Saturday, November 14, 2009

Rationalising accidental death insurance

life insurance

Question: In 2003, I bought a life policy at age 62. It included accidental death and dismemberment (AD&D). The basic sum assured was $500,000. AD&D was for the same amount. Two months ago, I became aware that the AD&D benefits expired at the age of 65. That was four years ago. However, I am still paying the premium. I contacted two company representatives by letter and made numerous telephone calls about an adjustment in the premium. I wanted to know also whether I was entitled to a refund for the AD&D. I have received no response. I am hypertensive, work part time on my farm, and am just barely surviving on my wife's meagre pension. Can you please help? -

Answer: My hands are tied. This is because life-insurance contracts can last for many years.

Unlike house or car insurance that runs for 12 months, life-insurance contracts end when the persons insured die, or the premiums remain unpaid for over 30 days.

Bear in mind also that these contracts always favour insurers, not consumers. They are also very difficult to change once the period of insurance begins. Buyers, especially those who purchase life contracts, need to do lots of homework before signing on the dotted line.

Since your contract started over six years ago, I am limited to writing to your insurer.

The company's president informed me by letter dated September 11 that the company had several discussions with you since July 31. Also, that a "written response will be dispatched ... in short order." I hope that by now, you have received, read and, more important, understood the company's letter (which I have not seen).

new policies

Selling new policies is one of the most important functions of the life-insurance business.

If you doubt this, check out the full-page ads of insurers in the Sunday newspapers. They laud the top sales persons. Non-sales staffs are not in the same league as the sales super stars. This probably explains why the company did not handle your complaint more quickly.

Sales persons have financial incentives to sell, not to service existing policies.

I bet that this was the reason why your sales agent was not involved in trying to help with your problem. As one reader - - said, "The agent may be good for his company (and himself) but ... not have the interest of his client at heart."

Life insurance plays an important part in the economic affairs of our country. Buyers need to do their homework in order to protect themselves from faults in the system.

The remainder of this article will be used to discuss the other comments made by the company and, hopefully, help other persons to avoid the problem that you wrote to me about.

The policy carries an "embedded accidental disablement benefit for which no additional premium was charged". The author of my 'bible' on life insurance, Joseph M. Belth, says in Life Insurance: A Consumer's Handbook (second edition), that "accidental death insurance is difficult to justify on rational grounds."

It would be more "logical to provide more protection in the event of non-accidental death because a long illness preceding such a death may leave the family in more difficult financial situation than a sudden death from an accident".

Most claims paid by life insurers are due to death by natural causes. Giving free AD&D coverage is not a big deal. I believe the company when it said that your AD&D coverage was a giveaway.

"The AD&D benefit expires at age 65." Nearly all companies that provide 'double indemnity' or AD&D coverage as an extra to their life policies - whether they charge for it or offer it as a freebie - set a maximum age when coverage ceases. That age is usually 65 or 70 years.

The elderly are more prone to dying from complications arising from physical injuries than younger persons.

The request for "the reimbursement of four years' AD&D premiums cannot be accommodated". Your insurer is being reasonable. You received coverage for AD&D free of charge.

You, therefore, are not entitled to a refund when the coverage ceased.

"If you become unable to pay the monthly premium, the life-insurance protection that you have had since 2003 will lapse." This is what the policy says. I suggest that you continue the conversation that you started with you insurer. Do so before you make a decision whether to stop paying the premium.

The goal of that discussion should be to: (a) reassess your family's need for life assurance and (b) determine, assuming that the family has such needs, whether the company has any products that meet those needs at a price that you can afford.