By now, almost everyone has experienced or heard stories of mail delays. There have been a legitimate series of events and circumstances that’s delayed mail during recent months, and we’re seeing the effect in terms of an unprecedented number of late and lapse notices for life insurance policies.
When we follow up with policy owners, we generally hear one of two things: (1) I never received an invoice; or (2) I sent that check in a long time ago.
Regardless, it may be worth it to be on your toes regarding this. Some insurance carriers are more lenient than others. Companies that may regret having issued some policies in the past may take advantage of applying strict contractual language. In some cases, you or your clients may have life insurance policies that are very sensitive to timely payments when late payments may materially affect guarantees.
Potential Consequences
If so, all may not be lost as the sooner this is discovered, the easier it is to take care of. After a policy lapses, it may not be able to be reinstated if there are health issues the carrier would no longer insure.
A late premium on a guaranteed universal life policy with strict contractual language may result in a calculation that violates the guarantee formula, sometimes resulting in an alternate set of internal charges that can destroy a policy. If this goes on for years without anyone paying attention, it can blind side a policy owner years down the road. Good luck getting that straightened out.
A late payment to a whole life policy may result in the nonforfeiture provision to kick on. This may be a reduced paid up policy or extended term insurance, either of which might devastate the insurance plan. Maybe a late payment to a whole life policy with an automatic premium loan provision will kick in a loan that isn’t realized. This may or may not be a serious issue based on a number of other factors specific to that policy, but if the contract has a typically high loan interest rate (8% is not uncommon) why unnecessarily pay that at all?
Lessons Learned
Recently it seems that policy owners and advisors alike are learning things about the life insurance industry and contractual features that they never realized or fully understood. The arbitrary increase in cost of insurance is certainly one but the fact that life insurance companies have no legal requirement to send you a premium notice is another. What this means is that if you don’t receive the premium notice due to forces beyond your control, it doesn’t really mean anything as you were never owed it in the first place.
The lesson here is to set up your own system that’s independent of the carriers and the delivery services. Counting on the notice has always been frustrating regarding trust owned policies. When Crummey notices and waiting periods have to be accounted for, receiving an invoice a couple of weeks before the due date doesn’t work anyway. Furthermore, making sure the premium was applied in a timely manner is also seldom done, and this isn’t a problem until it’s a problem.
Pay attention and take responsibility. You can’t count on others.
Bill Boersma is a CLU, AEP and LIC. More information can be found at www.OC-LIC.com, www.BillBoersmaOnLifeInsurance.info, www.XpertLifeInsAdvice.com, www.LifeLoanRefi.com, TheNAPIC.org, www.LifeInsExpert.com or email at [email protected].