Beware Series

Beware - Term Convertibility
Beware - Term Convertibility

Hi Brian:
I believe you’ve heard me discuss term convertibility before. This is the policy owner’s right to convert to a permanent policy at the favorable existing rates of the term policy with no underwriting.  This means the insured individual could have been diagnosed with cancer or had a heart attack or has taken up a dangerous hobby or sport or will be planning foreign travel to a country that would preclude favorable underwriting, etc. and still be able to convert to a permanent policy on a favorable basis.

This would be obviously financially beneficial if one discovered he had a shortened life expectancy, and/or could not currently qualify for insurance at any rate yet could get new insurance at the same cost as a perfectly healthy individual.

That all being said, many, if not most, insurance companies are reneging on their traditional practice of allowing conversion to any product they have available at the time of conversion. Instead, they put restrictions on the timing and conversion product. Many of these conversion only products have absolutely terrible pricing that no one would ever choose unless they were backed into a corner.

However, there are a few insurance carriers that offer contractual language that does allow conversion to any product in their portfolio so they can’t change the rules on the policy owner later.


Please review and then let me know your thoughts and if you have questions.



Beware - Inforce Illustrations and Loans
Beware - Inforce Illustrations and Loans

This piece is to advise policy owners and advisors to be beware of taking what you see on in-force ledgers from a life insurance at face value every time.


I have two recent examples regarding policy loans. In one case I knew the policy had a significant loan but it was not reflected on the ledger. When I investigated I learned ”... the company system doesn’t have the capacity to illustrate a loan.” Really?

In another situation with a major carrier, the loan didn’t show up anywhere in the projections. All of the numbers on the ledger were gross and ignored the loan. Only on the last page of a multiple page ledger, at the very bottom, was there even a reference to a loan among all of the other fine print. Virtually no policy owner would be able to determine there was a loan on the policy.

Why does this matter? Too many policy owners aren’t even aware of loans on their policies because the policies have taken those loans from the insurance company without them realizing it.


Given situations like these, it may be worth a second set of eyes before making decisions on policy management.


Beware - Inforce Illustration System Error
Beware - Inforce Illustration System Error

Not everything from an insurance carrier can be taken at face value. I’ve long understood that people and computer systems at home offices of multi billion dollar organizations are as infallible as the rest of us.

Here’s a recent situation: I ordered in-force ledgers from an insurance carrier recently. Once I received and reviewed them I was sent the results of the exact same request from another advisor one month earlier. They were different though there was no change in any aspect of the policy nor had we even passed a policy anniversary.


I went back to my internal contacts and had the entire batch rerun. The result? Some came back like those I ordered and some like the other advisor ordered, even though the requests and input where identical. Furthermore, the “solves” from ledger to ledger within the same order didn’t even match up or make sense.


Without getting into details, I factually know that this policy doesn’t cost more for a lower death benefit than it does for a higher death benefit, all things being equal. Yet, there we were.



The bottom line is that this a type of guaranteed universal life policy and some of the ledgers were run under the GUL formula and some as though this was a traditional universal life policy. I’ve seen that plenty of times before but because of a home office individual’s wrong inputs. That wasn’t the case here. Some runs were using the GUL formula and some completely ignored it so that one run correctly lasted for life but one run wrong and with a higher premium lapsed early.



This isn’t an input error. This is a system error or an intentionally manipulated output to lead the policy owner to a certain action.



The lesson is that one can’t always take information from a home office at face value. I’ve seen many examples and will share more over time.



Beware - Group and Association Term Insurance
Beware - Group and Association Term Insurance

A financial advisor referred to me a client for the primary purpose of evaluating a large cash value policy. In the course of talking with the client he discussed a few term insurance policies, including one through his place of employment. Following is an expert of my email to the referring advisor.

I wanted to check and let you know that I’m continuing to converse with Mr. Jones.  As a result of our initial conversation I discovered that he has voluntary term insurance through his work.  For $500,000 of it he is paying the premiums himself.  


As is the case with most group or association term coverage, it is priced in 5 year bands.



Here’s Tom’s company group term pricing:



Assuming he is reasonably healthy, following are non-group term rates for the second best class:



age 50-54 $190/month or $2,280 for the year
age 55-59 $315/month or $3,780 for the year
age 60-64 $475/month or $5,700 for the year



10 yr term:  $  670 annually
15 yr term: $  900 annually
20 yr term:  $1,170 annually
30 yr term: $2,000 annually

In other words, staying with the group plan he’ll pay over $30,000 for the next 10 years of coverage.  With new insurance that number would be $6,700.  Through age 65 we’d be talking about $58,800 versus $13,500 for individual term insurance.



I know this might sound insane but I see it over and over again, specifically with accountants and college professors lately, but it’s pretty much across the board with group and association coverage.  Also, the group coverage is terrible.  Usually no portability, no realistic conversion options, reduction of coverage at 70 or so, etc.  



This is something every person in your practice should understand regarding every client who can qualify for individual coverage. Even at lower underwriting classes they could save a boatload.  Your referral might have just saved your client over $45,000, or maybe more, before I even start digging in to what you sent him to me for.  Maybe he can go back to management and tell them to not pay for the other $750,000 of the same term he is getting as a benefit and pay him 50% of the savings and he can buy his own coverage.  It’s a win/win.



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Objective Information Drives Informed Decisions