Archive for July, 2009
What happens to a business partnership when one of the partners passes away is of particular interest to both the family of the deceased and the surviving partner. If a plan is in place the transition can go smoothly. If there is no plan in place it can be everyone’s worst nightmare.
For the family of the deceased partner there are two things that have just happened financially. First, they have lost the income that was derived from the business on an ongoing basis. Hopefully there was a personal life insurance policy in force to cover that possibility.
Second, and a bit more complicated is the status of the partnership and the value of the deceased’s portion of the business. Even though there has been a death, the family of the partner who died, in most cases, has the right to either be paid the value of that portion of the business, or in many states they can actually take over the responsibilities of that portion of the partnership. Paying out the value of the partnership can be an untenable burden on the business and it is not uncommon for it to be the cause of the end of the business. To have a family member move in and take over as partner can be equally untenable as the likelihood is that, well, they just aren’t the same person with the same knowledge and the same long term working relationship. It can often be a train wreck.
The answer lies in a legal buy/sell agreement funded by life insurance policies on both partners or however many partners there are. The legal document spells out the agreement of the partners that upon a death the life insurance proceeds will be used to buy out the deceased partner’s widow or family at an agreed upon price. Because obviously the value of a company can change dramatically these plans should be reviewed on a regular basis to make sure that they buy out is at a fair price.
In most cases term insurance is the appropriate product for buy/sell funding for a couple of reasons. First, partnerships seldom reach the longevity that would justify a permanent policy. Very few partnerships last to the partner’s ages in their 90’s or 100’s. Second, because businesses change and business value changes, term insurance is a more flexible product.
Bottom line. Families rely on both the income and value of partnerships and prudent planning protects both of those.
July 31st, 2009
In preparing to help write an article about the catastrophic meltdown of traditional universal life insurance policies I was seeking some industry assistance in nailing down approximately what percentage of the total number of UL’s were in danger of imploding.
To my amazement, sort of, none of the companies I spoke with said they had any idea, not even a wild guess, at the industry percentage of policies that were based on assumptions rather than guarantees. In fact they indicated that they didn’t believe that they could even come up with those kind of figures for the business on their own company books.
Furthermore, not one company had a plan or program in place to try to determine the extent of the problem in order to give policy owners more of a heads up than the normal practice which is to send them a premium notice saying that it will take a lot more money than they’ve been paying in order to keep the policy in force. They said that was the job of the agent who should be doing annual reviews and keeping the client abreast of the health of their policy.
Well, that’s a real problem since a very small percentage of agents ever last more than a year in the business. And for those that last long enough to actually stay around and service their clients, do you really think they, the agents that sold under funded, doomed to fail, UL’s are really going to call their clients and tell them that “you’ve just blown tens of thousands of dollars on my last idea, but I have a new plan you should try?”
That is about as likely to happen as having a company write a letter to all of its’ UL customers saying that there is an inherent problem with the majority of their UL policies and they highly recommend that you get your policy evaluated soon.
Bottom line. It’s an industry wide problem. It’s an insidious problem in that policies, because of low mortality charges in the first years, can hang together for a long time before the disintegration begins. It’s enormously harmful to those that lose everything they’ve put into a policy, but even more so if they lose the policy at a point where they are no longer insurable. If you have a cash value policy, whether universal life, variable universal life or whole life. have a reputable independent agent review it with you soon.
July 30th, 2009
Other than writing across the top of your life insurance application, “Please decline this application”, I can’t think of a surer way to get declined than to decide to blow off your doctor’s advice and substitute your own without ever discussing this with the doctor.
This is known in the industry as “non compliance” and is a straight route to a decline. Do not pass go, etc. It is actually a fairly common issue. I was interviewing a woman with MS a few days ago and when I asked what treatment she was on she said none. I asked if she had been treated at any point and she said that she had, but didn’t like the side effects of the medication so she quit taking it.
I asked if she quit taking the medication with the concurrence of her doctor and she said that she hadn’t discussed it with him and had never gone back….and had never started seeing a new neurologist. So she was going on two years without any followup or treatment based on her own good advice to herself.
Now, I’m not discounting the fact that the side effects might have been just too much, and she may have lost confidence in the doctor, but from a life insurance underwriting perspective what they want to see is a situation where she would either work with her neurologist to change medications, or if the relationship was simply not working, seek, in a timely manner, a new neurologist to take over her case.
In the absence of either of those an underwriter truly feels that they have a loose cannon on their hands and that while they can accurately make mortality assumptions based on her MS and treatment, they can’t assess what impact she will have on her own mortality.
Again, the problem is pretty common. Heart patients are asked to follow up for a stress test in a year and never do. I had one client who had colon cancer, had part of his colon removed and in spite of the oncologist’s recommendation for annual colonoscopies, he hadn’t been back to any kind of doctor in 14 years.
Bottom line. It’s OK to disagree with your doctor and to ask them to change your treatment for whatever reason, and it’s OK to change doctors if you feel you aren’t being heard, but underwriters have a decline stamp waiting for you if you simply ignore doctor’s recommendations and go your own way.
July 30th, 2009
I was recently interviewed by bankrate.com and MSNBC concerning some aspects of why life insurance companies might refuse to pay a death benefit. From the perspective of the consumer it seems there is a belief that companies really search for ways not to pay. In spite of big headline life insurance challenges like Heath Ledger and David Carradine, the truth is that life insurance companies would rather pay a death benefit than fight legal battles and get bowled over by bad press. There are a lot of times they pay when legally they really shouldn’t have to.
The article really focuses on on the two instances that trigger most of the questions of whether a company should pay or not. Those are the standard two year clauses in all insurance policies known as the suicide and incontestability clauses.
These two clauses simply put, allow a company to challenge payment of a claim if the insured commits suicide in the first two years of the policy, or if the insured is found to have materially misrepresented information pertinent to the company’s decision to issue the policy.
The suicide clause is pretty straight forward most of the time, although it has to be a clear cut case of suicide or the company will likely lean toward paying the claim. Shooting yourself would be an example of straightforward. A fatal car wreck might very well have been a successful suicide, but companies usually aren’t going to challenge this in most cases in the absence of some other evidence that would prove the person intended to kill themselves in a car wreck.
The larger contention usually lies with the incontestability clause. Was the person truthful and forthcoming in their application for life insurance? Was there an attempt to deceive and at least purposely leave out certain facts, material misrepresentation, that may have led to a company decision to decline an application or perhaps issue the policy at a different rate?
In the case of Heath Ledger there was the appearance that he may have run afoul of both clauses with his drug overdose death potentially being a suicide and the fact that he apparently denied drug use on his application. In spite of these two issues, while we’ll never know whether the full amount of the death benefit was paid, we do know that after a full investigation a death benefit was paid by the company.
Bottom line. When applying for life insurance always answer all questions exactly as they are asked and truthfully. You aren’t required to give them more information than they ask for and if that leaves some hole in their underwriting they can’t use that as a way to not pay a claim. As my friend and partner Rich Fuller with Special Risk Services noted in the article, don’t offer answers to questions that aren’t asked, so if they ask ‘Do you plan to be out of the country for more than four weeks,’ you really don’t want to tell them you’re going to Lebanon for three weeks. That’s not what the question is.”
July 28th, 2009
It always amazes me the way men proclaim how many years it’s been since they’ve seen a doctor and say it like they’re proud, like it’s a badge of honor to ignore your health.
I’ve been working on a life insurance application for a local guy, my age mid 50’s, who fits into that category. Bragged when we were completing the application that he doesn’t have a doctor. I asked him when he last seen one for anything and he said “maybe 8 or 9 years ago for a cut on his finger that got infected”. I asked if he had ever been to a health fair so he could make sure his labs, things like his PSA were OK and he said he didn’t believe in lab results, so no.
He applied for preferred plus rates and was approved at standard rates due to his cholesterol being far too high and hdl far too low. When I went by this morning to discuss a possible course of action he let me know his thoughts about cholesterol (bunch of bull) and insurance companies (cheaters, swindlers, look for any way to raise rates).
This is so typical with men that it almost makes me want to buy them one way tickets to Trinidad for sex changes so they won’t be giving men a bad name anymore.
But it’s all the fault of the insurance companies! They have some kind of scam going where if they find an idiot that hasn’t been taking care of himself they sneak some sick blood into his labs to teach him a lesson. It is astounding the number of boneheads like this that get diagnosed with significant health issues because they slip up and do an insurance exam.
Bottom line. There is no honor in ignoring your health. It’s simply the wrong thing to do, if not for yourself, for your loved ones.
July 27th, 2009
There’s nothing that will raise your blood pressure quite like finding out that you are going to have to pay more for your life insurance because you are treated for high blood pressure. Even when it’s well controlled almost all companies feel they need to bump you down one rate class, almost a 30% increase in premiums.
Most life insurance companies would argue that their best rate class is reserved for those who don’t have any health issues. No medical history to speak of. No medications. Just walking, talking little pictures of perfect health. But wait.
One company that bumps you a rate class for blood pressure treatment will allow their best rate class if you have type 2 diabetes and happen to be over 60. Another will bump you a rate class for the hypertension while allowing their best rate class for bipolar disorder in some cases. It’s important, I think, to note that neither of these companies have any provision, any criteria, where you can qualify for their best rate class with treatment for hypertension.
That’s the bad news when it comes to applying for life insurance with treated blood pressure. The good news is that there are a few companies out there who don’t see eye to eye with the rest of the life insurance world on this issue. Just as most companies see treated, well controlled cholesterol as a good thing, Banner Life and Minnesota Life believe that high blood pressure, treated and well controlled is not an issue that should keep you from their best rate class. They, in a sense, reward the fact that you acknowledge the problem and that you are taking care of it.
Banner Life does want to see a two year period where blood pressure readings have been under 136/86, not an unreasonable request. A track record of control is a good thing. Minnesota Life goes a step further and as long as your blood pressure on the exam is 135/85 or better and you are being treated, in the absence of any other factors that would bump you out of the best rate class, you win.
Bottom line. Not all companies are created equal. Most companies have an area where they take a stand that makes them a “go to” company for a specific set of clients. This is, again, why using an independent agent with access to a large number of companies is a real value added for you as a customer.
July 27th, 2009
The biggest of the on line life insurance agencies is a master at tying up customers and shielding them from the truth and often better deals that might come from competitors.
Bait and switch is the first line of offense or tactic. I’ll use a very recent true example. A client called Selectquote and completed an interview in which he admitted that he had been using Paxil, an anti depressant for a few years. The agent quoted Banner Life preferred plus rates. Banner has never given preferred plus to anyone on anti depressants. Agents at Selectquote know that. And even if it was a new agent that didn’t know that for some reason, then he shouldn’t have been flipping out quotes without some supervision.
The client said he would think about it and the next call he gets is from an examiner to schedule an exam. Not really sure what was going on he went ahead and scheduled an exam. The scheduled exam is their second line of offense. After the exam was scheduled the agent called him back and said that it didn’t look like, because of the Paxil, he would get the rate quoted, but that they should go ahead with the exam and see where it ended up.
In the meantime their client contacted me and I shopped his case. Banner’s offer was standard plus, but we got preferred plus offers from two other companies, a two rate class difference. That’s about 50% lower than the Banner rate. I provided those quotes to the client and he called Selectquote and told them Banner wasn’t going to be good enough, that he had better quotes.
The third line of offense is making exams unavailable to other agents or agencies. So, if a customer starts feeling like they’re getting the run around, it means they have to have another exam to switch horses. While the exams are no big deal, it’s a busy world out there and most people won’t switch to another agency if it means taking another exam. They will stay where they’re getting messed with because it’s more convenient. The big on line agencies know that. Most agents and agencies don’t put this kind of hold on exams.
So the client was told that since he had the exam already they would go ahead and run an application through one of the other companies that I had quoted. They told the client that it was all the same, that if they couldn’t get the better price then I wouldn’t be able to either. To put it nicely, that simply isn’t true. I’ve beat big on line agencies time after time by simply doing a more thorough job of putting an application package together.
If this client hadn’t sought a second opinion, Selectquote would have placed a higher price policy with him. I get fussed at every time I bring one of these issues up with the “big boys”, but the truth is they are so big that they have forgotten how to treat people as valued customers. Their highest priority is volume and their bottom line. They hang their hat on the fact that they write 100,000+ policies a year.
The only way for customers to win is to walk away from the deal when they feel fenced in or run around. The tactics I’ve talked about only work if you let them.
Bottom line. Life insurance agents should be in the business to serve and do their utmost to make sure that every customer they help gets the best possible policy and price they can. The big boys have logistically outgrown the ability to do that.
July 25th, 2009
We have come a long way in the past few years in finding the right companies with the right underwriters to be able to truly reach out and help those with bipolar disorder get affordable life insurance. We will likely never get to the point of being able to help those whose lives are truly out of control due to the disease, but a large percentage of the bipolar community are stable, functioning pillars of our society and for them we can get the job done.
Although rare, we have on occasion been able to get preferred plus rates approved on bipolar cases. These are the best of the best when it comes to the criteria I’ve outlined so many times.
1. Someone who has not been hospitalized for bipolar disorder other than for diagnosis?
2. Someone who has not attempted suicide or had bouts with suicidal ideations?
3. Someone who is compliant with their treatment, both medications and regular followups?
4. Someone who is leading a stable family life or social life?
5. Someone who is exhibiting a stable work life?
6. Someone who is not on disability for bipolar and does not have issues with drinking or drugs? If there’s a problem here, then the answers to 3, 4 and 5 are no.
7. Clients who are on just single medications and are not on anti psychotic meds get the best rates.
The following is an email from the wife of a client that we just successfully placed at the company’s best rate class, “Dear Ed, Thank you so much for the effort you put into securing my husband’s life
insurance policy. As a person diagnosed with bi-polar type II, he was
treated as nearly impossible to insure by our old insurance agent. Yet, he is fully functioning with this disease and has a flourishing career. You were able to hear our frustrations about the stigma attached to the bi-polar label–that all bi-polar patients are depressive or suicidal– and find an insurance company underwriter who knew the difference between a functioning bi-polar II adult and a person whose disease is far more of a liability to an insurance company. Thank you for the effort you put into securing my husband’s policy; with your help, we ended up with a policy that costs the same as a healthy, non-smoking, non-bi-polar adult. Moreover, your service as our agent was impeccable. You followed up every step of the way. We can’t
wait to tell others–with or without illness– about your service. With our sincerest thanks…
Bottom line. The word is out. While I specialize in many different impairments, about half of the new leads we get each week are from people with bipolar disorder or depression issues. Most of them have been declined or, as in the case above, told by an agent that there really isn’t much use in applying. We can’t slam dunk every case we handle, but we are winning the game for a truly misunderstood and under served group of people.
July 24th, 2009
Spending too much and not enough income to back it up. Reminds me of me before I cut up my credit cards (thank you Dave Ramsey)
President Obama and Congress seem to be on a mission to uncover new sources of taxation to support everything from an overzealous financial bailout to universal health care. They have already put the high net worth population on notice that they can expect to get whacked.
My concern is for life insurance and the protection it has given to families over the last 150+ years with it’s non income taxable death benefits. That little feature is probably one of the most crucial components of life insurance. When a person has a $500,000 life insurance policy they know that if they die their family will receive the whole half million, not $250,000 after it bumps them into a higher tax bracket or some other variation on that theme.
I don’t carry the amount of life insurance I have so that my wife will have what she needs to get by plus what it will take to pay income tax on the death benefit. If Congress tries to tax life insurance benefits (which btw the state of Oregon is already trying to do) they will raise the amount of insurance a family needs to carry to net enough to meet their needs. This will raise the price a family has to pay and since most of us are on budgets it will result in many carrying less life insurance than their family truly needs.
This isn’t on the table in Congress yet, but they seem to be in the no stone unturned mode, so hang on.
Bottom line. In the current fervor to solve all problems for everything all at once, people are inadvertently being taxed in some cases and blatantly in others. Congress and the President need to keep their hands off of the one tool that can keep families from becoming a burden on society, tax free life insurance.
July 24th, 2009
Estate preservation, as I’ve stated in several posts since the first of the year, is becoming more unstable due to a couple of factors. First, Congress has not shown their cards yet on how they expect to handle the estate tax exemption issue in 2010 and second, older universal life policies that carry most of the existing estate preservation coverage are collapsing left and right due to lower than assumed interest rates.
In a Wall Street Journal Article dated May 26 of this year by Arden Dale, he goes into quite a bit of detail about what’s happening to estate protection policies. To paraphrase, he says that people are going along assuming they have a paid up policy with nothing to worry about ever and suddenly they get a lapse notice or get a bill for a huge “catch up” amount to keep the policy in force.
I’ve been blowing this horn for years and I would just go a step further and say that it isn’t just those with survivorship life insurance policies that need to be concerned, but anyone who has a permanent policy in force, whether universal or whole life, unless it happens to have an external guarantee that doesn’t rely on assumed values.
Mr Dale suggests having your estate protection policy checked out by an attorney whom he admits will likely refer it to an independent life insurance agent for review. Let me be very clear. If you have a universal life, variable universal life or whole life policy that is dependent on cash value to keep it in force, you need to get off your duff and have a thorough policy review. Ignoring this whole thing and hoping it won’t impact you is an almost sure way to wake up some day soon having blown thousands or even hundreds of thousands of dollars for insurance you no longer have. And you won’t have any recourse other than to go out and hope you qualify for a new policy.
I’ve been beating this drum hard for years now. It is simply not a drill. Because of the sales tactics that have been used for years with cash value policies, the tendency to sell assumptions versus guarantees, without being overly dramatic, most of these policies will collapse, and given the last year’s economic adversity, sooner rather than later.
People are dependent on these policies for estate preservation, income protection, and family legacies and it could all go down the tubes with their next premium notice.
Bottom line. Ours is an industry that has its’ fair share of honorable, professional and honest agents who have set their customers up to be covered correctly, but it is also an industry that far too many people have jumped into as a way to make a quick buck. The second group far outnumbers the first and those dependent on the insurance are the unwitting victims.
July 23rd, 2009
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