Insuring Eternity
Back in the late 1970’s when I was beginning my career in banking, I was traveling across New England almost every week, visiting a combination of banks and insurance companies to sell them our banking services. I was a member of FI or financial institutions side of the bank. For some strange reason, the FI side of banking was always the red-headed step-child of the banking business compared to the corporate side. The truth was that doing business with FI’s was probably more reliable and profitable than doing corporate lending since FI’s always needed more banking services and went bust a lot less often than corporate borrowers did. Among FI’s, insurance companies went bust even less often because they were, for the most part and by their nature, very conservative beasts that didn’t play fast and loose with risk the way corporations always seem to and even banks occasionally seem to. We are going through yet again another banking crisis right now and all the boogey men are coming out of the woods of the global banking community like they did in 2008. People may forget that the big insurance company, AIG, also was part of the big 2008 financial crisis, but we still think of that meltdown as a banking crisis more than an insurance crisis.
And among insurance company debacles, life insurance failures are even more rare than those in the property and casualty arena, where things like catastrophic risk can take a bite out of an insurer’s ass. With life insurance, the law of large numbers tends to spread the risk on the liability, but it doesn’t necessarily prevent the asset side of the equation from getting the occasional hickey. One such boo-boo occurred in 1990 when Mutual Benefit, a big New Jersey life insurance company hit the skids due to over-investment in inflated real estate projects. I was actually involved in seizing an opportunity in that mess by buying a subsidiary of Mutual Benefit out of its Rehabilitation process. It tuned out to be a very profitable experience for my bank and for me personally. During my career, I flirted with insurance companies in a number of ways and compared to many financial professionals, I’ve had a great deal of insurance involvement including buying or starting (as well as operating) perhaps seven insurance companies. That all said and done, that experience plus two degrees in finance have still left me incapable of really understanding how life insurance works. Amazing, right? Maybe its my intellectual failing, but I don’t think so. I think insurance is designed to obfuscate and while its basic concept of shared risk seems simple enough, the machinations it has been intentionally cloaked in by the industry, make it almost impossible to comprehend. It is the ultimate financial shell game and there is only sometimes a pea under any of the shells on the table.
I just got a quarterly bill for one of the life insurance policies I own (actually two, one on me and a smaller one on Kim). I have no idea why I have either policy or the other several I also own and dutifully pay premiums on. When I was that young banker calling on insurance companies in New England, I decided, like so many other young professionals in my generation, that I needed to have some life insurance to protect my family. Hell, all the corporate benefits packages in the world have life insurance as one of the standard benefits, so there must be something to the notion that it is an important thing to have. We all understand that if we die unexpectedly it is important that our loved ones have the solace of a wad of money to get them through the tough times of losing their main provider. We build our lives around such beliefs and buying life insurance is something that responsible family men are supposed to do. So I did it. I brush my teeth twice a day and I own life insurance to help my family out if I buy the farm.
When you see the ads for low-end life insurance on TV, it is always about unburdening your family from the costs of having to bury you. Those are small policies and the idea that your estate needs insurance to afford a casket and a funeral suggests a real hand-to-mouth existence, but it may not be so far from reality for much of the population. For those of us with a positive net worth it is a bit of a red herring and the more likely justification for a policy is the paying of the mortgage and grocery bill until other life arrangements can be organized. But all that is still a very marginal part of the insurance industry. The real game is played in the arcane tax statutes where the insurance industry has successfully layered in arrangements for its products to provide protection against death and inheritance taxes so that generational wealth can create the modern day dynasties that plague our global economic environment. Do you think I have a point of view about inherited wealth? You betcha.
At various times over the years, I have had more than a few lapses of good sense and have bought one policy after another. I started by buying whole life insurance, which is the worst imaginable investment and overall product I can imagine. As time passed, I at least started buying insurance with more and more term characteristics, understanding that I wanted some of the insurance aspects but less of the investment aspects. If you asked me to explain what I have and what I bought, I’m not sure I could do a very good job of it. I wish I could say that was on account of my failing memory or attention to detail, but the truth is closer to being that these policies are specifically designed to be as difficult to understand as possible. You see, the insurance industry understood years ago that while people may feel the need for a life insurance product at times in their lives, but they eventually see less and less value in the product and if they made the offering too understandable and too easy to reverse out of, their business would suffer. So, what we are left with are policies and financial products that no rational person can decipher and no thinking person would choose to terminate due to engineered tax disadvantages in doing so. You have to either admire or hate an industry that has spent years making sure that its clients were captive and/or unable to do anything other than what the company wants them to do.
Recently I have been fighting with one of the providers from whom I hold a policy. Actually, I am the insured, but I have an Insurance Trust set up to own the policy and after much back and forth, I’ve managed to install my sister Kathy as trustee. That has helped with maneuverability, but only somewhat. These convoluted constructs were simply not meant for autocorrecting, but I sure was determined to try. That construct made a difficult and cumbersome situation so hard to handle that I wondered how to make sense out of the insurers inexplicable demands for more premium, and they refused to explain the premiums to me on the theory that I was not authorized. After they refused my ownership change documentation (inexplicably), they felt it necessary to threaten me with policy lapse by a date specific. I decided to just let the policy go, but then they gave me an unexpected extension. When that date came and went they sent yet another notice that they were extending for yet another few months. They were acting like a kid stuck with an idle threat that they were more unwilling to invoke than I was to allow it to happen. One more extension and I might not take them seriously, right?
I have no idea what will ultimately happen with that policy and I have no intention of messing with the other policies. I don’t think I like life insurance as much as I used to. These policies try to insure eternity to men of responsibility like me and I suspect that all they really do is insure that you and our heirs waste a lot of time scratching our heads. I’m thinking putting money under a rock might be a better thing to do for my family the next time I’m staring at eternity.