I’m a fan of sorts of National Public Radio. They take the time to talk about a lot of topics that regular radio and television really don’t find profitable and I love to catch “All Things Considered” when I’m traveling.

I would completely hypocritical to say something like “NPR can be a bit opinionated” when I’m offering the world according to Ed every day in this forum, but today they stepped over a line that goes beyond opinion and seems to have some genuine agenda.

In an article posted today they assert that life insurance companies profit by sending checkbooks to beneficiaries of policies as opposed to lump sum death benefit checks. They are more pointed in their assertion in regards to Met Life and Prudential and their handling of beneficiary payments of this type to parents and widows of people who die in the military. It’s a real shame on you big rich companies for taking advantage of grieving widows kind of attack.

The nuts and bolts of their complaint is that the widow is sent a checkbook, sometimes payable not by a bank but the company, and that it only pays .5% interest on the balance. They further assert that because the companies are investing this money and making a lot more than .5%, they are profiting from the grieving widow and it isn’t even FDIC insured!

I talked with an associate of mine who actually worked in the claims department of Prudential when the details of SGLI (Servicemen’s Group Life Insurance) was being worked out. Met and Pru were really the big boys that stepped up and agreed to all the terms that the government laid out, which is not to say that it isn’t profitable, but knowing government contracts, it’s probably not much fun to administer either.

One of the requirements the government had back then when the death benefit for soldiers was only $200,000, was that they wanted the widow to get a checkbook versus a large check. It was the government’s thought that there was less likely to be a binge spending spree happen if it was handled this way. As for the money being protected like FDIC, I feel confident that the government probably requires Met and Pru to hold those funds in government backed bonds. I might be wrong but probably not.

One of the other “shame on you” accusations is that they don’t feel like the insurance companies make it clear that you can write yourself a check for the lump sum. Well, excuse me, but everyone out there who doesn’t believe you can write a $400,000 check on your checking account that has $400,000 in it, raise your hand. Ok, assuming there are a few raised hands, would you be inclined to call someone and find out if you could write that check? Me too!

As for the .5% interest, well, that’s more than most savings accounts pay (FDIC insured and invested by the bank with a much higher return). So if you had $400,000 in a savings account, would you move some of it? All of it? What’s the difference?

Bottom line. If Paul was still around you can bet he would be up for telling the rest of the story, and as for NPR, shame on them for not telling it all accurately.

Post from: Ed Hinerman On Life Insurance

NPR Should Have Hired Paul Harvey!

After some discussion with a client today I thought it was worth expanding the conversation. He had submitted an application for life insurance showing his wife and his two daughters, ages 1 and 3, as equal primary beneficiaries of a $1,000,000 policy.

His logic was that he wanted to make sure that all three had their needs taken care of, his wife for replacement of his lost income, and his daughters for schooling and as a legacy for them. We did decide, at the very least, that his wife should be the primary beneficiary for the benefit of their children, which he admitted made more sense than what he had submitted.

This prompted a discussion about how this was really the type of need that should be addressed not by splitting money in the beneficiary designation, but by creation of an irrevocable life insurance trust (ILIT) that would ensure that his wishes were carried out no matter what.

We talked about the what ifs that are inherent in this type of scenario. What if he and his wife die in a common accident? What if his parents whom he named as co-contingent beneficiaries didn’t agree with their deceased son’s desires for the childrens’ future? What if the grandparents divorced and only one of them kept their word to take care of the grandchildren? Who, or what instrument, keeps the wishes of the insured in place even when there is every opportunity for things to go wrong?

How can he make sure that his wishes about how the money was to be used as the children grew up was honored? How can he be sure that they were afforded the type of education he had anticipated and mad money available for was made available to them? How would money be distributed after they were through college? What if they didn’t go to college?

Bottom line. He made the right first move. This is a guy that took the initiative to buy life insurance, eons ahead of about half the men out there. But a little common sense and some questions need to follow. Ask all of those what if questions and then visit an estate planning attorney about setting up an ILIT.

Post from: Ed Hinerman On Life Insurance

The Need For A Little Common Sense!

I get one of these calls every month or so. A client can’t remember where they put their life insurance policy. It’s not a huge deal to fix the problem, or at least to get a new policy.

The larger problem is that if you can’t find your life insurance policy, how much information does your beneficiary have to work with if you died suddenly? Do they know you have life insurance? Do they know what company it’s with or who your agent was? Filing a claim without a policy isn’t a big deal. Filing a claim is virtually impossible if you don’t know who the agent or the company is.

So, let’s talk about the proactive approach to this issue. When you take out a life insurance policy, talk to your spouse about it. Let them know how much the policy is for, what company it is with and either show them where you intend to file it, or let them file it. Also make sure they have a business card for your agent. While they can file a claim without contacting an agent, a good agent is going to make things go quicker and smoother for them.

Another reason they should know everything about the policy is, say, you had a stroke and were incapacitated. Premiums need to be paid to keep your policy in force and in the absence of your bill paying ability you will want your spouse to make sure everything stays in active.

Ok, so what are your options as a surviving beneficiary if you believe there was life insurance in force, but you don’t have a clue who the agent or company was? Hands down the best option is through the MIB, Medical Information Bureau, a company that tracks medical information in virtually all life insurance policies applied for in the US. While their main focus is fraud prevention, making sure pertinent health information isn’t somehow left off of a second application, an offshoot of that is a database that includes most, if not all, life insurance applications. The MIB has approximately a 14 year database of over 170 million applications. Good chance you can find what you’re looking for.

Bottom line. You should be talking to your beneficiary about insurance policies anyway. It’s kind of a stupid secret to keep. So, have that talk. Tell them what you did, who it was done through and what they should do if you don’t wake up.

Post from: Ed Hinerman On Life Insurance

You Lost Your Life Insurance Policy?

I got a call from the daughter of a man who had asked me to send him an application for life insurance back in 2003 today. She wanted to know if I could help her track down the policy as he had recently passed away and the application they had found in his paperwork showed her and her mom as primary beneficiaries.

Like 1 in every 6 men between the ages of 25 and 64, he checked out early. At the time he contacted me 6 years ago he was in good health and insurance at his then age 46 was cheap, but he got the application and did a gut check and decided he was immortal. And true to being a guy, he never got back to it.

Now I hate to bad mouth a guy after he has just gone and died prematurely, but this guy’s wife and daughter have been hit hard by his debt and the horrible financial times we’ve been through. It would have cost this guy peanuts to have a half a million in term insurance. What a cruel joke to leave behind a clue that he might have really cared about them but was too lazy or self centered to actually do anything about it. What a cruel thing to take on the responsibility of being a husband and a father and then make those left behind go on some kind of hurtful scavenger hunt because you’ve left a clue behind that you might have had life insurance.

I see guys scrape and work hard to get some amount of life insurance. Especially those who have been hit hard by health issues like cancer or heart disease. They just want something. They’ve had a glimpse of their own mortality and they want to make sure, even if it’s not as much as they would like, they leave something behind for their family to get restarted. And then I see perfectly healthy guys blow it off even though they all know plenty of people who have checked out way before they should have. They know it happens and they still don’t take the next step.

Bottom line. You can’t license a car without car insurance. You can’t finance a house without homeowner’s insurance. For my money you shouldn’t be allowed to get married or have children in or out of wedlock without getting life insurance.

Post from: Ed Hinerman On Life Insurance

Almost Having Life Insurance Is A Cruel Joke!

Back in the day….In a much simpler time there used to be a stock answer to how much life insurance a person should carry. There was no real need for a drawn out needs analysis. Life was simple.

How much life insurance do I need? Well, ten times your annual income. The logic was that if you passed away your beneficiary could put that money away in an investment vehicle that allowed for withdrawals “that would produce at least 10% annual return”, so your beneficiary could literally live off the interest leaving the principal intact for emergencies or to pass on as a legacy to their beneficiaries.

Then came 2008 and that assumption somehow no longer seemed to make sense since your investments were losing money, not gaining at least 10%.

One of the problems for many people is that companies have “financial underwriting” guidelines that restrict how much insurance they will be a party to on an individual, based on a multiple of income. Those tables haven’t changed since the 80′s when interest rates were well into the teens and a person could certainly justify no more than 10 times their income as adequate replacement.

Just yesterday Prudential took the lead in addressing the fact that the old guidelines don’t adequately reflect today’s incomes and today’s economy. They were the first to say out loud that people have the same insurance issues they did three years ago in a healthy economy, but they have less income.

Bottom line. These new guidelines will allow us to provide insurance that more accurately reflects the insured’s needs without being restricted as much by the income/insurance ratio.

Post from: Ed Hinerman On Life Insurance

May Old Assumptions Be Forgot!

When we’re going through this whole thing of applying for and eventually putting in force a life insurance policy, often there is a very valuable talk with the beneficiary of that insurance that gets overlooked.

You can really start with the basics and believe me it is scary how often this is overlooked. Let the beneficiary know that you took out the life insurance. Think about it. If you don’t tell them the only way they’ll find out is if they are lucky enough to stumble across the policy after you’re no longer around.

Which leads to another great idea. Tell them where. No, show them where the policy is going to be kept and if you decide to change its’ location, include them in that information also. Don’t put it in a safety deposit box. Those are really cool safe places, but not necessarily easy to get access to upon your death.

Give them a business card from the agent who helped you put the policy in place. A good agent can and will take a load off the beneficiary by helping with claim filing and answering questions. Trust me. Your beneficiary will be grateful to have someone handle the details of the claim process for them.

If you have a plan in mind for how your beneficiary can best use the tax free proceeds, share your thoughts with them. If the money is to be left to minor children, there needs to be a trust set up so that a competent trustee can watch out for their best interests. This isn’t a bad idea for young adult children as well. A 22 year old with $100,000 and no restraints is a $100,000 party looking to happen. Help them use it prudently by having the proceeds administered by a trustee.

Bottom line. You’ve done a good thing by making sure that life insurance is in place for your loved ones. Finish the job by making sure they know what to do if you pass away unexpectedly.

Post from: Ed Hinerman On Life Insurance

A Few Things Your Beneficiary Should Know!

Over the hundreds of year I’ve been in the life insurance business I’ve given out who knows how many thousands of business cards and sent out who knows how many quotes, all a paper trail leading back to me saying that maybe there is life insurance in force.

I always hate to the be the bearer of bad news to someone who has just experienced a tragedy in their life, but I field a lot of calls from, usually, widows who found quotes or a business card and are hoping that their deceased spouse had actually followed through and purchased life insurance. Most of the time their husbands went through the motions and decided that heck, they weren’t going to waste money since they were healthy and would likely outlive their wives anyway.

Occasionally though comes the strange call when the deceased husband had actually put life insurance in force and never told their wife. I just find that really absurd, but then maybe that’s just the kind of relationship they had. I don’t want my wife to have to wonder or worry, so she knows exactly what I have, where the policies are and I’ve even told her that if something happens, don’t try to deal with it herself. I have an agent friend of mine who has agreed to help her out if that day comes.

But then some guys just leave a business card in the file that vaguely says something about life insurance. Most of the time when I talk with those widows that are fortunate enough to find out that their husbands had something in force, it has taken them a long time. Most of them assume at first that there wasn’t any and it’s only when they are going through personal papers that they find some glimmer of hope, a business card or correspondence about life insurance, or better yet an actual policy.

There is the occasional odd ball spouse that doesn’t want anyone to have life insurance, bad luck you know. But most by far would love to know that their spouse cares enough to have life insurance and would gladly pass on the scavenger hunt after you’ve passed.

Bottom line. Tell two people you’ve got it and where the policy is. Tell your spouse. Anything short of that just isn’t right. Then tell someone else, either the contingent beneficiary if they are of age, or an adult relative that can help them if they aren’t just in the horrible situation where you might both tragically be lost in a common accident. And don’t put it in a safety deposit box unless someone else has access upon your death and they know that the policy is there.

Post from: Ed Hinerman On Life Insurance

Make Sure They Know About It!!

I did a series of posts last year on life insurance policies and have referred back to those posts on several occasions when explaining some specific clauses and options such as the suicide clause and incontestability clause and the conversion option.

Now I would like to start from the beginning and talk about the application. The application itself has been something of a sore point with some customers and for a few who are more concerned than the average person with identity theft, a cause for deciding against applying. I have actually had clients pull the plug completely on purchasing life insurance to protect their family because of questions about their social security number, their income and their net worth.

For the purposes of this subject I’ve chosen to use a West Coast Life insurance application mostly due to the simplicity of the document. west-coast-life-application Notice that they don’t beat around the bush with identity information. Coming out of the first line of the application they have your name, date of birth, social security and driver’s license numbers.

The social security number is right up there with the most frequent “Why do they need to know that?” questions I get. It’s not questioned that often, but probably 1 out of every 100 clients has some issue with it. There are really two reasons. The SSN is used to confirm identity on both the application and upon death. The other reason is that your death is an event that has to be reported to the IRS. Even though the death benefit is not income taxable to your beneficiary, the amount of the death benefit is added to the gross value of your estate for estate tax purposes unless it is owned by a life insurance trust. So, like it or not, if you want life insurance you’re going to have to share your social security number.

I get less grief over the driver’s license number, but the reason for the life insurance company having it is because most life insurance applications require a copy of your motor vehicle record. Most people never think about it, but the type of driver you are does have some impact on your mortality risk.

The application then moves into your occupation. While you do need to provide your employment information, I can honestly say that I haven’t heard that insurance companies necessarily verify your employment. But here is where two other questions come up that people aren’t that keen on sharing the answers to, income and net worth. “Why do they need to know that.” The need is less sinister than those who are concerned about might think. Income and/or net worth are determining factors in how much life insurance a company will underwrite on an individual. For non estate purposes, a multiple of income determines the max. For estate tax purposes, the amount of insurance is determined by the net worth minus the exemption times the tax rate. So, they don’t really care or necessarily check on how much you make, but the insurance companies do have some interest in not insuring someone who makes $20,000 a year for $2,000,000. That goes a bit beyond the whole replacement of income idea.

Next comes a synopsis of the type and amount of coverage being applied for followed by the beneficiary designations. It’s important to note that the application actually becomes part of the policy when approved and issued and the beneficiary designation in the application is actually the only place in the policy where the designation is noted.

This is followed by non medical history covering such things as foreign travel and whether or not you are a private pilot. After that is medical history. The application is kind of a synopsis in these areas. If there is more information needed in non medical history questionnaires are completed for things such as aviation, scuba diving or foreign travel. A more complete medical history is done during the exam.

And last on the list of information needed is a list of life insurance currently in force and whether you intend to replace it or not. This is another area where people get a little testy, thinking that it’s not the business of the company to know whether they are replacing anything or not. But keep in mind that it is the business of the company to know whether they are going to be a party to over insuring you. It is also the business of the company to be compliant with state laws and provide the appropriate forms for replacement.

Bottom line. There are a lot of personal questions on a life insurance application. It’s important to keep in mind that they have have valid, important reasons.

Post from: Ed Hinerman On Life Insurance

Life Insurance. The Application Process!

Amazing to me the number of people who die with life insurance in force and who spaced out two little details, telling someone that there is insurance and telling them where to find the policy.

Because our batting average is less than 100% for turning contacts into in force policies, that means there are a lot of people out there who received information from us but chose to go a different direction or chose not to do anything at all. I get calls several times a year from their next of kin letting me know that they passed away and that they had information on file indicating that they had worked with me on life insurance.

In most of those cases there isn’t any life insurance in force, at least through us, or they would have found a policy instead of quotes and a business card, or email discussing life insurance. But the important point is that, something in force or not, someone should have been told. Usually the best person to tell is the beneficiary or the person that would have been beneficiary if they had put a policy in force.

Too many important discussions don’t happen in marriages (And they all said DUH). For men especially, the whole life insurance issue really seems to be hard to discuss even though wives would like to know that their futures are being considered. It’s hard to decide to even start looking into it (the immortality phase), and then it’s often hard to talk about when you find out you’re not Superman and you can’t get the rate you see on TV (denial phase). And then you really don’t want to talk about it when you decide that because the rate is higher you decide you’re just not going to apply or put it in force (afraid you’re going to get your rear end kicked phase) . After all, who wants to tell there wife that their future security is worth $30 a month, but not $50?

And lastly, you really don’t want to talk about it if you happen to get declined. Then, and this is really hard for us guys, we would have to admit thatwe not only aren’t perfect, but we aren’t a good risk (embarrassment phase).

And that is the nature of guys. Not real bright, but we get loved anyway. So, to return that love, blow off all those phases and let her know you love her and because you care you are going to apply for life insurance. Talk to her about what she thinks is a good amount and then double it. Women have these things too. One is they don’t want to seem greedy. Then, if things don’t end up exactly like you expected, talk to her about it and make a decision to put as much as you can safely budget in force instead of getting your ego wounded and blowing the whole thing off.

And then, when you get the policy and put it in force, give it to your wife and tell her to keep it someplace where she’ll know how to find it and tell her it means a lot to you to keep it in force so you would really like her help making sure you pay the premiums. Guys are also famous for lapsing insurance.

If you get declined, don’t give up. Get an independent agent and go over all the details of the decline and get er done!!!

Bottom line. Timing is weird sometimes. I just got a call (literally just before I started this paragraph) from a widow that just received the death benefit check from a term insurance policy her husband got through me. She thanked me for being so persistent with him and encouraging him to put a rated policy in force rather than blow it off. She was so grateful that he did what he did for her. Guys, they deserve it. It’s the least we can do for all they have to put up with.

Post from: Ed Hinerman On Life Insurance

Don’t Forget To Tell Someone!!

I have written several posts on the subject of beneficiary rights if a claim happens during the incontestability period. This is a little talked about subject that can truly cause problems for those who are engaged, are life partners, have used life insurance as collateral on a personal loan or for some who own business life insurance such to fund a buy/sell agreement.

Just to review, during the two year incontestability period the company will routinely investigate the claim including acquiring relevant medical records. The problem occurs when the beneficiary doesn’t have legal standing to sign an authorization to release those records to the insurance company. Unless a family member steps forward to help the beneficiary is likely to have to go to court in order to obtain a limited medical power of attorney. This takes time and money.

In the case that started the dialogue on this subject, the death occurred last August. The family wouldn’t cooperate with the insured’s fiancee because of some greed issues. She got the court ordered medical power of attorney in February and the claim was settled and paid today. It’s a good day when claims are paid, but agents and insureds need to both be aware of this pitfall so those good days aren’t unnecessarily delayed.

Bottom line. There are those who aren’t married yet as in engaged. There are those who probably won’t get married, life partners. There are those who can’t get married, gay couples. There are those in business who can be at the mercy of a family. All are reasonably chosen beneficiaries and the life insurance companies don’t have a problem cutting the check, but during that first two years there has to be a plan in place for acquisition of records.

Post from: Ed Hinerman On Life Insurance

7 Months Later It Is Done!