Our Analysis:
Term Life Insurance Policy Gone Bad

Not very likely. The simplicity of term insurance is most often its "saving grace." We would strongly urge anyone looking for a term policy to consider these points:

1) Find a stable company with a good financial history. The ratings of most companies are available through various sources including A.M. Best.
2) "Shop" the price. Some of the companies whom you'd think would have the lowest premiums, (typically Property and Casualty carriers) have got the highest prices in the industry.
3) Research the cost of converting the policy at 10-, 15-, or 20-years. If you discover the need to convert later on in the life of the policy, who will be the most cost effective?
4) Another excellent point that very few people think of is, "checking up on the agent." Who is he? How long has he been selling insurance? Can he give any references besides his Mother? - Don't laugh, I investigated an agent who "ripped off" his own mom. How many different companies has he worked for? Is he from the same general area as you? Most State's Department of Insurance have a toll-free number that you can call to verify his credentials.

Don't be mislead by credentials alone: Agents who often claim to be the "best thing since sliced bread are often found to be toast." A few years ago, Mark Colbert was named as an expert in a case in which the alleged "bad agent" was the son of the #3 man in a major insurance company. Besides having an income in the mid 6-figure range, this guy was a permanent fixture at all the top functions, social gatherings, Million Dollar Round Table, trips to far-away lands, cruises, etc., etc. By his own admission, he was so good, he could sell snow to an Eskimo. At sales meetings where there was sometimes hundreds-of-thousands of dollars (and life-savings accounts) on the table, this guy was unstoppable. He could "talk the talk and walk the walk" with the best of them.

After examining boxes of evidence and interviewing policy owners for over a year, our team was thoroughly convinced this guy was about as "innocent" as O.J. Simpson. We all felt he preyed on the elderly and relied on his credentials (and Father) to "get him in where the big fish were." In the end, he was found innocent of the allegations and went back to work in search of new blood. In the process, an elderly couple's future was literally "hung out to dry." This outcome was unimaginable to anyone who saw the evidence as we did; how could this happen? It wasn't until later that it all came to light. Being that he was, "who he was" his legal defense team had an "open checkbook" with which to work. It's amazing how the ability to spend millions of dollars on a defense team can often work to a person's advantage, right O.J.?

Understand the terms of the policy. Don't be sold a 5-year level term policy by an agent who tries to convince you that the premium will never change. Agents will sometimes represent that a 5-, 10-, or 15-year level term policy will remain level for a much longer time. Remember that you can always fall back on "black and white." A 10-year level term policy has a level premium for 10 years, not "15 years with the possibility of 20."

Term Life Insurance

Term is the most basic of all life insurance policies. Basically, you pay, you die - they pay.

Life Insurance PolicyTerm life insurance, at its simplest level, provides life insurance for a specified period (usually one,- five,- ten,- up to 30-year term). For that coverage, you pay a monthly, quarterly, semiannual, or annual premium which remains level during the specified term. But that's really the only constant. Because so many various options are available, such as decreasing term and increasing term policies, in which the face value or death benefit changes each year (rarely more than 18-20 percent above or below the original policy amount). Both these products are different from level term insurance, in which the face value remains level throughout the specified term. Term insurance provides a benefit for others if you die during the specified period. It is not an investment. You receive no benefits other than the security of knowing that if you should die, your beneficiaries will receive the insurance proceeds.

The ideal life insurance policy is the one that's in force at the exact moment your heart stops beating. If you buy a life insurance policy, not only do you want your policy to remain in effect during the specific term you designated, but you also want to be able to keep buying the insurance until you decide to stop - not when the company decides that you've become too great a risk. Most term life insurance policies are renewable - but your premium may not remain constant for the renewed period. Based upon the mortality tables I spoke of in the last section, your premiums will undoubtedly increase as you get older - the older you get, the closer you get to death.

Without a renewability option, the insurance company can decide that it no longer wants to insure you when the terms of your policy expire. This option insures that you can still buy life insurance regardless of your future medical condition; after you qualify the first time, you don't have to take any additional medical exams to maintain your policy. Because you become a bigger health risk as your age increases, not passing a medical exam is the danger of not purchasing a renewable policy. However, renewable does not mean that you can increase your policy's amount of coverage. If you decide that you want more insurance, the company will require that you qualify for it medically.

  • Decreasing term: Although maybe suitable for some people's needs, we have not found "the right situation" for this type of policy. For "ordinary" term, the face value remains constant and the premium increases over time. With a decreasing term life policy, the opposite is true: After the specified term, the death benefit of the policy decreases, while the monthly premium remains the same. In that way, the insurance company effectively increases its premium, which it must do because, as you age, you're at a greater risk for death. So the same premium purchases a gradually decreasing amount of insurance. This type of policy which is typically sold as a Mortgage Protection policy could end up costing an enormous amount of money for very little coverage.

  • Level term: A level term life insurance policy makes sense if there's not much chance you'll want (or need) to buy insurance later in life. In a 20 Year Level Term policy, for example, both the premium and face value remain constant for 20 years. The company can assure you a level premium by increasing the premium in the early years of the policy. If the company charges you more "up-front" and invests your premium dollars for themselves, they can afford to charge you less later on.

  • Convertable term: Most companies who offer term insurance often include a convertability feature. This option allows you to convert to a different type of policy - whole or universal life - without having to pass another medical exam. Again, because your health is more likely to deteriorate as you age, this feature may be important if you think you'll have the need for insurance later in life.

WARNING Although the term insurance idea makes sense at an early age when incomes are generally lower and obligations few, please consider it carefully before making the decision to enter into a long-level term contract. The cost of replacing a term with permanent coverage at an increased age could be 2-3-or 400% higher than buying the permanent coverage initially.

A few years ago, Mark Colbert was asked by some senior policy owners to help them review their policy with a "top-rated" insurance company. During my investigation, we discussed what their agent represented the policy to be and what they expected from it. The interview was going relatively well and no "red flags" were shooting skyward when they assured me that they purchased a 15-year level term policy. As he reviewed the policy, he found it to be a Yearly Renewable Term or (YRT) policy - this meant the premium was due to increase each and every year. Furthermore, given their age, the premium was incredibly high. As he explained my findings to them, they seemed obviously confused. He later found that the agent had taken a large sum of money from an older whole life policy and used it to pay several years' premiums in advance on the new term policy.

The agent had represented that they would not need to make premium payments at all for several years and when they did, the payments were going to be small. When Mark showed them the "fine print" on the policy that refuted the "sales pitch" they were completely astounded. Obviously disturbed, they told him that they had known this agent for years and he was a "regular" at their church. His kids played with their Grandkids and had even gone to the same school. Imagine their astonishment when, after a brief telephone call, we found that their insurance company didn't even sell a 15-year level term policy.

How did their claim against the company turn out? - THEY WON!