Over the past several months I have had a running dialog in this forum with the vice president of a major life insurance company. In question was that company’s decision to replace their no lapse guarantee UL as an option for conversion with a universal life policy that only has a 10 year guarantee.
As I write today I have actually deleted some of those posts because I was threatened with a lawsuit or the loss of my appointment to sell that company’s products. I know that legally I haven’t done anything wrong, but as we all know, those with the deepest pockets can throw their weight around and bully folks like me enough to back off from spreading the truth.
So let me share with you the issue and how I feel about it, generically, because it’s important. I’ve always maintained that for 95% of life insurance needs, term insurance is the best product. If you thoughtfully pick the right term length, by the end of the term you won’t need it, you can drop it and you will have saved tons of money over whole life or universal life.
The golden nugget in a term insurance policy, in my mind, has always been the conversion option. What happens when I get to the end of the term and things didn’t go as planned and I still need insurance for a while longer, but my health has changed and I can’t go out and buy a new term policy. The answer is the conversion option. In its’ simplest form it would say something to the affect that you have the right, without evidence of insurability, to convert all or part of your term insurance to a permanent policy at the rate class that you were originally approved at.
Or at least that’s the impression that insurance companies want consumers to have. In its’ actual form it would say that you have the right to convert to whatever product the company makes available at the time of the conversion. In the world according to Ed Hinerman, the honorable path is the ability to convert to a permanent product. That is what most companies do. The most honorable path would be conversion to a company’s best permanent product. Banner Life would be a great example of that.
The other path, which by default I guess would be dishonorable, is to offer your loyal term insurance customers a product that stinks. This is the path that several companies have taken because they can then cull out the unhealthy conversions. If they have someone whose term policy was approved at preferred plus rates, and the person want to convert but is in horrible health, they can use adverse selection on them by offering a crap product to convert to. If the person is still healthy they don’t need to convert. They can go buy one of the best policies a company has.
Bottom line. Life insurance companies can choose to treat their customers right or they can choose to treat them wrong. But treating them wrong and pretending what they are doing is right doesn’t fly. The above referenced company can paint that chicken orange if they want to, but it’s still a chicken.