5 Reasons Why You Should Get Affordable Life Insurance

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PostPosted: Wed Nov 10, 2010 6:29 pm   Post subject:   

Quote:
So, tell me what YOU think it means? This last paragraph says, to me, no matter what anyone else thinks or says, the limits are the limits unless we can find additional money from the liquidation of the insolvent insurance company to pay more money to each claimant. Because that's the truth.




I think that it means exactly what it says. It doesn't say, "the limits are the limits."



It says, "The liability of the association is strictly limited..."



This means that they are not liable for any more than the guarantee. That DOES NOT mean that they can't pay more than what is guaranteed. It says that they aren't obligated to do so.



It's in the industries best interest to make sure that all legitimat death claims on life insurance policies always get paid. As has previously pointed out, many believe that this has always been the case. If you have any example with any U.S. insurer that goes against this, please clue the rest of us into this.

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PostPosted: Thu Nov 11, 2010 5:22 am   Post subject:   

Quote:
It's in the industries best interest to make sure that all legitimat death claims on life insurance policies always get paid. As has previously pointed out, many believe that this has always been the case. If you have any example with any U.S. insurer that goes against this, please clue the rest of us into this.




Do you even know how the Guaranty Associations are funded? They don't assess member insurers to be able to pay claims in full, they assess member insurers to pay the claims up to the limit of liability.



They do work to try to get other insurance companies to take over policies, but they cannot force companies to take over claims.



As I have repeatedly stated, EXECUTIVE LIFE's failure has caused people to not collect 100% of their policy benefits. What more do you need. And Executive Life is not the only example. Just the biggest one.


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PostPosted: Wed Nov 17, 2010 10:27 am   Post subject:   

I know exactly how it is funded. It isn't. It is funded as is needed in the proportion that an insurer does business in that state. However, that isn't the topic here.



I'm not claiming that Executive Life's failure has allowed everybody to get 100% of their policy benefits. I'm claiming that DEATH BENEFITS FROM LIFE INSURANCE POLICIES were all paid 100%.



I can't find a single thing anywhere that shows that I'm wrong with my claim. If I'm wrong, I want to know about it.



You seem capable of asserting that I'm wrong, but incapable of backing it up. If you can back it up, please do so. If you can't back up what you are saying, let us know that.



I'm not asking you to admit that you are wrong. Heck, you might be right. I believe that I'm correct, but am unable to prove it. If I'm wrong, I want to know, but I can't just take you at your word. I have NEVER read anything about not all of their death claims being paid.


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PostPosted: Wed Nov 17, 2010 10:38 am   Post subject:   

Max, let me change what I'm asking slightly so that this doesn't come off as an argument. I've always believed that there has never been a death claim that hasn't been paid in the U.S. due to insurance company insolvency.



I could be wrong. I would like you or somebody else to point me to something concrete that shows me that I'm wrong. The Guaranty Associations rules are useless for this purpose because they only show that the possibility exists for a claim not to be paid.



Max or anybody else, do you have anything showing an insurance company failure and its life insurance death claims not being paid 100%. I don't and if I'm wrong, I want to know.


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PostPosted: Wed Nov 17, 2010 4:53 pm   Post subject:   

Quote:
I've always believed that there has never been a death claim that hasn't been paid in the U.S. due to insurance company insolvency.




OK, now you're making a more sensible statement (and I've never regarded the discussion as an "argument", but one of trying to correct misinformation/set the record straight). But you're still wrong.



If you are talking about "NEVER" in the history of commercial life insurance in the US, then think about this: Why do we even have Insurance Guaranty Associations in the first place?



The answer must have something to do with insurance company insolvencies and not paying claims. But the first Life and Health Guaranty Association was not created until 1941 in New York State, and even the National Organization of Life and Health Insurance Guaranty Associations was not created until 1983.



And, although I cannot give you concrete examples from the period, I'm sure that during the Great Depression in the 1930s, when, following the run on the banks and depletion of cash in the economy, people turned to their life insurance companies for policy loans -- and the insurance companies could not come up with the cash, it caused more than one insurance company to become insolvent, go out of business, and not pay at least one claim. They were all casualties of federal monetary policies just like any other business, farmer, or citizen.



Quote:
do you have anything showing an insurance company failure and its life insurance death claims not being paid 100%.




Because it was the largest such failure in California, I have repeatedly pointed to the EXECUTIVE LIFE debacle that left policyholders on the losing end of an insurance company insolvency (with the defunct company having $10,000,000,000 in LIABILITIES). The company was "conserved" by the CA Dept of Insurance in April 1991, and the order to liquidate came in December 1991.



Funny thing, the California Life & Health Insurance Guarantee Association was created in . . . 1991 . . . wonder why (the act by the legislature actually predates Executive's failure, and covers insolvencies occurring after 10-20-1990, but was nevertheless, prescient)?



Yes, most active policies were taken over by Aurora Life Insurance company -- but that did not happen until 1993 -- when the company was created out of thin air by Credit Lyonnaise, but even that company ran afoul of the CA Dept of Insurance for disguising its foreign ownership and control in violation of state law. The state has been trying to collect on a $2 Billion judgment in that case. And they've done a pretty good job.



But death claims that occurred just prior to or after the conservation of EXECUTIVE LIFE began were NOT PAID 100%. You can contact the California Life & Health Insurance Guarantee Association, or visit their website ( http://www.califega.org/ ) for more information. While there, you can find the page on "receiverships" that the CHLIGA has taken since its inception. The total is now at 38, beginning with Legacy Life Insurance Co of Nebraska in August 1991 (and just above the list, there is this statement from the CHLIGA:



Quote:
Below is a list of insurance company insolvencies for which the California guarantee association has been activated to provide protection to California policyholders. Please be advised: this list may not include every insolvent insurer that has affected this state's policyholders.
(emphasis added)



When the Guarantee Association is "activated", it means that POLICY CLAIMS are going to be handled by the Association. In order to raise capital to fund the payment of claims, ASSETS of the insolvent company are LIQUIDATED or SOLD to other insurance companies, before all other member companies of the Association are "assessed" to provide the additional funding required. Active policies are among the ASSETS that are sold. But when an insured dies, the policy ENDS -- it is no longer an ACTIVE policy but becomes another one of the company's LIABILITIES (the contract changes at the moment of death to an obligation of the insurance company to the beneficiary which is settled by the payment of the death claim), and it is unlikely that another insurance company will take over all of the death claims. Especially in a large failure such as Executive Life.



On another page of the CHLIGA website, it states:



Quote:
Specifically, when a member insurer is found to be insolvent and is ordered liquidated, a special deputy receiver takes over the insurer under court supervision and processes the assets and liabilities through liquidation. The task of servicing the insurance company's policies and providing coverage to California's resident policyholders becomes the responsibility of the guarantee association. The protection provided by the guarantee association is based on California law and the language of the insolvent company's policies at the time of insolvency.




You don't have to believe me, but if you don't then you should contact the CHLIGA and ask THEM what life insurance death claims they have paid at 100% of policy face following the declaration of an insurance company as insolvent. Or you can contact the Guaranty Association in your state and ask them the same question.



If you want to talk to someone on the phone, the GHLIGA office is located in Beverly Hills, CA -- 323.782.0182. They actually answer the phone calls.



For some additional historical information about Insurance Guaranty Associations, see the article downloadable from the Pacific Research Institute at https://liberty.pacificresearch.org/docLib/20100209_HPPv8n2.pdf (it's actually an article about healthcare reform, which is excellent in itself, but talks briefly about the history and purpose of the guaranty associations on p.3 of 4 pages).


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PostPosted: Wed Nov 17, 2010 6:48 pm   Post subject:   

We have the Insurance Guaranty Associations in place primarily because they give confidence to the consumers and secondarily to make sure that there is an orderly way to make sure the claims get paid.



However, since the Guaranty Associations aren't funded, they don't provide much benefit if there will be wide spread failure of big insurers.



I'm looking hard, but I still can't find anything that indicates that any Executive Life death claims weren't paid at 100%.



Executive Life may have had $10,000,000,000 of liabilities, but if I'm not mistaken, the death claims would have jumped to near the front of the line in terms of payments. So, what would matter isn't the amount of total liabilities, but whether they had enough in assets to pay the death claims and other things that get paid first.



Max, I hope that you keep up this conversation, because I really want to find out if I'm right and wrong and I still haven't seen anything that indicates and death claims weren't paid at 100%.


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PostPosted: Wed Nov 17, 2010 7:12 pm   Post subject:   

Max,



I spoke to someone at GHLIGA and they told me that I needed to speak to someone at the National Association 703-481-5206. They said that they wouldn't have the answer. They would know how much they paid on each policy and the coverage amount on each policy, but they would have no way of knowing what was paid above this limit. They suggested possibly contacting the NAIC.



What they said was that since the policy owner claims got paid first, the only way that a policy wouldn't get paid 100% is if a company had more policy claims than assets.



Alas, I still don't know if the claims were paid 100%.



It's hard to imagine a company having more liabilities than policy claims.


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PostPosted: Wed Nov 17, 2010 7:24 pm   Post subject:   

Max, as I research this further, I see that Aurora Life took over all of the life insurance policies. I agree that they wouldn't take over the policy of a dead person.



If a policy was taken over by Aurora Life, it would be paid at 100%, wouldn't it? If a person was dead, they would be in the front of the line for claims, so I would think that they would be paid 100%. I still can't figure out who wouldn't be paid 100%.



The more that I look into this, the more that it would not surprise me if I was wrong, but I'm still looking for some proof that I'm wrong.


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PostPosted: Thu Nov 18, 2010 3:23 am   Post subject:   

Quote:
However, since the Guaranty Associations aren't funded, they don't provide much benefit if there will be wide spread failure of big insurers.




The Guaranty Associations are funded. They assess insurers a percentage of their insurance premium volume written in a given state to pay the expenses of the board and claims, if necessary. Commonly, they can assess insurers up to 2% of their annual premium volume.



It's true in the sense that they aren't funded by the state or Fed Gubmints.



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PostPosted: Thu Nov 18, 2010 6:02 am   Post subject:   

Quote:
Executive Life may have had $10,000,000,000 of liabilities, but if I'm not mistaken, the death claims would have jumped to near the front of the line in terms of payments.




That's also true, but when you add up all the cash values, all the death claims, all the annuities (whether in the accumulation or distribution phase), etc., as part of the liabilities, the assets of the company were not nearly enough to cover them all. Remember, Executive Life had most of its money playing the junk bond game with Michael Milken and Drexel, Burnham, Lambert. When those bonds turned from junk to waste, there was nothing to sell/collect.



That's where the Guarantee Associations come into play. The few true assets were the company's active policies (their cash flow, really) and the real estate they owned. When Aurora took over the policies, it removed those from under the umbrella of the Guarantee Associations. All they had to pay, really, were death claims and annuity benefits.



Quote:
I agree that they wouldn't take over the policy of a dead person.




OK, so if we're in agreement, then you have to acknowledge how the Guarantee Associations operate. By state law, the "claims" payable are limited. Each state has its own limits. California, unlike most other states, limits claims to 80% of the face amount/cash value/present value of annuity benefits. But not to exceed $250,000 in death benefits, $100,000 in cash value, and $100,000 in annuity benefits. Most states pay 100% up to $250,000 or $300,000, and a couple pay a bit more. But you can be sure that no $1,000,000 policies were paid at face amount.



Many people with Executive Life policies lost money. Just as they did at the same time when the S&Ls also began failing. Also in California, Lincoln Savings and Loan was encouraging persons to divvy up their savings into multiple CDs at different LS&L branches "to get around the FSLIC limit of $100,000 per account." They deliberately misled people into believing that accounts in different branches were treated as separate, when the fact was that all accounts with a single institution are considered one account (when tied to only one depositor). Lots of folks lost 50 cents or more on the dollar when the FSLIC could not cover their claims 100%. And we sometimes speak of the Guarantee Associations as "like the FDIC for insurance companies.



As InsTeacher has said, the Associations ARE funded with life insurance company "contributions" (1% of premiums in California). But if an Association runs out of money to pay even the statutory claim amounts, then it has the power to "assess" all the member insurers a share of the cost to complete the claims payments. But they cannot, by law, pay more per policy than what is allowed. So, no, they do not pay more than the statutory limit. They do receive most of the money that develops from the actual liquidation of the insurer and the sale of its assets (such as a book of business to another insurer).



However, after paying all claims, if additional money develops later from other sources (such as legal judgments), then each policy may be granted a prorata share of the additional proceeds.



In the case of Executive Life, I believe there was a class action that most policyholders joined. They are definitely limited to what the court decided their compensation would be. The remaining policyowners that opted out of the class action, are under a different umbrella, and they are continuing to obtain additional monies as they are recovered from a variety of sources. I can't say for sure, but I don't think any of those are related to death claims.


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PostPosted: Thu Nov 18, 2010 10:35 am   Post subject:   

Quote:
The Guaranty Associations are funded. They assess insurers a percentage of their insurance premium volume written in a given state to pay the expenses of the board and claims, if necessary. Commonly, they can assess insurers up to 2% of their annual premium volume.



It's true in the sense that they aren't funded by the state or Fed Gubmints.




No, they are unfunded. They don't assess insurers a percentage of their insurance premiums. They have the power to assess insurers a percentage of their premiums. These are two very different things. They don't assess before a failure. Insurance companies do not pay the guarantee association on an annual basis. They get assessed after their is a claim.



In other words, if there was a large insurance company failure today, the Guaranty Associations could not reach into their coffers to pay claims. Instead, they would assess the insurers and then pay.

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PostPosted: Thu Nov 18, 2010 10:44 am   Post subject:   

Max, we are in basic agreement with how this works.

Everything that you are saying makes sense and it explains why it is very possible that there were some death claims may not have been paid at 100%. What I'm still missing is something specific that lets us know that there were death claims not paid at 100%.



I'm not making any claims about what happened to the cash values and annuity values. I'm only talking about life insurance death benefits. Policies in force went to Aurora, so aren't we only talking about deaths that had occured, but the claims had not yet been paid.



It seems to me that Executive Life would not have needed that much in assets to be able to pay these.



Again, I'm not asserting that I'm correct. I'm admitting that I may be wrong. I'm just still looking for proof that I'm wrong. Proof that I'm correct would work also. I'm still unable to get proof in either direction.


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PostPosted: Thu Nov 18, 2010 11:20 am   Post subject:   

Max, the numbers will show that the Guaranty Association didn't pay the entire amount. It won't show whether the amount got paid or not.



Look at the London Pacific info. I may be reading this very differently than you. My interpretation is that if London Pacific had no assets and no other carrier took the policies, it would have cost the Guaranty Association approximately $4,500,000 and approximately $1,500,000 of claims would not have been paid.



However, instead, all of the life policies were taken over along with the majority of annuity holders and the Association has only had to pay out (or put in reserves) $200,000. It certainly appears on this one that everybody was made 100% whole and the Association paid no death claims.



I'm still missing on the Executive Life "thing", how death claims wouldn't be paid in full. According to the Guaranty Association ALL life policies were transferred to Aurora life. So, wouldn't the only issue be for policies in which somebody died between the time that the company went under and Aurora took over? If this is the case, it couldn't be that many policies and Executive Life did have assets.


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PostPosted: Thu Nov 18, 2010 4:33 pm   Post subject:   

I'll see what I can find. It will probably take several days.



In the meantime, I found some information posted on the South Carolina Life, Accident, and Health Insurance Guaranty Association's website:



Quote:
LONDON PACIFIC LIFE & ANNUITY INSURANCE COMPANY (North Carolina) Ð This company was placed in liquidation 9/30/04. The company had 18 life and 146 annuity policies in this state. Total obligations were reported to be in excess of $6,000,000. Of that $6,000,000 in company obligations approximately $1,500,000 appears to be in excess of Association limits. The life policies were placed with another carrier prior to liquidation. Annuity policyholders were offered the option to exchange their London Pacific policy for a Hartford policy, to cash surrender, or to remain with the Association. Most policyholders went with Hartford. To date the Association has incurred $29,600 in expenses, $171,992 in annuity reserves and has received $354,643 from the SC deposit.




http://www.sclifega.org/status.php



You have to read and understand what it is saying. The Guaranty Association was responsible for 164 contracts with liabilities of $6,000,000, but some $1,500,000 of that EXCEEDED the statutory claims paying ability of the Association. It does not identify any death claims that were or were not paid, so it does not answer the question precisely. But as far as the annuity contracts were concerned, if persons opted to leave their claims with the Guaranty Association and not accept the Hartford policies they were offered, they lost money. There was probably some loss in the exchange of contracts with Hartford also (probably limited to the same amount the Guarantee Association was liable for).



So not a perfect answer, but a start. Follow the link and see what is there. It's much more explanatory than most others (it deals with how the SC Guaranty Association dealt with its state's policyholders as part of the overall liquidation of a company. You'll see Executive Life in there, with some numbers that, if you can understand them, show you that people LOST MONEY (although, again, it does not specifically identify death claims).



With enough looking, I'm sure I'll find what you need to be satisfied.


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PostPosted: Thu Nov 18, 2010 10:00 pm   Post subject:   

I tried to post this at 9:45am Pacific Time, but there was something wrong with the site server and I could not get connected.



Alright. I've done some "homework" and now you have to do the reading and come to an understanding. Download and read the following "Annual Report" of the Illinois Life and Health Guaranty Association.



www.ilhiga.org/documents/IL%202009%20Annual%20Report.pdf



In the numerous discussions of insolvent insurers within the reports 54 pages, you will repeatedly see remarks about the making payments based on the "statutory obligations" of the Association.



If you cannot accept that that means exactly what state law says, that no claim is payable by the association beyond the statutory limit, then I don't know what else to tell you. But I understand it to mean that in Illinois, $300,000 is the maximum death benefit payable by the Association. Policies up to that face amount are paid in full, policies with face amounts in excess are capped at $300,000 -- the beneficiary of a policy with a $350,000 face amount gets $300,000. A beneficiary of a $1,000,000 policy gets $300,000.



If, at some later point in time new assets are recovered from the "estate" of the deceased/insolvent insurance company, they are first refunded to all insurance companies that may have been assessed additional sums to cover the claims of the Association for that insolvent company. If no such assessments were made, the money can be used to offset the expenses of the Association that were not recovered previously. If money still remains, then it can be shared prorata with all policyholders whose claims were statutorily limited. Rare, but it does happen, as you will read.



Now, I have to move on to the things that I get paid to do. Enjoy the reading . . . I did!



(And I'm going to get paid $0.45 for something I usually charge $30+ per hour for, plus expenses, and for which my attorney clients rebill their clients at a cost of $100-$200 per hour. But it was worth the $45 I did not earn.)



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