by Mike of the Ozarks » Tue Sep 22, 2009 12:44 am
My employee lost his mother due to a cerebral hemmorage about two weeks ago. He hasn't been denied the benefits of any policies yet as he has not notified them of the death. Are there policies that only pay on accidental deaths only or natural causes only but not both? In talking with relatives, he discovered that a cousin did not recieve benefits of 50,000 from his death. Apparently benefits were denied because he had drank one beer while cleaning his pool and in the process had a heart attack. He subsequently fell into the pool and drowned.
We are assuming they found water in his lungs and he died of the drowning before succumbing to the heart attack. This has given both of us cause to examine our life policies to see about exclusions. Is it possible this man had a life insurance policy only payable upon death due to natural causes and the insurer deemed that he died of the accidental drowning moments before he might have died from his heart attack.
Or are there clauses in life insurance policies that deny coverage because coincidental drinking of one beer that led to the drowning was attributed to the premature demise? Seriously, I am not making this up, we are looking for clarification to see if this usual and customary in the field of life insurance or are the decedents dealing with a corrupt insurer and need to file a complaint with the DOI.
We are assuming they found water in his lungs and he died of the drowning before succumbing to the heart attack. This has given both of us cause to examine our life policies to see about exclusions. Is it possible this man had a life insurance policy only payable upon death due to natural causes and the insurer deemed that he died of the accidental drowning moments before he might have died from his heart attack.
Or are there clauses in life insurance policies that deny coverage because coincidental drinking of one beer that led to the drowning was attributed to the premature demise? Seriously, I am not making this up, we are looking for clarification to see if this usual and customary in the field of life insurance or are the decedents dealing with a corrupt insurer and need to file a complaint with the DOI.
Posted: Tue Dec 01, 2009 06:15 pm Post Subject:
Sorry, InsTeacher . . . my words may come across a bit strong sometimes. It's a fault of my passion to both protect and attack the conduct of insurers and insureds in favor of the party who is being wronged.
And you're right, without litigation this would be a boring place to live. Just like black jack would be boring if everyone was a math major and could count to 21.
Posted: Wed Dec 02, 2009 09:59 pm Post Subject:
I can count to 21, not so hot at black jack though. all that doubling down stuff and whatnot is a bit much. BTW, does anyone actually take "insurance" in black jack?
Posted: Thu Dec 03, 2009 12:26 am Post Subject:
"Insurance" in black jack is a sucker's bet that gives our industry a bad rep. Like insurance in the real world, most people fail to understand how it works.
It's only truly useful when you have a large bet on the table and draw a natural 21 to the dealer's showing ace. You can achieve essentially the same thing as "insurance" in some cas-i-nos (they filter the word!) by simply declaring "even money" instead of the normal 3-to-2 payout in lieu of putting another 50% of your bet on the table. It's only a true "loss" to you in the event the dealer doesn't have a natural 21.
With "insurance," you lose your premium, but not your bet -- either way. If the dealer doesn't have a natural, you get your 3-to-2 payout, but it's a wash because you're getting the equivalent of your premium refunded to you. If the dealer has a natural, you get 2-1 on your insurance play, but nothing on your original bet. $50 bet, $25 insurance, $0 payout for 21, $50 return for insurance. Even money. If the dealer doesn't have a natural, you still end up with even money: $50 bet, $25 insurance, house takes the "premium", pays you $75. You put up a total of $75, they pay $75, even money. Can't win, but don't lose.
0% loss ratio to the house!! Can only result in a profit to them from everyone else without a natural who pays when the dealer doesn't hit.
If you don't have a black jack, buying insurance is a waste of money, and you're losing half your original bet right up front, plus the original bet if the dealer doesn't have a natural and you don't beat the dealer's eventual total -- in other words, you lose 3-to-2, when you would have only lost 1-1.
That's better odds than in the real world of insurance.
To put it in real world terms: It would be like buying a $100,000 life policy, and paying a single premium of $20,000. The company says to you, "We believe you're going to die on 2-1-2021, and we won't pay any death claims to anyone who dies on that date. But if you're willing to give us another $10,000 today, if you do die on 2-1-2021, we'll give your beneficiary back the whole $20,000. If you die on any other day, then we'll still pay the $100,000."
Die on 2-1-2021, and your beneficiary loses $90,000 (the difference between $100,000 and $20,000 + the extra $10,000 to preserve the $20,000). Die on any other day, and your beneficiary still loses $10,000 they would have received from your estate if you hadn't paid it to the insurer. No matter how you spin it, it's a losing bet.
Come to think of it, kinda looks like a no-lapse guarantee, doesn't it?
It would be much easier to leave secret instructions to your heirs: "No matter what happens, I cannot die on 2-1-2021," a la Weekend at Bernie's.
Posted: Thu Dec 03, 2009 03:40 pm Post Subject:
Come to think of it, kinda looks like a no-lapse guarantee, doesn't it?
Only for someone who doesn't understand a no-lapse guarantee
Let me make this as simple as possible for you.
Posted: Thu Dec 03, 2009 07:16 pm Post Subject:
Oh, please! It looks to me like the ones who don't understand no-lapse guarantees are the ones promoting them.
UL is a wonderful product, but as designed it must be properly funded to work as it is intended -- intended and designed are two slightly different matters. COLI based on UL works because the corporations have the money to pay the necessary premiums up front to get the contracts off to a proper start, and to continue to support them as needed. But they also pay big bucks for analysts, like I was, to monitor their cash values and recommend the need for additional premium payments as often as necessary.
UL "existed" for more than 20-25 years without no-lapse guarantees (albeit with policies lapsing left and right). Then the insurers got "smart" and started including them (as provisions or riders -- either way it increases the cost of the policy -- if a "standard provision" then the cost is truly hidden from the owner, at least with a rider the cost is in the open) to try to avoid the class actions they were hit with in the 1990s.
So here's the reality:
The average Joe Bluecollar who gets involved in a UL policy typically doesn't read his annual statement, and if he does, usually doesn't understand it, and may not see that his cash value has leveled or begun to drop at the point that COI overtakes premiums + interest - monthly deductions. As a result he has no idea that he should be paying more money to avoid the loss of cash value, let alone protect the policy from lapsing.
This despite the fact that, to their credit, most insurers are actually responsible enough to show the policy's projected lapse dates (based on guaranteed values and based on non-guaranteed values) on the statement [and distinctly unlike credit card companies that won't tell you in what century your $5,000 balance will be paid off at the minimum monthly payment rate]. But when Joe Bluecollar doesn't know how to understand his statement, he has no clue what a lapse date really means, especially if it's 15-20 years into the future. That's a failure of both the company and the agent to properly educate the client.
So it's a good thing if Joe's UL policy has its no-lapse guarantee, but only if he also understands his responsibility to keep making his premium payments. But he's more likely to remember the words of the agent (who may not even be in the business any more) who told him something like, "And if you ever need to, Joe, you can stop making your monthly payments for _________" (a while/as long as you want/ever . . . fill in the blank with your own words). Joe doesn't remember, "Now, I have to tell you, if you ever miss a monthly payment, you will lose this no-lapse guarantee." (Or did he never hear it from his agent?) The only thing never discussed with Joe in a way that makes sense to him is that his monthly payment has been calculated as the minimum necessary to get the policy only part of the way to endowment age.
And as I've posted elsewhere, Joe Bluecollar is going to be really upset when, no-lapse guarantee intact, he calls the company to "take out" some of that money he was told he could have "tax-free" only to discover that there is no money, and never will be if all he does is continue to make his scheduled premium payments and nothing more. That's not what he thought he was getting according to how the product was marketed to him. And, guess what? Joe gets so mad that he surrenders his policy just before he dies, believing that he was ripped off by the insurance company.
Was he? No, of course not, because he had a contract that he was expected to read and understand, and it tells him that what happened could happen, so it's his "fault" for not doing what he was supposed to do (pay more money as needed) . . . because he did exactly what the agent told him he needed to do, make his monthly payment ("It will come out of your checking account automatically, Joe, you'll never even have to write a check."). But you probably will never convince him that it was his "fault."
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