Is it possible that life insurance companies are betraying America’s seniors, a vulnerable group of customers who put their trust in the hands of these companies when they purchased life insurance policies?
Considering the younger population of customers who buy insurance policies, it’s understandable that they will often lapse policies randomly, given their changing life circumstances (e.g., employer-provided life insurance, etc.). But the senior policyholder represents a far different story.
There comes a time when seniors are put into a situation where their life insurance policies are either no longer needed, wanted or affordable. Most often, they are faced with trying to decide whether to lapse or surrender the policy, or try to keep it in force.
Statistics reveal that a significant number of these seniors lapse their policies. Roughly 710,000 policies that are lapsed or surrendered each year — with a combined face value of more than $57 billion — by American seniors over the age of 70. Surveys also show that 90 percent of those who lapse policies would have considered selling their policy as a life settlement if they had known about it. Furthermore, 79 percent of those expressed their advisors should have known and advised them about a life settlement option.
There are a few recent actions by life insurance companies that illustrate they are arguably betraying their senior policyholders.
First, many of them deliberately choose not to make senior policyholders aware of the options available to them if they decide no longer need or can afford their policies. In fact, six states have taken the initiative to pass legislation that requires notification of seniors about the options available. (The six states are Kentucky, Maine, New Hampshire, Oregon, Washington and Wisconsin.) There are also cases where insurers do not allow their agents to even discuss a life settlement option. That action seems a betrayal to the spirit of selling them policies in the first place.
Second, some carriers have announced cost of insurance (COI) increases. In the past, it was just understood in our business that the premiums illustrated at the time the policy is sold would prevail while the policy is in force, which allowed consumers to have confidence in the integrity of the product they were purchasing.
The recent COI increases announced by life insurance carriers, which stretch from mid-single digits to above 200 percent in some instances, are a shock to senior policyholders, some of whom can no longer afford the increase premiums. It would seem reasonable that in those cases, the information about COI increases would be accompanied with information about the options available to lapsing or surrendering the policies, including the sale of the policy.
Third, a recent announcement from Transamerica suggested that the information provided in illustrations requested by policyholders will no longer include information about the current COI rates or earnings rates. This presents both the policyholder and their advisors with insufficient information with which to make budget or financial planning decisions about the policies. It also prevents the kind of analysis to determine the value and price policies by potential investors for policies that seniors have decided to sell.
These three recent actions are serious betrayals of senior policyholders, who are in need of honest information to adequately manage their financial affairs. It is time for legislators and regulators to take notice and inform life insurance companies that they owe their customers – especially their most vulnerable ones, those who are in the final chapters of their lives – access to the important information they need to make the best personal financial decisions for themselves.
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