Ed Hinerman, Owner, The Hinerman Group

The importance of working with legal and financial professionals that really do their homework is more important than ever before as Americans are taking estate planning seriously, reviewing the economic effieicney and being “pitched” a variety of options. Insurance expert Ed Hinerman shared some great tips and caveats with us below.

 - Ike Devji

I’ve always been an advocate of buying a term life insurance length, or multiple term insurance policies that reflect your actual life insurance needs with different term lengths. Due to some recent changes in conversion options I am considering an amendment to my recommendation.

It all started last in the summer of 2009 with West Coast Life changing their term conversion to only include a 10 year guarantee universal life option. At the time this was isolated and I jumped all over them for mistreating their faithful long term customers by taking away a lifetime guarantee option. They claimed they had no choice, that their reinsurance company holds all of the converted policies and they dictated what West Coast could offer. They didn’t seem to get the logic of offering a more expensive version of the fully guaranteed product if the old product didn’t produce enough premium. After several blows being exchanged they decided even though everything I posted about the situation was absolutely true, they would rather I not represent them any more. Martyred! Darn the luck.

More recently it came to light that American General, AIG, had changed their conversion option so that during the first 5 years a client could convert to any of their permanent products. After the 5th year the only product available is a UL with a 10 year guarantee. They didn’t blame it on reinsurance, but rather claimed that they were victims of adverse selection when people converted after the 5th year. Their claim. If you convert after the 5th year you are only doing so because your health is going down hill, which could lead to a claim. I’m crying foul because that is exactly what a conversion option is for, to lock in your insurability. They say they have actuarial data showing this adverse selection but they won’t share it.

Another issue is that their policy says it will convert to a permanent policy. Their words, not mine. The truth is that a universal life policy with a 10 year guarantee is only permanent in the imagination of the company offering it. One financial hiccup during the life of that policy will cut it short and you’re without insurance.

Now Banner Life is following suit with an announcement recently that they will change to the same stance as AIG, five years and you’re out of options. It kills me to see these companies taking out their own shortcomings on the backs of faithful customers. If, and I’ve been assured by a trusted source at Prudential, this adverse selection is true, why not raise the price on all of your products and spread the pain? The answer is obvious. It’s easier to mess with policies already on the books. It doesn’t hurt new sales and worst case is that people get mad and cancel their policies. Companies love it when you’ve paid in 5 or 10 or 15 years and cancel. All that cash flow and no death benefit paid!!!

So, my advice to those looking for life insurance? I still maintain that staggering or layering different term length policies is a prudent way to handle 98% of all life insurance needs. The change I would make is to make sure that clients consider their possible permanent needs from day one. It would appear, legal? or not, that policy owners may not be able to depend on conversion options any longer for “permanent” life insurance. That may mean buying that small final expense UL at the same time as the term or making sure your agent stays on top of any conversion option in place and any changes that come along. Hopefully companies will do a better job than American General in notifying the affected parties.

For those couples that are carrying term policies with companies that allow couple conversion to second to die estate preservation insurance, contact the company and insist that they let you know of any changes in that option while they still have access to the option they bought and believed would be there as long as they needed it.

Bottom line. Contact your agent and ask for a company statement on what their conversion option intentions are. If you can’t find your agent, and most of you can’t, call me and I’ll look into it.

For more Info Contact:Ed Hinerman, Hinerman Group   6399 Loggie Gulch Circle, Salida, CO 81201   Toll free 866-539-7914 Website: http://hinermangroup.com/blog/home/