If I’ve gone a month in the last three years without talking about conversion options and the mean spirited way some life insurance companies have treated it, forgive me. There is nothing I am quite so passionate about as beating the ugly truth completely to death.
Starting with the West Coast Life fiasco now three years ago, several companies have decided that they may be screwing themselves by offering customers a life time guarantee product on conversions. West Coast was the first to step out there and change their life time guarantee UL conversion product to a product that cost more than the lifetime guarantee, but only guaranteed the policy for 10 years. They made this move without telling customers or agents so no one could take advantage of them. As I stated above, there is nothing I’m quite so passionate about and when West Coast life made this move it was one of the most loyal customer unfriendly things I had ever witnessed in life insurance. My passion hasn’t even slowed down to a simmer after West Coast Life’s Greg Zabel figured out a way to fire me.
West Coast Life and a few other companies simply stated that with the low cost of their term insurance it simply no longer supported conversion to a low cost life time guarantee life insurance product. I think it’s important to note that, possibly with the exception of life insurance agents who started in the last few years, life insurance school has always taught that if your term policy had a conversion option. That option allows you to convert all or part of your policy to a permanent policy without evidence of insurability. The whole idea of conversion was to lock in a person’s insurability so that they would never be uninsurable.
There is no doubt that life insurance companies take it in the shorts with this option occasionally, but no more occasionally than when they sell a $3 million dollar policy to someone who dies a month later in a car wreck or dies of a heart attack. Stuff happens. That’s why insurance companies coined the phrase “the law of large numbers”. If you sell enough insurance those anomalies get lost in the mass of cash the company is lying around in and I don’t think I’m letting the cat out of the bag that life insurance are doing OK. When I asked why they didn’t offer a lifetime guarantee product and just charge a premium high enough to get them out of the adverse selection quandary they got themselves into. They didn’t see the logic of that. They would rather just offer a terrible product and run off their loyal customer of the last 20 years and pocket the profit before someone dies.
So, no excuses. Life insurance companies should offer a permanent option for conversion. I took this up with the NAIC, National Association of Insurance Commissioners, a year or so ago. They have to approve products, applications and policies before they are offered so I figured they would have, 1. Been around long enough to know a bad deal when they saw it and 2. Might have something to lend to the issue, heck, one way or another. Their response. Those kind of things are left up to each state. When I called my Colorado state insurance commissioners office I was told they defer to the NAIC on matters like that, but if I was a customer filing a complaint they would be try to get it in front of the NAIC for me.
Funny, just today I was reading through a “Life Insurance Buyer’s Guide” that is put out by the NAIC, a buyer’s guide that apparently hasn’t been updated since, well, since all of the members of the NAIC were much younger. In describing term life insurance they feel it important to note that “Many term life insurance policies can be traded before the end of the conversion period for a WHOLE LIFE POLICY. They go on to define whole life insurance as “covers you for as long as you live“. That is unless, in their infinite wisdom they allow a non guaranteed whole life product, and they do.
Now let’s be clear about the NAIC. I think they’ve done a lot of really good things. For instance their decision to have everyone’s state licenses come due for renewal in their birth month. That’s one less thing an agent has to worry about, unless you have 51 of those puppies like I do. But back to the point. Instead of their borderline stupid statement about conversion above, since this is a life insurance buyer’s guide after all, how about let’s get honest. “Before purchasing life insurance find out what conversion options are in place and if they are guaranteed. If the company has the right to change conversion products make sure you understand what changes could be made and how it might adversely affect your future insurability.” God knows a little honesty in this country would be refreshing.
Before the NAIC wise men and women even get to the subject of conversion they make another brilliantly absurd statement, “Most term insurance policies are renewable for one or more additional terms”. Who are these guys and when is the last time they looked they came out of their bedrooms? The truth is that very few term insurance policies have a guaranteed renewal for an additional term. The old ten year renewable term isn’t called old for no reason. Almost all term life insurance these days have a guaranteed level premium for a set number of years, 10, 15, 20 or 30 and then it has one guarantee. The price is going to go through the roof. The only conceivable reason for paying the monstrous premium would be if you absolutely knew you had less than a year to live.
And the NAIC? Those are the guys in charge of making sure the public doesn’t get screwed.
Bottom line. Your best line of defense is an agent that actually knows what’s inside the policies that he or she sells, and is willing to honestly share that with you. Expecting a customer to know enough to ask is as absurd as having all of your licenses come due in your birth month. If you have any questions or answers, call or email me directly. Let’s talk.