When you take out a life insurance policy, you pay premiums in the expectation that when you die, your spouse and/or your children will receive the death benefit. But audits of the nation’s leading insurance companies have uncovered a systematic, industry-wide practice of not paying significant numbers of beneficiaries. In a little-known series of settlements, 25 of the nation’s biggest life insurance companies have agreed to pay more than $7.5 billion in back-death benefits. However, about 35 insurance companies have not settled and remain under investigation for not paying when the beneficiary is unaware there was a policy, something that is not at all uncommon.The beneficiary never comes forward because he or she doesn’t know the policy exists. But the companies know says Kevin McCarty, the insurance commissioner of Florida, who led the national task force investigating the industry. And the companies don’t pay, he says, unless a beneficiary makes a claim.
~ 60 Minutes
Insurance Companies: Caught Breaking the Basic Tenet of a Life Insurance Policy
Life Insurance is simply a contract upon the death of the insured. The insurance companies have irrefutable evidence in their files to this fact. They stopped making annuity payments based solely on the death certificate – which is legal. However, the insurance companies kept the death benefits because the beneficiaries did not file a death claim. This practice is criminal and shows the insurance companies acting in bad faith while not honoring their contractual obligation.
They make two bogus claims to justify their criminal acts of omission. They blame the “beneficiaries for not filing a claim” and they claim honoring their contractual obligations would open Pandora’s box resulting in a “significant financial losses”. In fact, they have millions of unpaid benefits, some going back to the 50’s and 60’s. Of course, they made incredible profits on these funds.
Their arguments can be compared to a professional signing a contract to deliver services, failing to deliver on the contract, and then claiming that “refunding the funds” would cause significant financial losses once he is caught. Give me a break.
Two Different Justice Systems
Once again it is clear, we have two different justice systems – one for big corporations secured by lobbyists and our broken election system. Lawmakers are bought and elected by large corporations. And the other for the rest of us.
If one enters into a contract, breaks his/her word and does not meet their contractual obligations, one could end up serving time in prison. However, if you are rich or a corporation, you might avoid jail by hiring lobbyists and buying as much justice as you can afford.
What You Can Do To Protect Your Family
- Buy life insurance only from agents that have been in the industry for at least 15 years.
- Avoid multi-level outfits such as Primerica, World Financial Group and companies selling their products through these entities. Their agents have a very high turnover and are generally not very sophisticated. For example, a friend of 25 years, who had a policy with them for decades, had to wait six months to finally collect the death benefit. It was paid only after we threatened to report them to the California Department of Insurance.
Here are 7 practical things you can do to protect yourself immediately after watching the 60 Minutes episode.
- Contact your current insurance company and ask for an in force illustration.
- Ask for a copy of your Life Insurance Contract.
- Have the Insurance Company confirm in writing the name of your current beneficiary.
- If necessary, ask them for the forms to change the beneficiary.
- Make 5 copies of the insurance policy, or as many as you need, and provide copies to the beneficiaries, your CPA, Profesional Financial Specialist (PFS), and Attorney.
- Ask if the agent that sold you the policy is still with the company. If not, change to a new servicing agent.
- Ask the agent to meet with you at least once a year.
Going forward, only buy a policy from a family-owned insurance agency with a legacy plan, ask if the children in the family will continue to service you and your family after the founder retires or dies. Continuation is critical with these valuable assets and long-term contracts.
In my opinion, the insurance companies committed a crime, they did not meet their fiduciary responsibility to their clients and breached their financial obligations to the beneficiaries. The insurance agents did not meet the basic professional standards of the industry and failed their clients and their beneficiaries. Furthermore, the policyholders acted irresponsibly by not letting the beneficiaries know about the life insurance policies. If you own a policy you must take the necessary steps to update your beneficiaries and let them know.
We will provide a list of the companies that have settled so far and the ones that are still fighting in our next post.
Full Disclosure: Our family has been selling life insurance and annuities since 1998. We only had to deliver two death benefits. The beneficiaries had the checks within two weeks of submitting the death claim and required documentation.
Most of our existing clients have utilized the living benefits of their life insurance policies for college tuition, emergencies, new business ventures and to supplement their income during unemployment and disabilities, as lines of credits and down payments to buy real estate. The tax-free living benefits are as important as the death benefits.
At Palma Financial Services, Inc., our philosophy is still the same as it was in 1998. To build wealth you need to:
- Avoid the Stock Market to eliminate the loss of capital, sleep well at night, even if the stock market crashes.
- Invest in Real Estate
- Start Your Own Business
- Invest as Much Money in a Life Insurance Policy. Consider it a Roth IRA on Steroids!
- Minimize and Diversify your Corporate and Individual Income Taxes, by all legal means necessary
Yes, we sell life insurance and annuities, and will continue to do so. By selling Life Insurance, we are advocates for you and your family. By providing these services we are living a life of significance and providing tax-free income for your family while ensuring that they maintain their life status once YOU, their primary provider is gone.
Should have any questions please do not hesitate to contact us @ [email protected], 408-295-4963 or 925-307-5454