You’ve heard that the measure of a person’s character is determined whether they do the right thing even when no one is watching. This absolutely rings true with insurance, which is a highly-regulated industry.
Recently, the long-running and well-respected 60 Minutes television show released a report by journalist Lesley Stahl, “Not Paid.” It discussed how it has been uncovered through audits of life insurance companies that it has become common practice of withholding payments to beneficiaries despite the fact that the insurance company not only knows about the death of the insured but has documented proof to this fact. In some cases, insurance companies have been discovered cancelling a policy after the insured has died due to non-payment and then pocketing the death benefit. The question is then asked, “Shouldn’t an insurance company do the right thing as opposed to the most profitable thing?”
In many cases, a life insurance beneficiary may not even be aware a policy exists, and the cost for a funeral alone can be crippling to those left behind. Knowing that our loved ones are taken care of after our death is the reason an individual policy is purchased in the first place. What the 60 Minutes’ report discovered is that not only are the insurance companies not acting in good faith, especially when proof of death is received, but they are profiting on the backs of the very consumers who put their trust that all would be taken care of upon their passing.
Another example of insurance carriers thinking more in terms of profits than fairness to consumers include, as we have discussed in past blogs, that some insurers are raising the cost of insurance (“COI”) on existing policies. In effect, this bait- and-switch allows insurers to sell a policy based on one premium stream, and then to increase the premiums mid-contract to increase profits. These COI increases are sometimes astronomical and may occur multiple times, as often as annually.
Some insurers also don’t allow their agents to discuss life settlements, which is the option to sell an existing life insurance policy. Here again it seems clear that such a prohibition has more to do with the insurance company’s bottom line than with the consumer. It should be the job of the agent to inform their insured, without bias, as to the best option for their particular situation. Doing so without reservation helps to restore faith in the consumer’s eyes that their decision is not simply a profitable one for the agent, but the right one. After all, if life insurance is not going to be there when you need it, why buy it?
With the recently enacted “The Life Insurance Consumer Disclosure Act,” the state of Georgia gave insurance agents a voice, free of punishment, to discuss alternative options to an insured cancelling a policy or letting it lapse. Most consumers are not aware that options such as the life settlement market even exist and would not know to ask questions about options that could potentially make life-altering differences in their current state of affairs. The law prohibits insurers from silencing Georgia agents who believe that a client should understand his/her options.
For some, holding a life insurance policy to maturity, or even lapsing it, makes economic sense. However, there are situations where lapse or surrender is irrational given the value of the policy and/or the insured’s circumstances, and the insured is better off having the option to sell. To learn more about options available to consumers who no longer need or can afford their life insurance policies, visit the Life Policy Owners section of the LISA website.
About the Author:
Dan Young, CLU, ChFC, CASL, is the President of Magna Life Settlements, Inc., a well-established life settlement provider focused on maintaining transparency, risk management and rigorous process control in the purchase of life settlements. Magna is owned by Vida Capital, a vertically integrated asset management company providing longevity contingent investment solutions to institutional and individual investors. Dan is the Vice President, Asset Management and General Counsel of Vida.
In addition to his role at Vida, Mr. Young is an adjunct professor of regulatory law at the University of Texas Law School, Board Member and Chair of the Legal Committee of the Institutional Longevity Markets Association (ILMA), Board Member of the Life Insurance Settlements Association (LISA), and a frequent speaker at life settlement industry conferences. Prior to joining Vida Capital, Mr. Young was the President and CEO of New York Life Insurance Company’s Broker-dealer and Registered Investment Advisor. Mr. Young graduated from Stanford University with Honors and Distinction and from the University of Chicago Law School with Honors.