Tuesday, August 19, 2014

The Suicide Clause

Most life insurance policies have clauses in them that protect the insurer. The suicide clause is one such clause, we don't often think about, but the recent, tragic death of Robin Williams has everyone talking about mental illness, depression/anxiety and suicide. 

According to the American Foundation for Suicide Prevention, suicide is the 10th leading cause of death for Americans. 39,518 suicides were reported in 2011 and some of them probably had life insurance.

There are actually two clauses in a life insurance policy that come into play when an insured takes their own life, so let's take a moment to review:

  • The suicide clause usually states that if the insured person commits suicide within the first two policy years, the insurer reserves the right to refuse a payout of the death benefit to the beneficiary. They may, however, reimburse the beneficiary for all premium payments made. 
  • The incontestability clause may also come into play on a claim where the insured takes their own life. If the insured makes a "misstatement" on the policy application that can be linked to the cause of death, and the insured dies within the first two years, the insurer may decline the death claim. 
  • It's also important to know that whenever a life insurance policy is replaced, converted or reinstated, the "clock" on the suicide and incontestability clauses are reset and the two years starts over again.
When Heath Ledger died from an “accident, resulting from the abuse of prescribed medications,” just seven months after taking out a $10 million life insurance policy, it raised two questions: Was his death a suicide and did he have a drug habit that wasn't disclosed on the policy application? Rather than paying the claim immediately, the insurer investigated and the lawyers for Ledger's estate countered with a lawsuit. The case was ultimately settled for a lesser amount. 

In our business, dealing with a death claim is one of the hardest and most emotional parts of the job. The aftershock of a suicide death brings with it even more emotional difficulty. On the bright side, according to the American Council of Life Insurers, 99% of all life insurance claims are paid in full regardless of the cause of death. It can also be satisfying to know that you played a significant part in making sure that the family's loss was protected.

Thursday, August 7, 2014

What's in a Policy Date?

Every life insurance policy has a policy date. The policy date is important to the carrier because it starts the clock with regards to the suicide clause and contest ability periods, due dates of renewal premiums, expiration date of grace periods and the duration of any extended term insurance. It's important to the insured/owner of the policy because it indicates to them when renewal premiums
are due and when coverage began.

The policy date is important, and you should be following up for a policy review based on this date with your clients. Periodic policy reviews offer you a unique opportunity because life changes but, for the most part, a life insurance policy doesn't. As part of an overall portfolio review, you can see what changes have occurred in their lives and ensure that their existing policies are still accomplishing their desired objectives. For referrals and prospects, it can be an eye-opening review that offers you the chance to talk about whether or not the life insurance policies they purchased are still the right policy type and coverage amount to meet their current needs.

Sometimes that term plan just isn't adequate anymore and should be replaced or converted to a permanent plan. If the insured has become ill or has chronic health issues that might cause them to now be a rated class or even uninsurable; conversion may be the only option available.

A major life insurance carrier, and leader in the life insurance industry, recently announced a huge increase in premium for their conversion UL product. Their only conversion product is being replaced by another product that could be as much as 300% more in premium cost than the current conversion product available. This has prompted a "fire sale" of sorts, especially for policy holders that placed their coverage many years ago and have not had a review.  So policy holders with this carrier are scrambling to make a decision about the future of their life insurance needs as well as possibly taking a chance that they will remain healthy and insurable because the only conversion product available is going to get very expensive. 

Is it possible that regular policy reviews for these policy holders could have averted this "scrambling" scenario? Maybe. Most clients are not going to seek you out for this service. Most are of the mindset that they have crossed one more thing off of their responsible adult list, so they put the policy away in a safe place and forget about it. 

Policy reviews only work if you actively seek out clients and conduct the reviews. You could even argue that it is your due diligence to conduct periodic policy reviews. So which client are you going to call first?