Archive for May, 2008
For as long as I’ve been in the business, not quite 100 years but working on it, foreign travel has been fair game for life insurance companies underwriting criteria. In the words of an underwriter I spoke to several years ago, “it seems prudent for us to consider increased mortality risk for people that travel to unstable areas or areas that are known for unsafe health conditions”.
For as long as I can remember underwriters have used as their core base of countries that are automatic declines, those that show up on State Department travel warning list. When you look at this list you can certainly understand why your mother and most life insurance underwriters might have some concern. The problem that has surfaced lately and many state insurance commissions are addressing is, that while it may present a scary sounding list, there is no mortality statistics to back up a higher rating or decline in many instances.
An even sketchier issue arose when companies also took adverse action based on the travel alert list. This list is fairly short right now, but at times has been quite lengthy and has included countries that will just leave you shaking your head. On the list today are notably scary places like Mexico and China. One of the China alerts rightly suggests that you exercise caution in travel to the area of the country impacted by the recent earthquake. But the other alert simply alludes to the fact that foreign place are kind of scary and you might want to be very careful when you go there.
I believe the State Department is well intentioned in these lists, but when places like Mexico and, in the past, such notables as Belize and Costa Rica, are used by insurance companies as ways to rate life insurance applications, something has gone askew. I remember a case a few years ago being declined because of a planned vacation to Belize. When I asked the underwriter what he was thinking, he mentioned that Belize was on the alert list because of the danger of kidnapping and murder of tourists. My wife and I honeymooned there and have been back a few times since then. The fact is that a tourist had been robbed and killed several years before we started going there, making it 10-15 years prior to this underwriter’s action. We reapplied with another company and got the rates we expected to get the first time around.
Anyway, a shift is coming and in several states has already started. On the subject of foreign travel, in many states, a company now either can’t consider the foreign travel in their underwriting, or as part of any adverse decision, has to produce documentation to back up any perceived mortality risk.
I am for this and in some instances, against it. It will hopefully clean up petty issues like travel to Mexico, Belize and China, but in my mind the companies should have the discretion to refuse to accept the risk of someone traveling on vacation to Afghanistan. While vacation is probably not the right example, civilian workers and missionaries do travel to dangerous places in substantial numbers and the risk is real, not fabricated.
Bottom line. An independent life insurance agent can help you wind your way through the maze, and the truth is, in most cases, get foreign travel put in the proper context.
May 24th, 2008
Guys! The boogie man isn’t under the bed, but rather right below our belly buttons, just about a finger’s length up our rear ends. I’m talking about the prostate gland and the fact that 1 in 6 men will get prostate cancer in their life time.
Prostate cancer is the second most common cancer right behind the skin cancer trio of basal cell carcinoma, squamous cell carcinoma and melanoma. While a statistically huge number of us will be diagnosed with prostate cancer, the good news is that the survival rate is very good, with only about 1 in 8 who are diagnosed actually dying from the cancer.
It is this survival rate, driven by early detection and effective treatment options, that makes prostate cancer one of the easiest for life insurance underwriting. The earlier the cancer is detected, the lower the stage and grade and the better the treatment results. With more and more men getting regular PSA tests, expect that survival rate to climb in the future. By the way, my most recent health fair results showed my PSA at .9, down from 1.1 two years earlier. Safe for now.
I’ve review a lot of articles about prostate cancer and how to avoid it. This one I read just recently is kind of like just doing what your mother said. Eat your vegetables! Sure can’t hurt and it tastes good too.
Now, back to the subject at hand. As a baseline underwriting view, if your cancer is diagnosed when the PSA is 10 or less and the biopsy shows a stage of T1 or T2 with a Gleason grade of 3+3=6 or better, depending on treatment results you could be back from the brink of uninsurable to close to standard rates in a year. That scenario would be if treatment was a radical prostatectomy and your PSA was at 0 for a year. With other treatment options the time frames can change.
Bottom line. Good news. Ultimately very survivable and very insurable. Talk to an independent life insurance agent about it today. Make sure you have a copy of your biopsy and that you know all of the relevant test results. The more information you can provide, the better the chance of finding good rates.
May 23rd, 2008
I know I’ve been all about the downside of smoking and life insurance this week. I’ve gone on and on about the valid reasons why life insurance underwriters are a bit brutal when it comes to smoking, especially in combination with health issues that are caused by smoking or are exacerbated by smoking.
So, in an effort to end the week on an upbeat note, I thought I would shift gears from cigarettes to cigars. While most of us can probably agree that there are fewer known health risks connected to cigar smoking, primarily because you’ll kill yourself if you inhale, most insurance companies treat cigar and cigarette smokers exactly the same. If you smoke, you’re a smoker.
There are a handful of companies that allow “occasional” cigar use at rates as good as their best non smoking rates, but they are all over the map on what they call occasional. For instance, West Coast Life says 6 per year or less, Banner Life is at 1 per month, and Genworth is 1 per month. Keep in mind that life insurance exams test for nicotine, and there is a requirement with all “occasional use” companies that you test negative for nicotine. I always encourage the “occasional” applicants to lay off the occasions for 2-3 weeks before the exam. One of my clients recently disregarded that suggestion and had a cigar 2 days prior to the exam and blew his chance for some great rates.
There are a few more companies that actually allow you to celebrate all year. American General and ING Reliastar will allow a cigar a week, but again you have to test negative for nicotine. Just in case anyone thinks I am gaming the system by suggesting to clients to lay off for 2-3 weeks, these companies know that if someone smokes 1 per week consistently they will test positive. They also know that the agents recommend a hiatus and as long as the labs show what they want to see, they will approve it.
Many more companies offer their second best non smoking rate for occasional use. Included in that group would be Savings Bank Life who will allow a “few cigars a year”, North American at 2 or less per month and Lincoln Benefit at 1 per month. Again, negative nicotine.
The standout company in the crowd is Prudential who will allow cigars, pipes or chew at standard plus non smoking rates. No limits are required and they expect a positive nicotine result. They are the go to company for pipes and chew and for anyone that will have a problem showing a negative nicotine level.
Bottom line. At least there are options when it comes to cigars, pipes and chew. When it comes to cigarettes, the rate choices are high or higher.
May 23rd, 2008
I went off a bit on some of the more ridiculous combinations with smoking the other day. Smoking and asthma. Smoking and heart disease, etc. Some guy (blog name Joe Camel (clever)), took some hard swings at the life insurance industry for being so mean to smokers. Fortunately for me smokers run out of breath quick and the hard swings turn to frail flailing.
So let me throw a little different spin on this subject and see if makes the point. 120,000 people a year die from COPD (chronic obstructive pulmonary disease), almost all of them smokers. COPD is the number four killer in the US behind heart disease, cancer and strokes.
The American Lung Association shared some interesting facts about the little talked about COPD.
It seems that COPD is another one of those silent killers, not unlike high blood pressure or hypertension. Often the symptoms are shrugged off as natural consequences of smoking or lifestyle. Things like smoker’s cough, or just feeling your age or feeling out of shape. The longer they are shrugged off, the more damage your lungs suffer.
Bottom line. Whether you agree with life insurance companies and their underwriting guidelines around smoking, do the right thing. My wife and I recently vacationed in Mexico and in the duty free shop at the airport they were selling huge boxes of cigarettes. I think each box must have held 10 cartons or something. On the top was the brand name of the cigarette and on the side, in huge letters that covered the whole side of the box, it said SMOKING KILLS! Sounds like someone down there understands the statistics.
May 22nd, 2008
Return of premium term life insurance is certainly a hot topic these days, so where do you turn to get an unbiased analysis of whether or not it is a good fit for your financial needs? I guess my best advice is simply to steer clear of anyone that thinks it’s the right answer for everything.
After years of analyzing ROP, it is very clearly not a one size fits all type of product. The premise is attractive. You buy term insurance and if you don’t die you get all the money you paid in back. Here is a Forbe’s magazine take on the idea.
forbes-return-of-premium
Forbes is clear about how the whole deal works. The insurance companies simply overcharge for the insurance allowing them enough extra interest earning excess that, even after paying back all the premiums at the end of 20 or 30 years, they make a handsome profit. The real frosting on this cake for the insurance companies is not that they got to use excess premiums for 30 years, but if they’re paying back the premiums that means they got out of paying “the big one”, the death benefit.
I don’t mean to infer that the insurance companies are getting their cake and eating it too. I believe there are certain instances where return of premium can be appropriate, if not purely the prudent choice.
The first place where I think this idea has some real merit is with younger adults. For instance if you take a young married couple around 30. Some would say buy whole life because term insurance won’t last long enough and whole life is permanent. Those are whole life agents and what they want is large premium, large commission and large renewals. But consider this.
People at 30 barely have a grasp of life insurance and certainly don’t have a handle on whether their life insurance needs are temporary or permanent in nature. They generally do have two things way in their favor, they’re young and healthy. I believe a 30 year ROP policy is a prudent move. Numero uno, it gets them insured. Second, the rate is locked in level for 30 years, into the years when they will in fact have a handle on what their real insurance needs are. Third, the policy is convertible so their youthful health rating is locked in for the full term and they can always convert all or part of the policy to permanent coverage. Lastly, at the end of the 30 years they have the option of taking a full tax free cash refund or rolling the returned premium into a permanent converted policy to drive the cost of the new policy down.
That’s what I recommend if you’re young. You can get a lot more coverage for a lot less money than whole life and the ROP policy has more flexibility and options.
Another perfect fit is key person business coverage. Often a company will carry a policy on a key person simply because they have economic value to the company. Their death would cause a financial setback that the policy can offset. A key person generally happens to be someone that a company depends on for a long time and would like to reward for their service upon retirement. So, the company can protect themselves and, if the key person lives to retirement, they can use the returned premium as a retirement bonus.
Outside of those two areas I think the product should be carefully weighed against your own ability to invest the difference between the premiums for straight term and ROP. Also, budget should be carefully considered. Does the increased premium stretch your budget or cause you to purchase less insurance than you need?
Bottom line. Return of premium is a product worth a look, but it isn’t right for everyone. A good independent agent should be able to crunch the numbers for you on all of the available options and help you make the right choice.
May 22nd, 2008
We all see advertising on a regular basis offering life insurance without an exam. I can tell you personally I am not a big fan of having blood drawn and peeing in cups either, so I understand the appeal.
What they obviously aren’t going to share with you is the cost of convenience. They also don’t make it very clear that, opposite of most people’s assumption, just because they don’t draw blood doesn’t mean they aren’t going to investigate your health.
First let’s address the cost of convenience. Just to keep things apples for apples I am going to quote the same amount of insurance and term length with a company that offers insurance with and without exams. For this example we will use Liberty Life.
For this example we will assume a 40 year old male in great health. Just hates the hassle of an exam (they aren’t really a hassle by the way). If he gets a simplified issue (no exam) policy for $250,000 of 20 year term insurance it will cost $775 annually. If he gets the same amount with a fully underwritten (exam) policy it will cost $365 annually. So, the cost of convenience is $410 per year for 20 years, $8200 just so he didn’t have to pee in a cup.
As to the other issue. A lot of people assume that no exam means the company doesn’t care about your health. Nothing could be further from the truth. We’ve already seen that they are concerned enough to hedge their bet by more than doubling your rates. They are also going to check with the medical information bureau to see if there is any health issue that maybe you haven’t shared with them. They also reserve the right to obtain medical records. They want your business, but they’re not being stupid about it. They will decline you at the slightest bit of discomfort about your mortality risk.
Bottom line. If it sounds too easy, it’s going to cost you. If you see it as a loophole, it’s likely to snap shut on you. Suck it up and do the exam.
May 22nd, 2008
Just one last thought for the day. Mortgage life insurance has been one of the biggest rip offs since it’s inception. No matter how it’s packaged it ends up costing far more than you need to spend.
I just found a great example. This particular agency wants you to buy whole life insurance (see the second to the last bullet). How dumb is that. Buy a permanent product for a temporary need.
Some mortgage insurance uses a decreasing term insurance so as the years pass the death benefit decreases. The problem is that the premium is higher than a level death benefit term of comparable length and it doesn’t go down with the death benefit.
Bottom line. Having life insurance to cover a mortgage isn’t a bad idea. Just do it with the right product. Stay away from anything advertised as mortgage insurance.
May 21st, 2008
My true desire is that in another 20 years the country will be purged of all of the fraudulently sold non guaranteed whole life and universal life policies.
There should have been some professional good cop/bad cop format in place to keep the disaster that has occurred from happening. The numbers I’m seeing suggest that prior to 2000, 60%-70% of all universal life policies were sold using the current or non guaranteed values as the driving sales tool. As opposed to the guaranteed side of the policy, the current side paints the best possible face on the product and it is usually sold by agents who say something like “This is a great company. They’ve performed great in the past and there is no reason to believe that they won’t in the future”.
In trying to make some sense of this in the past I have offered the two attached illustrations. These represent how universal life is normally sold (bad UL) and how, in my professional opinion it should be sold (good UL).
bad-ul
good-ul
The reason I feel so strongly about the difference between these two options is really two fold. First I think that most people believe universal life and whole life is supposed to stay in force forever without increases in premium, and it can (good UL). Secondly, it is a rare UL or whole life policy that performs as well as the current assumptions. In fact it’s been a long time since I’ve seen one.
Bottom line. If you need permanent insurance, don’t take your agent’s word alone for what the policy will do in the future. Make him or her show you the guaranteed side and follow that side all the way to the end. If it doesn’t have a death benefit at age 115 or 120 or wherever the illustrations stops, ask why not. If they try to give you some song and dance about the non guaranteed side holding the policy together, tell them you’re not interested unless you can hold the title to their house as collateral in case things don’t work out.
May 21st, 2008
I was recently contacted by a stay at home mom who was, putting it politely, a little annoyed because she was told by an insurance agent that she could only be approved for 1/2 as much life insurance as her husband was carrying.
I explained to her that, in fact, that was the stance with the majority of companies and any exception to that would have to be well thought out and presented if she expected approval. I did let her know that it was not mission impossible, but just not one of those things you can throw against the wall and assume it will stick.
A couple of points that are important to consider. This rule has been around since before mothers really had a choice of having a significant career out side the home. So it is definitely old school thinking. But just for a minute let’s revisit the old school.
I remember questioning an underwriter about this very issue in 1978. Whether or not he could back up his statement I’ll never know, but what he said was that the industry had mortality statistics that showed a higher mortality rate for stay at home moms if they had life insurance equal to or greater than their husband. He also went on to explain that the reason they limited the amount of life insurance on children was, at that time, they had statistics that showed a higher mortality rate in children with life insurance in force on their lives that was significantly higher than what was needed for final expenses.
Again, I have no idea if that was true, or if that’s just what old underwriters told young agents to get us to drop the subject. But, fast forward to today when, in most instances, being a stay at home mom is a choice and the other choice is being a second breadwinner.
So, one half of the husband’s income was based on nothing more than, I suspect, a little paranoia with some skewed statistics. Today I would propose that the amount of insurance available to a stay at home mother should be based either on the amount of income she could be making, or the replacement cost of her stay at home services.
If we were talking salary replacement for the age group that most stay at home moms would fall into, they would be eligible for enough insurance to replace about 20 times their annual income, or if you use my supposition above, 20 times their annual replacement cost. Using the $116,000 from the article that means that an acceptable amount of insurance would be over $2,000,000.
I’m not hearing a lot of women clamoring for that much insurance, but hello!!!, this is 2008 and for a woman to carry as much as a husband is really just prudent family planning. Another plus to this whole idea is that most life insurance now has an accelerated benefit rider that allows a terminally ill insured person to take up to one half of the benefit while still alive. How good would that be if the money was available for the husband to take off and take care of his dying spouse and take the burden of the children off of her. With this type of rider the balance of the death benefit is paid out at the time of death. Time for companies to rethink that rule.
Bottom line. Life insurance is all about lifting the financial burden of a loss of the back of the surviving family members. I suspect that any underwriter who still believes that the old rule applies has never talked to a widowed father with children.
May 21st, 2008
We continue to get inquiries and continue to have success in finding affordable life insurance for people with a history of sleep apnea. This is another one of those areas where the majority of companies still have a knee jerk reaction built into their underwriting guidelines that produces either a highly rated or decline outcome.
This outcome could be appropriate in some cases of severe apnea combined with other risk factors such as morbid obesity and poorly controlled blood pressure. The problem is that the majority of companies don’t allow for the fact that there are different levels of severity and different levels of control. To put it simply, from a mortality impact standpoint there is a huge difference between poorly controlled severe sleep apnea with other risk factors, and, for lack of a better term, your garden variety well controlled mild sleep apnea with no other risk factors.
Generally speaking, from an underwriting standpoint, if the apnea is mild to moderate, well controlled by use of a cpap, and the user is compliant with use and followup, rates as good as preferred can be found. Preferred rates would obviously be contingent on the person meeting preferred guidelines in all other areas. Well controlled sleep apnea and a build of 6′0, 330#’s doesn’t get you there.
Bottom line. An independent agent should know what questions to ask and what companies to shop your business to in order to get the most bang for your life insurance buck.
May 21st, 2008
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