Life Insurance


March is Women’s History Month, an important time to empower women about their finances, and one area women underestimate their contribution to their families’ economic well-being is by lacking sufficient life insurance, says the Insurance Information Institute (I.I.I.).

The I.I.I. raises an important point. A national poll by wholesaleinsurance.net found that 43 percent of adult women have no life insurance and among those that are insured, many are severely underinsured, carrying just one-fourth of the amount that would likely be needed by their life insurance policies’ beneficiaries.

Indeed, women who are a family’s primary breadwinner carry 31 percent less life insurance than their male counterparts, even as a growing number of women earn as much, if not more, than their husbands, says the I.I.I.

Loretta Worters, vice president with the I.I.I., notes:

Ironically, 100 years ago women weren’t even able to buy life insurance. Today, women can protect their finances, but they aren’t buying the coverage or, if they are, it isn’t enough.”

This leads us to wonder why more women don’t buy adequate life insurance.

Metlife’s 2012 Protecting a Diverse Workforce report offers some interesting perspective on this issue. Its findings confirm that women are less insured with only twice their income in life insurance coverage, compared to men, who are covered for nearly three times their earnings.

However, the tendency for women to be underinsured is not due to a lack of awareness about life insurance. Metlife reported that 50 percent of women who earn $50,000 or more in income believe they don’t have as much coverage as they need, versus 39 percent of men.

Instead, the report found that more women than men find the process of choosing the right life insurance product to be complex. Some 67 percent of women believe that selecting the right life insurance product is a complicated process, compared with 59 percent of men.

MetLife noted that this belief also extends to selecting the right amount of coverage, where some 59 percent of women feel it can be a complicated process, compared to 50 percent of men.

Another key takeaway from the MetLife study is a difference in the perceived purpose of life insurance among men and women.

Not only do men place a higher value on insuring their income and protecting their financial security than women, but about half of women view life insurance primarily for burial and final expenses, compared to 40 percent of men.

As MetLife says:

This presents the opportunity to educate and reinforce the income protection role of this product, especially with women.”

Check out a recent article in Employee Benefit News for further discussion of the psychological and financial barriers to women buying adequate life insurance.

The use of retained asset accounts by some life insurers was a key topic of debate at a quarterly meeting of the National Association of Insurance Commissioners (NAIC) in Seattle yesterday.

The NAIC recently created a new working group to review the use of retained asset accounts by insurers and to study whether appropriate consumer protections are in place.

It has also issued a consumer alert on retained asset accounts explaining what consumers need to know about life insurance benefit payment options.

The increased regulatory scrutiny follows a Bloomberg markets magazine article that focused on how the industry practice affected the beneficiary of a $400,000 life insurance policy – the mother of an army sergeant killed in Afghanistan.

A weekend column in the Wall Street Journal by Leslie Scism and Erik Holm poses the question: are life insurers playing fair?

In a Q&A format, the article explains how retained asset accounts work and attempts to sort out whether beneficiaries understand their payout options when an insured person dies.

I.I.I. chief economist and senior vice president Dr. Steven Weisbart recently noted that the use of retained asset accounts is a life insurance industry practice that has served beneficiaries well for a quarter century and has generated few if any complaints to state insurance departments.

For more information, check out the I.I.I. fact sheet on retained asset accounts.

We take a break from our vacation to bring you our first ever post on a life insurance topic. I.I.I. senior vice president and chief economist Dr. Steven Weisbart offers an insightful perspective on an established life insurance industry practice that is coming under fire.

A life insurance industry practice that has served beneficiaries well for a quarter century and has generated few if any complaints to state insurance departments came under withering fire last week via an article published online and scheduled to appear in the September issue of Bloomberg Markets magazine. The article focused on how the industry practice affected the beneficiary of a $400,000 life insurance policy – the mother of an army sergeant who died in Afghanistan while saving the lives of three others.

Seemingly within minutes of the article’s appearance, the acting under secretary for benefits at the U.S. Department of Veterans Affairs, Michael Walcoff, announced an investigation, and New York Attorney General (and candidate for New York Governor) Andrew Cuomo subpoenaed a half dozen life insurers as part of another investigation. A few days later, U.S. Representative Debbie Halvorson (D-IL) introduced a bill that would set new rules for life insurers using this practice.

What practice caused this furor? In the absence of any other selected settlement option, life insurers place death benefits in the equivalent of an interest-paying checking account. Beneficiaries get checks with which to withdraw/spend the money, which stays in the life insurer’s general account until it’s withdrawn. Materials provided to beneficiaries make clear that the account is not FDIC-insured and periodically report on interest credited and the remaining balance.

So what’s wrong with this? According to the Bloomberg article, virtually everything. The article suggests the practice cheats the families of those who die, stealing money from the families of our fallen servicemen. This unregulated quasi-banking system operated by insurers has none of the protections of the actual banking system, the article reports. Next, life insurers are accused of not disclosing that the funds aren’t FDIC-insured, so beneficiaries are misled into thinking the funds are in an FDIC-insured bank. The industry does this to hold onto death benefits that they’re not entitled to. The article notes that life insurers earn interest on the funds at their corporate rate yet credit uncompetitive rates on death benefit balances, resulting in secret profits for insurers. And so on.

The article is such a one-sided diatribe that it’s hard to know where to start. It treats an FDIC-insured bank account as safer for death benefits than the general account of a life insurer, ignoring the state guaranty laws that insure death benefits for $300,000 to $500,000, depending on the state (vs. FDIC’s $250,000 limit, which was $100,000 at the time the death of the army sergeant occurred). It ignores the bank failure rate of the past few years vs. the superior rate of almost no life insurer failures. It says life insurers shouldn’t earn a higher rate on the funds and credit a lower rate, but says the money should go into a bank account (where it ignores the fact that the bank would do the same thing). It says the insurer should send the beneficiary a check for the entire amount instead of holding onto the money, ignoring the likelihood, based on long insurer experience, that when insurers did that the checks often either went uncashed for long periods of time or were spent/invested unwisely and effectively lost. This practice, at least, credits interest uninterruptedly at a rate that is comparable to accounts with instant liquidity.”

If you have questions or comments, please email Dr. Weisbart at stevenw@iii.org.