Much like our own mission at the LIFE Foundation, the job of a personal finance journalist should be to inform and educate people to help them make smart financial decisions. Yet in a recent article from SmartMoney (10 Things Life Insurers Won’t Tell You), reporter Jilian Mincer leads her readers to the conclusion that the life insurance industry is not to be trusted and may even be out to take advantage of you.
To insinuate that life insurers will not pay a claim when a policyholder dies is just plain wrong. Life insurance companies pay out billions of dollars in life insurance benefits every year. According to the ACLI, life insurance beneficiaries received $59 billion in 2009, which doesn’t begin to factor in the amount these same companies pay out for annuities or to disability insurance and long-term care insurance beneficiaries. In fact, it’s hard to find a better example of financial services companies making good on their financial obligations and looking out for the best interests of their clients than in the life insurance industry.
Life insurers are stable and regulated and in the extremely rare scenario that one runs into problems, there are safeguards in place to ensure they will be able to make good on their promises to policyholders. Pointing to decades-old, obscure situations just complicates the issue when there are stories every day of real people benefiting from policies and there are easy steps policyholders and beneficiaries can take to take personal responsibility for claiming benefits they think they are owed.
In addition, any time you hear one-size-fits-all financial advice, you know it shouldn’t be trusted. To say that “term is all you need” is only telling part of the story. Term life insurance is certainly a cost-effective way for many people to get life insurance, but there are situations where a qualified insurance professional wouldn’t advise that it be the only life insurance product in your financial portfolio. Parents of a disabled child who requires long-term care services for the rest of his or her life have a need for life insurance beyond 20 or 30 years, if they want to provide for that child after they’re gone. Or what about the person who has a family history of heart disease and runs the risk of being diagnosed after their term insurance runs out? Permanent life insurance provides guaranteed insurability, not to mention cash value that can be accessed no matter what life throws your way.
The latest numbers from LIMRA show that almost two-thirds of insured adults own some type of permanent life insurance. I doubt that many people would so willingly let go of their money if they thought it was a bad deal. The truth of the matter is that people who have purchased permanent life insurance have taken the time to sit down with an insurance advisor they trust and evaluated their individual needs and determined it made sense.
Thirty percent of US households today have no life insurance and more than half (58 million) say they need more—the highest level ever, according to LIMRA. Now is not the time to be fueling misperceptions that could discourage people from getting the financial protection they so desperately need. It’s simply unnecessary for a well-respected publication like SmartMoney to have headlines like “we’re in bed with your boss” and “paid-up doesn’t mean we’ll pay out.” Next time, leave the sensationalism to the gossip columnists and keep it off the personal finance page.
We can spend a lot of ink in this blog correcting misinformation that appears in the popular press about life insurance, why it’s important and who needs it. So it’s refreshing to be able to link to an article that provides a load of great information for navigating a topic that can, admittedly, be complex.
Christine Dugas and Sandra Block of USA Today wrote the article “
Have Life Insurance? Is It Enough or Maybe Too Much?” in which they highlight some of the common mistakes that people make when buying life insurance. The first mistake that they bring up doesn’t make it into bold lettering, but may be one of the most important: “too often parents make a quick decision, ignoring important considerations.”
(more…)
How much life insurance do you need?
Most people have too much. This 5-step process can help pinpoint your needs.
These were the headlines for an article in The Chicago Tribune on Aug. 12, 2010. While the article itself is relatively reasonable, the headlines are misleading. Most people do not own too much life insurance. In fact, a LIMRA International report, which was released Aug. 27, 2010, shows that only 44% of Americans own individual life insurance, and 30% own no life insurance at all. Eleven million households with children under the age of 18 own no life insurance. Zero, zip, nada, none.
While the article does a fair explanation of how to determine the appropriate amount of life insurance you might need, I think it is reasonable to assume, based on the LIMRA statistics, that most people are, in fact, under insured, not over insured when it comes to life insurance.
The LIFE Foundation is dedicated to educating these consumers on the importance of life insurance and making sure they understand not just what it is, but what it does. This is our goal for September, which is Life Insurance Awareness Month (LIAM). LIMRA’s statistics make it all the more imperative for us to achieve this goal.
Bloomberg, The Wall Street Journal and others have recently published articles saying how terrible it is that insurance companies are putting death benefits payable to beneficiaries into interest-bearing checking accounts as opposed to paying out the proceeds. This is a terrible misrepresentation of what actually happens and how this works.
Yes, for many companies the automatic settlement is to put the money in an interest-bearing checking account, but if the beneficiaries select a check for the proceeds, it is paid out as soon as the paperwork is processed and approved, sometimes in a matter of days. And in fact, most beneficiaries do request a lump-sum payout. According to Genworth, this number is as high as 90% of the beneficiaries.
As my friend David Woods, former CEO of NAIFA and the LIFE Foundation, states, “These articles charge that the companies are paying 1% and earning 5%. But the reality is that the money is available just as it is in a checking or savings account, right now. There is no checking or savings account in the world paying 5%. Even five-year CDs are in the 2% to 3% range.”
Most beneficiaries, if they take the death-benefit proceeds in a lump-sum check, will deposit them into a checking, money market or savings account, or CD, which at today’s rates, pays very little. Why are they going to do this? Because they need time to heal and make the proper financial decisions. Keeping the funds liquid and available is a most appropriate decision.
To the best of my knowledge, no beneficiaries have lost any of these death-benefit proceeds to financial mismanagement in one of the insurance-company checking accounts, and the beneficiaries can take the money out at any time by writing a check, no strings attached, no surrender charges and no fees. And this is a bad deal?
What do the banks do with the money they hold in deposits? They lend it out or invest it at much higher rates than they pay to their customers on their checking, savings or money market accounts and CDs.
The insurance industry is looking out for the best interests of its clients.
Tuesday, July 27th, 2010 | Brian H. Ashe | |
Hey, it looks like the underwriting departments of life insurance companies may be willing to look at modifying “rigid” guidelines for what they consider “good” risks to be. For example, I read that The Hartford has started paying more attention to a person’s capacity to exercise as a marker of good health and better longevity. That doesn’t mean that insurance companies won’t look at your blood pressure, cholesterol, height and weight, etc. when considering you for life insurance. It’s just that now they seem willing to look at a couple other factors, too.
People who are athletic aren’t always thin; some have a lot of muscle mass. They may not fit in neat height/weight ratio categories, but they still may be in excellent physical condition. As companies are trying to be more inclusive of those who may be outside the historic underwriting physical benchmarks, they are also sharpening their pencils on other things like aggregate cholesterol, fractionated cholesterol (how your LDL compares with your HDL), a1(c) levels and other factors to try to give very healthy folks not only “preferred” but “super preferred” rates.
When I first started in the business, the underwriting categories were pretty much “standard” or “rated.” And if you were rated, it meant your rates for term insurance, for example, could go up by about 25% for each “table” you were rated, Table 1, Table 2, etc. Since then, companies introduced non-smoker rates, preferred rates, standard-plus rates, super-preferred rates and a number of other categories that you may qualify for.
While super good health may qualify you for special discounted rates, these many different categories also mean you need to be a discriminating shopper. Companies may advertise or illustrate their very best rates in order to attract your inquiry. Just remember that the final rate will only be determined when your medical underwriting is completed. And, make sure when you are comparing companies, that you are comparing the same underwriting class, i.e, preferred to preferred. There could be a 40% pricing difference between a preferred rate and a standard rate.
But the most important advice is to make sure you have enough life insurance. If you don’t, do some shopping. All the comparisons will show you that rates are lower than they have ever been. And if you need help, don’t hesitate to contact your agent or to find one in your area with LIFE’s agent locator.
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