Some insurance agents will do just about anything to squeeze the cash value out of an existing policy so they can earn a fat commission by selling you another policy. How will you know if an agent is trying to churn you? According to Dennis Abrams, a medical malpractice lawyer, and other experts, the modus operandi of replacement artists features these dead giveaways:
- Blasting the old policy:
The process usually starts with an agent – often a new agent who has been assigned to you – telling you he or she can get you a policy with more cash value and a higher death benefit for the same premiums you’re paying now. You may also hear that your current policy is a lousy investment or a bad risk because the insurer is on the brink of insolvency. Demand that such claims be backed up by asking the agent for the financial ratings from three of the five firms that rate insurers: M. Best co., Duff & Phelps, Moody’s Investors Service, Standard & Poor’s Corp. and Weiss Research. (Note: information from these services can often be found through your city/county library).
- Refusing to provide side-by-side illustrations:
Instead, you’re likely to get hand-drawn diagrams. What you need are formal illustrations – on the company’s letterhead, not the agent’s – showing guaranteed premiums, cash values and death benefits, as well as what they might be if interest-rate assumptions hold true through age 85. Ask for illustrations at the current interest rate and at two percentage points lower so you’ll be able to see what happens under less-rosy scenarios.
- Offering no evidence of how policies have performed over time:
Ask the agent to bring along Best’s Review, an insurance-industry magazine that ranks performance. Two rankings – one for the cost of a policy and the other for cash-value buildup – show how policies fare comparatively over ten years. For your own copy of Best’s Review, call (908) 439-2200, extension 5557, and specify the type of policies you’re shopping for. The cost ranges from $7.50 to $12.50 per issue.
- Claiming that you can buy more insurance without extra out-of-pocket costs:
If you’re being churned, there’s a good chance the agent won’t tell you how the new policy will be financed – most likely by a policy loan that draws on the cash in your original policy, or by canceling the first policy and rolling the cash into the new policy. Some agents, including those cited in suits filed against MetLife and Prudential, have allegedly forged consumers’ signatures on policy-loan applications to hide the significant up-front costs and higher premiums of the new policies.
- Requesting that you sign blank documents:
Or pages that include the agent’s address where yours should be. Such tactics can prevent policyholders from learning about the full terms of the transaction. If loan and cancellation notices are sent to the wrong address, it could be years before you realize you need to make a cash infusion to keep your policy in force.
Although replacing a policy rarely makes sense, there are exceptions.