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Elizabeth Warren, We, too, May Need You

Elizabeth Warren, We, too, May Need You!

By: R. Brian, a.k.a. “Fetch,” Fechtel, CFA, Agent & Founder

A version of this article was published 10/24/11 National Underwriter (see notes at end).

The Wall Street Journal’s tome on personal financial management, Lifetime Guide to Money, begins its life insurance section, “There is a lot of value in life insurance. There are also lots of problems in the way it is sold.” Jim Hunt, an actuary and for nearly 30 years the Consumer Federation of America’s life insurance adviser, has repeatedly stated, “It doesn’t take long in the work I do advising consumers to realize that hardly any understand how a cash value policy works.” Professor Kotlikoff and syndicated financial columnist Scott Burns in their 2008 book, Spend ‘til The End, wrote “Life insurance agents have a well-deserved reputation for being hucksters.” Attention life insurance industry leaders: although no terrible headlines appear currently in the media, the life insurance industry’s pervasive and terribly costly problems that arise from its age-old and fundamental failure to provide appropriate policy disclosure persist. The enormous problems with annuities and LTCI are stories for another day.

Insurance regulators would be wise to consult with Elizabeth Warren on the importance of appropriate disclosure of financial products. No market works properly without appropriate disclosure and informed consumers. Insurers and agent groups have for more than five decades vehemently fought proper disclosure of cash-value policies, and industry regulators have acquiesced. Nonetheless regulators are supposed to fulfill their basic public duties, and an obvious and imperative part of such duty is providing appropriate and effective policy disclosure.

Consider the following facts. The NAIC’s Life Insurance Buyer’s Guide fails to even mention cash value policies’ tax privileges or explain the effects of such. The Society of Actuaries nearly 20 years ago stated that sales illustrations should not be used to compare policies, but these words have always been largely unheeded. IMSA folded last year without ever having enforced all of its fundamental principles. The interest adjusted indices are inherently defective and have been repeatedly declared defective by multiple authorities. In fact, in 1980 an NAIC committee worked on replacing the indices, but as Professor Belth has reported, “The companies did not just stifle the committee report; the individuals primarily responsible for the preparation of the report lost their jobs.” In the subsequent 30 years, no insurance regulator, not one single state, has discarded the flawed indices and implemented appropriate policy disclosure. If Insurance Commissioners could be charged with dereliction of duty, they would all be in jail, having repaid their salaries, and forfeited their pensions.

Appropriate disclosure of cash-value policies has always required information regarding its insurance and savings components, and that has always meant information regarding a policy’s annual costs and its compounding rates. Apologists may assert that some of this information is sometimes provided in some circumstances, but sporadic and incomplete provision of this absolutely essential information is hardly acceptable. And, any who assert that such cost and rate information on cash value policies cannot be provided, should go back to school. The absence of essential information is not only deplorably problematic, but it creates an environment in which misconceptions and misrepresentations proliferate, and produce the irrefutable circumstances that gave rise to the introductory quotes.

Not only are insurance regulators culpable for inaction on essential disclosure, the NAIC actually acted in the mid-1990s to delete policy performance data that had been previously disclosed in life insurers’ Annual Statements. Historical performance data on a publicly marketed financial product can hardly be considered either irrelevant or proprietary. Admittedly, given that disclosure of certain aspects of policies’ past performance can be indicative of their future performance, namely a policy’s risk-related component, there could certainly be ramifications of such disclosure. But concerns about possible insolvencies sparked by ‘runs on poorly performing insurers’ do not outweigh policyholders’, agents’, and advisers’ need for such information to be readily available. To believe otherwise is to believe it is better for policyholders to be uninformed and thereby unwittingly subsidize such poor operations. (An aside to NAIFA, The Society of CLUs & ChFCs, and other groups proclaiming their members’ professionalism and intentions to serve their clients’ best interests: Where were your objections to the NAIC’s sleight-of-hand deletion of historical policy performance data?) Can anyone, even recalling the caveat about the limitations of past performance information, imagine the mutual fund industry operating without fund performance data being publicly available, the equities or bond markets operating without companies’ financial data, or the auto market operating without its product data?

If the NAIC wants to finally begin fulfilling its complete responsibilities, it ought to immediately do at least four things. First, with the stroke of an executive order, it ought to stand-up for policyholders and reinstate the mandate that insurers’ next filed Annual Statements contain 20 year historical data on any type of policy that comprised at least 5% of the insurer’s historic sales; and make this information accessible via Second, it should require life insurers to disclose the percentages of its various cash-value policies sold that have remained in-force 20 years. Insurers’ policies with persistency rates of less than 50% should be examined to evaluate their suitability if such policies have had high and inadequately-disclosed sales loads. Statistical analysis of low persistency policies might well demonstrate that such policies have never been suitable sales because they were always more likely to have financially harmed, than benefitted, their consumers. Third, the NAIC ought to publicly punish New York Life and Northwestern for having recently run deceptive advertisements and thereby, undeniably, having fostered related sales misconduct.* Holding wrongdoers accountable is essential in rectifying and/or building a 21st century financial marketplace. Finally, the NAIC should also begin to provide appropriate policy disclosure of cash-value sales illustrations,** examples of which are shown in the chart below. This chart’s information, of course, should only be used to demystify the current sales illustration and to motivate consumers’ demands for the related information necessary to assess a policy’s probable future performance. The NAIC is invited to publicize this disclosure, or if it believes some improvement is necessary, to provide such. More broadly, the financial media is invited to publicize this disclosure as this is the type of information that consumers have always needed and deserved.

Life insurance is a wonderful product, but it must be properly disclosed, and cash value policies never have been. Life insurance will never be adequately utilized until it is properly marketed. But, it can’t be properly marketed, until it is properly disclosed. So let’s either consult with Elizabeth Warren, or get busy on our own disseminating proper disclosure. Good disclosure and its dissemination are our indispensible paramount imperatives.

* The National Underwriter deleted this and the following sentence. I stand by my statements and am disappointed that NU chose to omit this vital information. If anyone chooses to defend NU’s deletion I welcome your comments. I personally cannot see how this omission/deletion serves the public interest, and after all, serving the public interest is supposed to be a paramount journalistic priority.

** The next 18 words after the ** were deleted by the National Underwriter because of space constraints and the all too-rapidly approaching deadline to get the issue to the printers. The National Underwriter has expressed interest in running the chart to which the deleted text referred in a forthcoming issue. Given this blog’s unconstrained space, this vital chart remains in this article because, as stated in the published Letter to the Editor, “this is the type of information that consumers have always needed and deserved.”

Present Value Costs Per Thousand of Coverage as Illustrated in Life Insurers' Recent Sales Illustrations
On a 40 Year Old Male for Selected Policies in these Life Insurer's Best Health Class

Three of The Fundamental Rules of Buying Life Insurance

Rule #1: Do not buy simply based on a policy illustration or an analysis of a policy illustration.
Rule #2: Use policy illustrations and analysis of such to understand a policy’s financial mechanics.
Rule #3: Demand and obtain the information necessary to evaluate the likelihood of a policy providing competitive performance in the future.

20 Yr Level Prem. Term *c
AXA – Equitable


John Hancock
Mass Mutual
Met Life
1 $1 $8 $8 $8 $15 $8 $14 $13
5 $5 $30 $20 $25 $37 $18 $28 $27
10 $8 $37 $18 $20 $43 $27 $33 $27
20 $13 $67 $16 $23 $55 $40 $66 $31

Typical Employer Group **c
NY Life
North- western
Pac Life

Penn Mutual


Sun Life
1 .6 $14 $17 $8 $13 $8 $8 $1
5 4 $31 $34 $26 $28 $17 $22 $4
10 12 $32 $49 $40 $33 $20 $24 $9
20 32 $58 $61 $52 $38 $28 $27 $22
Analyzed policies all had an initial death benefit of $1 million dollars. Any error inadvertent; corrected upon notice. Details below list: Life Insurer, Interest or Dividend Rate Used Recently in sales illustrations (some rates circa 2010, some current rates about 0.15% lower) Policy Name/Type, Annual Premium, Health Class Name, Investment Portfolio Structure, Recent, Avg. 20 Yr Illustrated At-Risk Amount (in thousands). Important additional information on these policies can be found in Table 1 of’s article, “Policy Disclosure – Press Release” or by consulting the author.
*c Many insurers offer 20 Yr Level Term w/ a $1000 or less premium; above costs based on $1000 annual prem.
**c Typical Employer Group with increasing premiums every fifth year.

Allstate Recently Illustrated Rate 4.85%, Flexible Premium Adjustable UL, $7500, Preferred Elite, New Money, At-risk: 956.
AXA – 4.75%, Athena UL, $7500, Preferred Elite NT, New Money, 917.

Genworth – 4.65%, LifeReady UL II, $7500, Preferred Best No Nicotine, New Money, 922.
Guardian – 7.00%, Whole Life 99, $15080, Preferred Plus NT, General, 934.

John Hancock - 4.75%, Performance UL, $7500, Super Preferred Non-Smoker, New Money, 933.
Mass Mutual – 7.00%, Legacy 100 Whole Life, $13990, Ultra Preferred, General, 913.

MetLife – 6.25%, Whole Life, $13230, Elite Non-Smoker, General, 928.

New York Life - 6.14%, Whole Life, $13970, Select Preferred, General, 908.

Northwestern – 6.15%, 90 Life (a.k.a. All Base Adjustable CompLife), $17750, Premier, General, 967.
PacLife – 5.45%, VersaFlex UL, $7500, Super Preferred Non-Smoker, New Money, 949.

Penn Mutual – 6.34%, Flexible Choice Whole Life, $13390, Preferred Plus, General, 904.
Prudential – 5.05%, PruLife UL Plus, $7500, Preferred Best, New Money.

SunLife – 4.85%, Universal Protector Plus, $7500, Super Preferred Non-Smoker, New Money, 925.
TIAA-CREF – 5.00%, Intelligent Life UL, $7500, Preferred Plus Non-Tobacco, General, 904.


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