually
2. Cholesterol over 220, under 250, rate is $612 annually
3. cholesterol over 250, under 280, rate is $795 annually
4. Cholesterol over 280, under 300, rate is $927 annually
Bottom line. Cholesterol, like any other risk factor such as blood pressure, glucose, or PSA are worthy of an occasional check. Might just keep you around longer. Also, if you have borderline high cholesterol or treated cholesterol, don’t go to your local American Family or Farmer’s agent for life insurance. You need an independent agent to guide you to the best rates.
August 28th, 2007
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