What You Need to Know
- Low interest rates have changed the profitability of some blocks of business.
- Poor service may help a life insurer shed unwanted policies.
- Illustrations may reveal unexpected insights.
As life settlement brokers, we are frequently asked by disgruntled policy owners to review policies that they no longer wish to keep. Sometimes, however, even a policy from a poorly performing company can still be uniquely valuable property.
The decision to sell or terminate a policy should be based on present needs and circumstances and how the policy looks going forward, not how poorly it has performed in the past or how poorly the insurance company is servicing the policy.
Life insurance policy owners have a lot to gripe about:
- Interest rate declines mean policies bought on current assumptions when rates were higher are requiring much larger premium outlays than they had expected to stay in force.
- Some companies, to offset the bath they are taking on guaranteed interest rates, are further aggravating the problem by raising mortality charges, which also will require larger premium outlays than expected.
But now, policy owners have yet another reason to be unhappy. Some companies are unable or unwilling to provide their policy owners with comprehensive in force ledgers based on current assumptions.
Unprofitable and Unloved
The current economic environment has made it difficult for some life insurers to turn a profit on individual life insurance, prompting a number of them to exit the business. Existing policy owners of these companies, and even some companies that haven’t left the business, are sometimes treated as unloved, unprofitable discards. Particularly for some aggressively priced policies, life insurance companies would be glad to have this business off the books.
Quite naturally, having to service a block of business deemed unprofitable can be distasteful to a business seeking to be a profitable enterprise. And so these policy owners may receive sub-par service, which could lead to policy terminations that benefit the insurance company and not the policy owner.
A Beautiful Illustration
When a policy owner is considering terminating a policy due to policy performance or bad company behavior, it is important to evaluate whether keeping the policy could still be a better alternative than ditching it.