 Posted: Thu Dec 03, 2009 7:16 pm Post subject: |
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Oh, please! It looks to me like the ones who don't understand no-lapse guarantees are the ones promoting them.
UL is a wonderful product, but as designed it must be properly funded to work as it is intended -- intended and designed are two slightly different matters. COLI based on UL works because the corporations have the money to pay the necessary premiums up front to get the contracts off to a proper start, and to continue to support them as needed. But they also pay big bucks for analysts, like I was, to monitor their cash values and recommend the need for additional premium payments as often as necessary.
UL "existed" for more than 20-25 years without no-lapse guarantees (albeit with policies lapsing left and right). Then the insurers got "smart" and started including them (as provisions or riders -- either way it increases the cost of the policy -- if a "standard provision" then the cost is truly hidden from the owner, at least with a rider the cost is in the open) to try to avoid the class actions they were hit with in the 1990s.
So here's the reality:
The average Joe Bluecollar who gets involved in a UL policy typically doesn't read his annual statement, and if he does, usually doesn't understand it, and may not see that his cash value has leveled or begun to drop at the point that COI overtakes premiums + interest - monthly deductions. As a result he has no idea that he should be paying more money to avoid the loss of cash value, let alone protect the policy from lapsing.
This despite the fact that, to their credit, most insurers are actually responsible enough to show the policy's projected lapse dates (based on guaranteed values and based on non-guaranteed values) on the statement [and distinctly unlike credit card companies that won't tell you in what century your $5,000 balance will be paid off at the minimum monthly payment rate]. But when Joe Bluecollar doesn't know how to understand his statement, he has no clue what a lapse date really means, especially if it's 15-20 years into the future. That's a failure of both the company and the agent to properly educate the client.
So it's a good thing if Joe's UL policy has its no-lapse guarantee, but only if he also understands his responsibility to keep making his premium payments. But he's more likely to remember the words of the agent (who may not even be in the business any more) who told him something like, "And if you ever need to, Joe, you can stop making your monthly payments for _________" (a while/as long as you want/ever . . . fill in the blank with your own words). Joe doesn't remember, "Now, I have to tell you, if you ever miss a monthly payment, you will lose this no-lapse guarantee." (Or did he never hear it from his agent?) The only thing never discussed with Joe in a way that makes sense to him is that his monthly payment has been calculated as the minimum necessary to get the policy only part of the way to endowment age.
And as I've posted elsewhere, Joe Bluecollar is going to be really upset when, no-lapse guarantee intact, he calls the company to "take out" some of that money he was told he could have "tax-free" only to discover that there is no money, and never will be if all he does is continue to make his scheduled premium payments and nothing more. That's not what he thought he was getting according to how the product was marketed to him. And, guess what? Joe gets so mad that he surrenders his policy just before he dies, believing that he was ripped off by the insurance company.
Was he? No, of course not, because he had a contract that he was expected to read and understand, and it tells him that what happened could happen, so it's his "fault" for not doing what he was supposed to do (pay more money as needed) . . . because he did exactly what the agent told him he needed to do, make his monthly payment ("It will come out of your checking account automatically, Joe, you'll never even have to write a check."). But you probably will never convince him that it was his "fault."
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California-licensed Property & Casualty Broker-Agent and Life & Health Agent. CA Insurance License #0596197. Send me your questions, and I'll send you my answers. I live, breathe, and teach insurance! |
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MaxHerr
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