I have written that life insurance contracts are so complicated that it is unreasonable for the typical consumer to be expected to understand them. This is also the case in many aspects of life as evidenced by everything from mortgage closing packages to the agreements to which we acquiesce every time we download something on-line.
However, I believe the commitment of time and energy an individual gives to understanding these issues is directly commensurate with their understanding of “what could go wrong” if one truly misunderstood the transaction. With life insurance there is a high likelihood that the typical consumer doesn’t understand the details and internal workings of the life insurance policy or the ultimate effects of what could go wrong. This is, in part, evidenced by the fact that most policy owners understand their contracts to be guaranteed when most of them are not. The very thought that paying the required premium dutifully year after year not going hand in hand with ultimately receiving the expected death benefit is unfathomable to most. Beyond that, it isn’t even conceivable to most consumers that a life insurance contract gone bad could leave them in hoc to the IRS after losing everything they put into the policy and never even taking anything out?
Sure, I did not review all of the fine print when I signed my mortgage but I feel I pretty much understand the deal. I verified the numbers on my financial calculator and I am reasonably confident that if I make my payments no one is going to show up on my door step and tell me the house now belongs to the bank and I have nothing to show for it. That wouldn’t happen even if the payment was late every single month. Conversely, this is what happens with life insurance more often than most would believe.
Those blindly defending the industry state that it is all laid out in the contract and in the projections and they should be able to figure it out. I say that is ridiculous.
I recently wrote about an arbitration case for which I was hired as the expert witness. It was for a couple of VUL policies sold to two brothers who were business partners and they had a very clear history of being risk averse and owning very conservative investments. As is too often the case, the projections assumed unreasonably high stock market returns and were far removed from the real life attributes of the markets.
Under questioning I stated that it was unreasonable for there to be an expectation that they could clearly understand what they were buying and they were dependent on specialists and professional experts to provide sufficient information to make informed decisions. I stand by that whole heartedly. One of the defendant’s attorneys asked me if it was reasonable that the policy owner review the prospectus and I stated that I believed it was not. Again, I stand by that. There is essentially nothing in there that a typical consumer could make heads nor tails of and it wouldn’t provide an understanding of how the policy works or how to manage it. I believe prete
ReplyDeleteI have written that life insurance contracts are so complicated that it is unreasonable for the typical consumer to be expected to understand them. This is also the case in many aspects of life as evidenced by everything from mortgage closing packages to the agreements to which we acquiesce every time we download something on-line.
However, I believe the commitment of time and energy an individual gives to understanding these issues is directly commensurate with their understanding of “what could go wrong” if one truly misunderstood the transaction. With life insurance there is a high likelihood that the typical consumer doesn’t understand the details and internal workings of the life insurance policy or the ultimate effects of what could go wrong. This is, in part, evidenced by the fact that most policy owners understand their contracts to be guaranteed when most of them are not. The very thought that paying the required premium dutifully year after year not going hand in hand with ultimately receiving the expected death benefit is unfathomable to most. Beyond that, it isn’t even conceivable to most consumers that a life insurance contract gone bad could leave them in hoc to the IRS after losing everything they put into the policy and never even taking anything out?
Sure, I did not review all of the fine print when I signed my mortgage but I feel I pretty much understand the deal. I verified the numbers on my financial calculator and I am reasonably confident that if I make my payments no one is going to show up on my door step and tell me the house now belongs to the bank and I have nothing to show for it. That wouldn’t happen even if the payment was late every single month. Conversely, this is what happens with life insurance more often than most would believe.
Those blindly defending the industry state that it is all laid out in the contract and in the projections and they should be able to figure it out. I say that is ridiculous.
I recently wrote about an arbitration case for which I was hired as the expert witness. It was for a couple of VUL policies sold to two brothers who were business partners and they had a very clear history of being risk averse and owning very conservative investments. As is too often the case, the projections assumed unreasonably high stock market returns and were far removed from the real life attributes of the markets.
Under questioning I stated that it was unreasonable for there to be an expectation that they could clearly understand what they were buying and they were dependent on specialists and professional experts to provide sufficient information to make informed decisions. I stand by that whole heartedly. One of the defendant’s attorneys asked me if it was reasonable that the policy owner review the prospectus and I stated that I believed it was not. Again, I stand by that. There is essentially nothing in there that a typical consumer could make heads nor tails of and it wouldn’t provide an understanding of how the policy works or how to manage it. I believe prete