Life Insurance Contract Terms Eliminates Options

Whenever we purchase goods or services, they generally come with standard terms and conditions, which will include responsibilities of the seller and the buyer.  This will also typically include warranty information and a description of the circumstances in which you can return and get reimbursed for the goods and services you purchased.

Similarly, contracts for financial products contain terms and conditions that outline each party’s responsibilities and obligations.  However, most people don’t read these documents.  When you last opened a bank account or obtained a new credit card, did you read the terms and conditions?

Recently, I reviewed a very unusual life insurance contract.  It was issued by a fraternal organization that specializes in financial services.  (Fraternal organizations are associations of people bound together for social, literary, religious, philosophical, athletic or philanthropic purposes.) The Moose, Freemasons, Rotary, Knights of Columbus, and Elk are just a few examples of fraternal organizations. Many of these fraternal organizations offer products and services to their members, either directly or through third-party organizations.  By offering these products and services to their members, it provides products and services that may not be otherwise affordable to their members, generates revenue for its organization, and expands their reach.

When purchasing a life insurance policy (or any other product or service), be certain to read the contract very carefully.  Here’s why – we have found that some fraternal life insurance companies have “unique” language in their life insurance contracts that provides them with unusual rights.  Below is a sample of what I’ve seen recently:

2.2 CHANGE OF CONTRACT.  This contract may be changed to another plan of insurance if you agree to our rules and any required payments.  No change in this contract is valid unless it is made in writing and signed by our President and Secretary.imagesThis language virtually eliminates the opportunity to sell your life insurance policy.  Would anyone ever purchase a service that allows the seller to change the terms of what was originally purchased?  That simple phrase eviscerates your ability to monetize your life insurance policy.

When I consulted with my back office team that competitively bids life insurance policies to multiple private equity companies ensuring we get our clients the best price, they told me that no one would consider making a bid on a contract with this language.  Few companies are willing to take the risk that the terms of a life insurance policy they purchased, could change!

Buyer beware!

Life insurance is normally purchased to protect our families while our children are young.  As we age and build our own careers, we often retain our life insurance policies as a way to move assets to our heirs in case of our early demise.  Once we retire and consider our financial options, many times we elect to surrender our life insurance policies, stop making payments and take the cash surrender value.  In fact, 90% of life insurance policies do NOT pay out their face value; they are surrendered.

If you or others are considering surrendering your life insurance policy….STOP.  There may be hidden value in that policy.  Please call me for a free review of your policy.  There may be much more value than the cash surrender value available to you!

And always, read the fine print!

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