by Guest » Tue May 03, 2011 01:38 pm
Took out $25K policy with Met Life in 1992 on my first born. Agent estimated 14 years of $14/month until dividends would cover premiums. Took two more similar policies with American Family for my other two children in 1997. American Family issued a letter telling me no more payments are required as of March 2011, but Met Life is stating I still have two more years to pay on the 1992 policy.
I realize the return is based on market conditions, but paying 21 years vs. 14 years on identical policies seems a little absurd. Are the folks at Met Life pulling one over on me?
I realize the return is based on market conditions, but paying 21 years vs. 14 years on identical policies seems a little absurd. Are the folks at Met Life pulling one over on me?
Posted: Fri May 13, 2011 09:50 am Post Subject:
would also show what would happen at guarantees.
OK, so what part of a dividend is guaranteed?
You can only represent the guaranteed element of a contract as fact. The non-guaranteed element of a contract is pie in the sky. It may or may not happen. If it NEVER happens, then how can you lead a person to believe 14 years is all it will take to produce dividends sufficient to pay premiums?
It is perfectly legal to show illustrations that show the dividends paying for premiums. This is not a vanishing premium.
I beg to differ. You probably have never read some of the legal opinions that resulted in huge penalties being imposed on insurance companies for the actions of their agents in this regard. Whether it's a discussion of rapidly increasing cash value or gradually increasing dividends, it's still a discussion of a policyowner not (actively) paying premiums.
That's the whole myth that got the UL industry into trouble in the 1980s. "In just 7 years, Mr. Jones, this policy will be paying for itself." You don't have to say the magic words "vanishing premium" to convey the essential element.
or that premiums do not have to be paid, based on non-guaranteed elements is prohibited.
This clause in the CA Insurance Code (and of other states) means exactly that. A discussion that leads a person to believe a time will come when they can stop writing checks each month. The contract says something like: "Premiums payable throughout the lifetime of the insured" or ". . . to age 100" or ". . . to age 120." No contract says "Premiums payable until the dividends are large enough to pay them." At least, I've never seen one that does. Have you?
I just can't figure out why intelligent people fail to read and understand this simple phrase.
Agents continue to violate this all the time. I know it and you know it, and the regulators know it. Unfortunately, it doesn't get enforced until someone makes a complaint. People don't complain because they don't know the Insurance Code. I'm just pointing out what most people don't know, and what agents think is unimportant and choose to ignore.
Posted: Fri May 13, 2011 12:49 pm Post Subject:
Max, he has you on this one.
No part of the dividend is guaranteed. I would think that his point is that on the same illustration that shows out of pocket premiums being paid for 14 years, there will be a guaranteed column that shows the policy lapsing at that point.
Read the original post again. The agent didn’t say, “Premiums are payable for 14 years.” He said he ESTIMATED that it would take 14 years until the dividends would cover the premiums. These are two very different things and the same illustration that showed the agent’s estimation would also show the possibility of a lapse at that point.
One can’t say that premiums will disappear in 14 years. They never disappear. One can certainly say something along the lines of, “If the current dividend scale continues, out of pocket premiums won’t need to be paid after 14 years.” This would certainly need to go with further explanation.
No contract says "Premiums payable until the dividends are large enough to pay them." At least, I've never seen one that does. Have you?
You are confusing something. The contract doesn’t say that because even when dividends are large enough to cover premiums, the premiums are still being paid. The contract does allow for the premiums to be paid partially or fully from dividends if there are dividends.
The key here is what else the agent said or didn’t say. My point, though, is that you without knowing what was said or wasn’t said are very quick to jump on the agent for doing something wrong. We have no evidence of this happening other than your assumptions.
Posted: Sat May 14, 2011 02:20 am Post Subject:
I would think that his point is that on the same illustration that shows out of pocket premiums being paid for 14 years, there will be a guaranteed column that shows the policy lapsing at that point.
An illustration such as that would be dreadful. A cash value policy lapsing at the same time premium payments ended after 14 years would never be able to be paid by dividends included in the non-guaranteed column. Try again.
A statement like this:
“If the current dividend scale continues, out of pocket premiums won’t need to be paid after 14 years.”
(emphasis added)is in direct conflict with a statement like this:
The use of the term "vanishing" or "vanishing premiums" or any similar term which implies that the policy becomes paid up, or that premiums do not have to be paid, based on non-guaranteed elements is prohibited.
(emphasis added)As stated, again, for at least the third time, the latter comes from the Insurance Code. Compare bold to bold to see what I'm referring to.
The only statement an agent can lawfully make is one similar to: "This policy may pay dividends if declared by the Board of Directors. One of your options is to use the dividends to pay some or all of the premium you need to pay every year."
The rest of your reasoning is mostly what I've been saying all along.
Posted: Sat May 14, 2011 11:30 am Post Subject:
Max, the statements don't conflict. The problem is with your emphasis. Nobody is making the claim, "premiums don't have to be paid".
Change the emphasis to where it belongs.
If the current dividend scale continues, out of pocket premiums won’t need to be paid after 14 years.”
Based upon what has been poster, there has not been a claim that the policy would be paid up. There has not been the claim that premiums would stop.
There was nothing more than an (incorrect with hindsight) estimation that it would take 14 years until the dividends could pay the premiums.
You are incorrect if you think that your statement is the only thing that can be said about dividends. It's completely legit to show an illustration with the dividends paying for the premium. The key is to simply point out that dividends are not guaranteed and regardless of how premiums are being paid, they are always paid.
Again, we have zero evidence that the agent didn't do this, but the great Max Herr is willing to make the assumption that the agent did something wrong.
Posted: Thu Jul 14, 2011 06:30 am Post Subject:
It depends on the policy agreement how long you have to pay premium and it may vary with the company.
Posted: Mon Jul 18, 2011 11:28 pm Post Subject:
There's something else that may have been going on here.
Remember, paying for premiums doesn't only regard. This can also be done with surrendered paid up additions. A 14 year off set would be right in line with a lot of insurance companies modern day projections. In 1992, dividends were higher than they are now given the interest rates. They dipped a bit immediately after for a while for most companies. A true dividend off set would, again, be right around 20 years given most current projections at a lot of insurance companies.
So, maybe just maybe this was originally an offset created by PUA surrender. In '92, it's hard for me to believe a policy like this would have reasonable had a true dividend offset in 14 years. Plus, the industry had already gotten over the vanishing premium thing by then.
Unless this is UL and we were talking endowment projections, which would be a completely different beast, though I could see how that was colossally wrong.
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