Breaking Faith

Katt, Peter C.
August 1998
Journal of Financial Planning;Aug1998, Vol. 11 Issue 4, p28
Academic Journal
This article presents the author's observation on the treatment of older and newer policyholders within the same company. ABC Life introduces its new universal life (UL) policy featuring new performance drivers that include new mortality tables and bonus interest crediting. My best information is that the existing policyholders are cast aside, receiving lower-than-market interest crediting and higher insurance costs than the company's current experience would require, causing these policyholders to receive far less policy value than they are entitled to. This breaking faith with existing UL policyholders is, in my opinion, likely to be the next wave in market misconduct allegations against life insurance companies. Some companies that replaced existing UL policy series with more competitive ones appear to have established marketing schemes to have their agents systematically replace the existing UL policies with new ones--with new first commissions earned, of course. The apparent price discrimination between newer and older policyholders in order to offer a more competitive current policy is not a problem with only UL. Another issue is companies that have begun splitting their standard underwriting category into preferred and standard. Whenever a company claims that its new policy series is more competitive than its previous policy series, planners should immediately cross this company off as a potential insurer for their clients.


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