Posts filed under 'death benefit'
I’m often asked when a policy is declined or highly rated, if it would make a difference if we lowered the face amount of the insurance. In the mind of the consumer is the not so crazy thought that if the life insurance company is exposing itself to less risk (death benefit), so they might be able to kind of look the other way on the perceived increased risk (the health issue).
Makes sense to me, but in real life that’s not the way life insurance underwriters look at it. The perceived risk they care about is mortality risk or mortality experience, not the amount of the death benefit. The only difference they apply in underwriting say, $100,000 or $25,000,000, is what are called underwriting requirements. The underwriting guidelines are exactly the same for both amounts.
Underwriting requirements are the tests that a person needs to endure. With most life insurance it is a standard paramedical exam that consists of blood and urine specimens, a check of height, weight and blood pressure and a review of medical history. As the amount of insurance increases things like ekg’s, stress tests, exams done by doctors rather than paramedical practitioners, chest x rays and so on can be added.
But the underwriting guidelines stay the same. If a company guideline calls for a total cholesterol no greater than 220 for their best rate class, it needs to be no greater than 220 no matter how much insurance is involved. If the family history guideline says no parent shall have died prior to age 60 of a heart attack to get the best rate, they don’t cut slack if you lower the amount of insurance.
Will they do more testing if you want $25 million? Count on it. Will they have several people review your medical records just to make sure they didn’t miss anything? They’d be crazy not to. But when it comes to guidelines and defining healthy the playing field is level.
Bottom line. The answer to the question is no. Lowering the amount of insurance you apply for is not going to somehow allow you to fly below the radar, or make for softer guidelines. Apply for what you need and make sure you divulge any health issues to your independent agent up front so they can steer you to the right company for the best result.
February 16th, 2010
If you only had a crystal ball, right? If you knew when you were going to die you could put off buying life insurance right up to the last moment, or if you knew you would outlive the need for life insurance you could just not buy at all.
Well, unless you are terminally ill or have some tried and true hooey wooey visionary way of knowing when the end might come, you are forced to deal with statistics and mortality assumptions. How many times have I heard, “The insurance company is betting I’m going to live and if I buy life insurance I’m betting that I’m going to die”?
Well, let’s be really up front and fair here. The life insurance company does believe you are going to live or they wouldn’t sell you the insurance. Duh!! But does that mean they don’t pay out on tens of thousands of claims every year that were the result of unexpected deaths? If you’re a male between age 25 and 64 the life insurance companies will be right most of the time, but 1 in 6 times they won’t be. That’s right. When you reach age 25, 1 in 6 of you won’t see age 65. If you’re female 1 in 9 of you won’t make it that far.
Let’s say for a minute that car insurance wasn’t mandated by law, completely voluntary. If you knew that the chances were randomly 1 in 6 that you would total your car I’m thinking most of you would carry comp and collision anyway.
Let’s look at it another way. That TV show about 6 degrees of separation is probably overkill in this discussion. I suspect that very few adults can say that they didn’t personally know someone between 25 and 64 who died. Most of us know someone who died prematurely and didn’t have life insurance. We just had a woman in her 40’s die in a car accident last week and a man in his 50’s have a heart attack two days ago in our small town of 6000 people. The man is still alive, but is in critical condition and without a transplant isn’t expected to make it.
A young man in his 20’s who is an ongoing subject of prayer in a men’s group I attend has inoperable cancer. It really goes on and on and I don’t make these points to get people to buy something that is going to break the bank, or even their budget. I make these points so maybe someone will understand (that doesn’t already) that we have a good chance of living to old age, but we aren’t immortal. There is prudent reason to consider having life insurance. For all of those who I have delivered death benefit checks to, saying there is prudent reason would be considered an understatement.
Bottom line. Just food for thought. If there is someone in your life who is depending on you, make sure they really can depend on you.
May 13th, 2009
I heard a story about a Met Life case today that just inspired me. Life insurance companies quite often do things they don’t necessarily have to, like paying a claim when the validity could probably be argued.
I’ve talked in previous posts about universal life policies that are guaranteed to age 121. There is even one out there that goes to 130, but the point is, and I have heard this straight from presidents of insurance companies, if a person outlives the guarantee the company will still keep the policy in force and pay the claim when the death occurs. Please note that I am in no way suggesting that term policies are treated that way!! The truth is that it’s the right thing to do and that is one reasons companies have committed to honoring those policies.
The other reason is that they don’t want to be known as the company that didn’t pay the claim on the oldest known person when they died. Bad PR move!
But back to Met Life. Met Life has an innovative program where they will convert other company’s term policies to permanent Met Life policies, just as if they were their own. It’s not a stupidly broad program in that it doesn’t allow conversion of any company, just a select 30 or so. But it’s kind of neat because with conversion options changing as the face of the no lapse UL changes, Met Life may have a better product than your current company, and as this story goes, Met Life’s conversion option had a feature that changed a person’s dying days.
This person had a term policy that didn’t have an accelerated death benefit rider, the rider that allows you to take a portion of the death benefit if you are terminally ill. It’s a great feature. Whether it is used to keep medical bills paid, or just to make you last days more memorable, it’s there and then when you pass away your beneficiary receives the balance of the death benefit. Anyway, this person’s policy didn’t have that feature but he was able to convert to a Met Life policy that did have that feature.
Remember that conversions don’t require evidence of insurability, so a conversion can be done even when someone is terminally ill. Met Life could have written this program to exclude this kind of a deal, allowing someone to gain benefits they didn’t have before, but they left that door open and this person was able to access 50% of their life insurance policy while they were still living. If they had stayed with their term policy they couldn’t have done that. How cool is that?
Bottom line. Most companies have an accelerated benefit rider these days, so this might not have been a big deal if he had been with almost any other company. But this is one of those deals where you just want to hug a company that knew this possibility existed and didn’t write it out of their program. Way to go Snoopy!
May 1st, 2009
Billing for a life insurance policy, unless paid by automatic bank draft, usually comes a few weeks before the due date. What happens if you miss that bill or if you moved and forgot to notify your agent or the company?
Protection for these types of occurrences is built right into the policy in the form of an automatic grace period. While the length of the grace period may vary, generally speaking it is usually a one month, or 31 day period. During that period if you passed away, even if the bill was not paid, the policy is fully in force and a valid claim would be paid in full, minus the amount of premium due. The attached excerpt from a policy of mine shows the language concerning the grace period.
policy-view-2
From this it really is apparent that the company wants to do everything possible to make sure that an inadvertent lapse doesn’t occur. During that 31 day period most companies will send at least two more premium due (or past due) notices and will also let your agent know that your policy is in danger of lapsing. Agents are usually notified toward the end of the grace period, kind of a courtesy so no one is calling and bugging you when you are simply a little late with the premium.
The policy really does lapse after the grace period and at that point there is no death benefit is payable, but again, I think you’ll find most companies, understanding that things happen, will do all they can to help you reinstate your coverage with minimal hassle. Usually for a few months after the lapse they will allow a reinstatement by simply completing a good health statement (attesting to no health changes) and, of course, any premium due since the original due date. There will come a point where a reinstatement will only be entertained with a full reinstatement application and medical underwriting. Again, if approved, premiums all the way back to the original due date are required for reinstatement.
If a policy has been lapsed for six months or more and full medical underwriting is going to be required anyway, it may be worth contacting your agent to see if the reinstatement is really going to be a better deal than applying for a new policy.
Bottom line. Companies do all they can to make sure you stay covered and, at least in my mind, the grace period is a very generous thing. I had one client who passed away one day from the end of their grace period. I had literally just received notice that he was at the end of the grace period and was attempting to contact him when I found out. The company paid the death benefit, $250,000, minus the $78 that would have been needed for the policy to stay in force for that month.
April 13th, 2009
A headline hit me this morning. You know, one of those that sucks you right out or your routine and sends you off chasing rabbits of another color.
US News and World Report seems to have rifled through my blog posts and come up with 7 (only 7?) important things you should know about life insurance. While they definitely hit on some important points, let’s discuss those and a few they missed.
1. Thinking you have enough! There is a real tendency in our country to put a high value on toys and play time and then treat life insurance like, well, like your family’s future minus you doesn’t matter. It’s important to give some real thought, have some real discussion, about life without your income.
2. Not talking about it at all! Seems I may have offered a post on that very subject a few days ago. There is a real tendency, especially for men to want to ignore their own mortality and hope for the best even though the stark reality is that one sixth of men don’t make it from age 25 to age 64.
3. Relying on old rules of thumb! Most of the old rules of thumb for computing how much life insurance is appropriate have lost some of their key factors. Most of those computing methods used your projected savings and retirement accounts to offset the need for larger amounts of life insurance. Not sure about you, but that train of thought isn’t holding together to well for a lot of us right now. Another method made the assumption that your life insurance proceeds could be put into an investment vehicle that would produce 10% after tax income. Using that the rule of thumb was that if the death benefit was 10 x annual income, you could live off the interest from the death benefit and leave the principal intact. Lot of that 10% after tax stuff floating around right now too.
4. Ignoring your non monetary income! This one is pretty simple. If you make $40,000 a year but your employer also pays $8,000 a year for your family health insurance plan, count that as income to be replaced or your family may be forced to choose between having health insurance or not.
5. Forgetting the long term! I would probably rephrase that. In order to forget something it kind of insinuates that you ever considered it or knew about it. With agents, agencies and companies steering the masses towards 10 year term insurance, there is kind of an immediate disconnect between what’s being offered and the fact that your needs very often are much longer. And let me be clear. Unless there just isn’t any way to afford the appropriate term length, it is a bad mistake to buy a 10 year term for a longer term need. A health change can turn that into a train wreck.
6. Thinking that it’s too expensive! Really depends on where your values lie. The average car payment in the US is nearly $500 a month. If you die your wife gets the car if she can still afford the payment. Most people who think life insurance is too expensive probably haven’t really shopped it and priced it and most likely have a budget full of things that aren’t nearly as important.
7. Forgetting to update a policy! I lay this squarely on the shoulders of agents who believe their job is done when they place the policy. If your agent doesn’t contact you at least once a year, you didn’t mean anything more to them than a little bit of commission. Policies that lapse and policies that don’t keep up with needs are a direct result of a lack of service by the agent.
And a few of my own!
8. Thinking a declined application dooms your attempt to get life insurance! Every company has a different opinion on what is an acceptable risk and what isn’t. Most declines are simply a result of the wrong agent presenting your application to the wrong company. Find an independent agent, explain what happened and let them work it for you.
9. Buying life insurance from your auto/homeowners agent! I have a lot of respect for my Farmers agent. He’s done a great job for my family for a long time on auto and homeowners and my business liability, but he stinks at life insurance. If you want the best deal on life insurance, buy it through an independent life insurance agent. Steer clear of Farmers, State Farm, Farm Bureau, Allstate and anyone else whose main focus is something other than life insurance. Their underwriting and prices will not serve you well.
10. Making sure it is budgetable! Too many life insurance policies lapse every day because it sounded good but never got a valued place in the budget.
Bottom line. The list can go on and on. Your life insurance could save your family from financial ruin. It could ensure that their future is one of possibilities and not pitfall after pitfall.
April 7th, 2009
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.
April 3rd, 2009
There are times when it’s obvious that life insurance agents just really don’t believe that service is important and then there are times when the avoid service or drag their feet on a task as a way avoid talking about what’s really going on with your policy.
The latter is the case with a client I am currently working with. Early on in the process I suggested to the client that they get a current in force illustration of their variable universal life policy. I told them just a quick call to their current Hartford agent should produce that document for them in just a few days, a week at the most.
Now, understand that this is a policy that was grossly underfunded and being variable has no guarantee. This is a policy in huge trouble. It started with a single premium that generated $1.6 million of life insurance coverage. Today, as near as we can tell, it would provide a death benefit of less than $500,000. So after two weeks of not receiving anything I suggested to the client that they call the agent and tell them that they were considering moving their insurance to a new company and that if this agent wanted to be considered for keeping the business he needed to produce the in force illustration.
Two weeks later they received a two page letter from the agent explaining the history of the policy and how it appeared to be going down the tubes and suggesting some possible alternatives. All of this in the narrative, none in actual illustration form and certainly not a Hartford generated in force illustration. There was absolutely nothing that the client could hang his hat on. There was nothing substantive enough to be helpful in making a decision.
Understand that if you have a life insurance policy, whether term insurance, whole life or universal life, companies need to provide in force illustrations to you in a timely manner if you request it. The only conclusion that can be drawn by this agent’s actions is that he knows the business is in trouble and he is hoping to drag this out to the annual renewal date and then suggest that they ride it out one more year. He either never requested the illustration, or he requested it, received it and the news is so bad that he doesn’t want to show it to his clients.
At this juncture I suggested to the clients that they pose some questions to the agent concerning the tax viability of making a change in the policy or moving the policy and using a 1035 exchange to move the cash value. 10 days later the agent answered the questions.
Bottom line. Service isn’t about the agent. Service is all about the customer and if, by providing the service, the information, that a client needs, the client finds a better deal somewhere else, well, you did that client a service. It might not feel good to lose a customer, but it’s all about their family and their money and not about the agent.
March 27th, 2009
I’ve been in on more than a few laughs and jokes when explaining to people that most of the new universal life no lapse guarantee policies provide guaranteed coverage to age 121. A few different and one company actually has their guarantee to 131.
Well, today there is living proof that while the number may not be large, those ages can be attained.
The policies, which I have long touted for their low cost and long guarantees are actually referred to by most companies as having a lifetime guarantee. So, while illustrated and guaranteed to age 121, I have been assured by more than one company president that it would be their intent to keep a policy in force until death, even if that comes as it will with Ms Dosova, after 130.
Bottom line. The truth is that any life insurance company in their right mind can see the PR upside to paying the death benefit and the PR catastrophe if they didn’t.
March 25th, 2009
Life insurance has been afforded a special place and special treatment in the tax codes for a long time. Both federal and state entities have long recognized the social importance served by life insurance, which provides families with peace of mind through immediate financial protection.
These death benefits have not and are not taxed as income. When your loved one bought a $500,000 policy to protect you he or she planned on you receiving $500,000 because that’s what the law is and that’s what life insurance does.
Now comes Oregon and house bill 2854 which is being considered at this very moment. The intent of this bill is to make life insurance death benefits state income taxable. As much as I don’t like cash value policies like whole life, the bill would also make cash value buildup in whole life, universal life and annuities taxable as income by the state.
The whole idea unfairly targets those individuals and families who have done the most responsible job of ensuring that their family’s needs are taken care of and their family is not a burden on anyone due to an untimely death. If the current tax status is pummeled by greedy legislators it will take away the incentive for family’s to carry adequate insurance, ultimately throwing a burden back on the state and federal governments.
Whoever dreamed this one up really hasn’t thought through the damage that will be done by their get the state rich quick scheme. They just see income. My guess is that the irresponsible pinhead doesn’t have any family or doesn’t have any life insurance.
Bottom line. This bill will be considered on March 19, just two days from now. If you believe in life insurance and the social good that it accomplishes, take action now. I’ve made it easy by supplying a link that will allow you to oppose it. If you’re not from Oregon, oppose it anyway. We can’t afford to allow success on this anywhere.
March 17th, 2009
There’s a lot of assumptions about life insurance and probably the biggest and most important is that if you name someone as beneficiary, and you die, they will get your life insurance proceeds without any hassle. After all. You put there name there and paid the company for the life insurance, right?
Well, most of the time!! Let me provide a poignant example of just how badly that assumption can be shot down when you take the policy out of the context of a married couple. I had clients recently that took out policies on each other. They were engaged and had been together a long time and with or without marriage, recognized that the prudent thing to do was have life insurance in force. They had enough common interests that it made sense not to leave the other one hanging.
We wrote the policies and put them in force and everyone went about their business. About a year later I got a call from her saying that her fiance had died of a heart attack. I explained to her about the fact that the policy was still within the 2 year incontestability period and that once the claim was filed it would probably take a few months for the company to gather medical records and approve the claim. She was fine with that and I got a claim kit on the way to her.
It’s important to note that the need for medical records only occurs during the incontestability period. After that two year period claims generally just take a few weeks to process.
Here’s where the road got bumpy though. She received the claim forms and signed them as beneficiary, including the authorization to release medical records. A few weeks later we found out that the medical facilities wouldn’t accept her signed authorization because she didn’t have a legal right to sign it. She wasn’t his wife and had no legal standing based on being “just the beneficiary”.
So, she was stuck and turned to the family of her deceased fiance to authorize the release of records. Well, humans being what they are, the issue turned into a family fight and they collectively decided they wouldn’t sign it because they didn’t think she deserved it if they weren’t getting anything. They went back and forth and at one point the mother of the deceased offered to sign for half of the death benefit. That’s when my client retained legal counsel and long story short, six months after the claim was filed a judge finally provided her the medical power of attorney she needed to be able to legally sign the authorization. The claim is now on a fast track to be paid.
This is a potential problem for engaged couples, gay couples that don’t have a legal relationship, and business partners. Even though the potential only lasts for two years, it would be a prudent move to get a limited medical power of attorney just for this purpose.
Bottom line. It’s not a huge problem, but worth agents and potential insureds giving some careful thought to. In a perfect world my client could have turned to her fiance’s mother and the problem would have been taken care of. This isn’t always a perfect world.
March 12th, 2009
Previous Posts
