Estate and Tax Planning
Private Fiduciary Services
Retirement Planning
Long Term Care
Risk Management

Life Insurance Disclosure Requirements to Expand Your Options

March 8, 2011 | Filed Under Insurance | Comments Off

In today’s economy in particular, life insurance policyholders are looking to save money when they find they can no longer afford the premium.  The decision to keep paying the premium or to not pay the premium while the policy owners struggles to put food on the table tends to be an easy one.  Unfortunately, when they contact the insurance company they are frequently offered only three options: let the policy lapse, keep paying the premium or surrender it for its cash value.  Many times the cash value has been borrowed against either by the policyholder or reduced by the insurance company to pay premiums.

Now state lawmakers are meeting to establish a new disclosure, which would inform the public that their options aren’t so limited.  State legislatures will be introduced this year to the Life Insurance Consumer Disclosure Model Act, which would require life insurance companies to inform policyholders above the age of 60 or with a terminal or chronic condition that there are eight approved alternatives.

The law also stresses that “policy owners should contact their financial advisor, insurance producer, broker or attorney to obtain further advice and assistance.” Insurance companies may be subject to state penalties if they violate the law, which would be considered an unfair trade practice.

Some insurance companies, such as MetLife, Prudential and the American Council of Life Insurers (ACLI) have objected to the new disclosure requirement, on the premise that it would be too much information for their customers, leading only to confusion.  In addition, they announce that it would be too costly to send out the notices.  That claim is disputable, considering they would be sending out notices through existing mailings.  Perhaps, the companies’ main concern, although not publicized, is that some of the alternatives would not benefit them directly.

For consumers requiring long-term care, the additional options bring opportunities to utilize their life insurance policy’s death benefit while the consumers are still alive. Medicare and Medicaid cover some of the costs of long-term care for qualifying recipients, but for others who don’t qualify or already have a separate long-term care policy, they may opt into exchanging their current life insurance policy for a long-term care benefit plan.    Unlike an insurance policy, the benefit plan is not subject to the same limitations and wait periods as is a long-term care insurance policy. It is not issued by a carrier and isn’t restricted to policies that contain a conversion rider. The policy conversion can be done in less than a month and can be for any form of individual or group life insurance. This becomes in many cases an excellent means to provide for the cost of long-term care and/or senior housing.

The National Conference of Insurance Legislators which passed the Act in November 2010, sees the passage of the Life Insurance Consumer Disclosure Model Law as “a strong stand for life insurance policy owners and would empower consumers through education about their options.”
The additional options that would be required to be disclosed to policyholders are:

* Accelerated death benefit
* Assignment of policy as a gift
* Life Settlement
* Policy Replacement
* Maintenance pursuant to terms or riders
* Maintenance of policy through a loan
* Conversion from a term to a permanent policy
* Conversion to Long-Term Care Policy or a Long-Term Care Benefit Plan

For additional information on this topic, please contact Shari Mattingly-Bevan at Shari Mattingly-Bevan & Associates at (864) 283-6906.

No Comments yet

RSS feed for comments on this post.

Sorry, the comment form is closed at this time.