Smyrna man cautions about life insurance policies


SMYRNA — According to Terry Gregg, “If there isn’t a law on the books, there should be.”

State officials reviewed his 93-year-old mother’s life insurance policy and found no violations.

Acting as a power of attorney six months ago, the Smyrna resident discovered his mother’s $3,500 modified whole life insurance policy and a $61.90 monthly premium attached to it.

Monthly payments on the policy that went into effect on Jan. 7, 2009, recently reached $5,822.56, he said.

After eight years of monthly payments, the death benefit won’t cover what the premiums have cost.

Concerned that his mother was seemingly locked into a bad investment growing worse every month, Mr. Gregg filed a complaint with the Delaware Department of Insurance.

The policy began with an initial death benefit amount of $2,500 with a $44.28 monthly premium, and the customer upped coverage by $1,000 with higher payments roughly two months later.

The DOI acknowledged an ongoing review of Mr. Gregg’s case in a letter on Feb. 10, noting the insurance company had responded to the complaint.

“I have submitted further questions, concerns to the company for response,” an investigator with the department’s Consumer Services division wrote to Mr. Gregg.

Another DOI letter to Mr. Gregg arrived on Feb. 21, and concluded that the company had not violated any current Delaware insurance laws.

“If you wish to surrender the policy, you are entitled to the cash surrender value per the provisions of the policy,” the investigator concluded.

On Feb. 17, the company notified Mr. Gregg in a letter that the policy could be surrendered for an accumulated cash value of $1,421.27 as of Feb. 7.

Mr. Gregg said last week he has no intention of stopping payments and taking the cash value amount at a loss.

“They want me to lapse on the payments,” he said. “We have absolutely no intention to surrender the policy.”

In the midst of considering possible legal action through an attorney, Mr. Gregg said he went public with his claims as a “consumer alert” warning the buyer to be “aware.”

Mr. Gregg, a former licensed insurance agent in Florida, contends that the state should have safeguards to discourage policies that outlive their financial benefit.

“If [it is] not on the books as law, then legislators need to legislate law that protects consumers against this kind of injustice,” Mr. Gregg said.

“If currently there is no law on the books that protects consumers against insurance companies more than the policy is worth, in essence, it gives insurance companies a license to steal.”

With his mother’s case as an example, Mr. Gregg is troubled that many others may be experiencing the same thing on a national scale.

“I don’t believe my mom is the only person affected by this problem,” he said. “I believe there are hundreds, more than likely, thousands of people throughout the country affected by this problem.”

DOI Senior Advisor Vince Ryan said the modified insurance concern “was the first one he’d seen in a long time” and described the policy in question as a “bonafide product that is being sold by the company.”

Mr. Ryan said the DOI is exploring the idea of strengthening truth- in-insurance regulations to address “policies that are hard to read and difficult to digest.

“It should be in plain English —here’s what’s covered, here’s what’s not.”

The company’s response

A company spokeswoman referenced the $3,500 policy in question and said “we have acted in accordance with all policy provisions.”

The company provided information on whole life policies and how it is provided to policyholders.

• For whole life insurance, as long as premiums have been paid, there will be a benefit paid upon death. Depending on the policyholder’s age at purchase, and how long a policyholder lives, it’s possible they may pay more or less in premiums than the death benefit amount.

• This is quite common and is the case with other types of insurance, including auto, health and homeowner’s.

There is always a chance that premiums paid will exceed the benefit amount, just as there is a chance that the benefit received will be much greater than the premiums paid.

This is essentially what makes insurance work. Term insurance is a very common example where a policyholder could pay a premium for 20 or 30 years, live for the entire time period and receive no death benefit payment.

The policyholder did benefit from having protection against financial hardship caused by potential death during those years.

• During the sales process, [company] telesales agents explain in detail the costs and benefits of the policy of interest to the prospective insured.

The information provided meets the standards of required information at point-of-sale and is fully vetted and approved by our compliance department.

In addition, premium information and death benefits are explained in the certificate of insurance provided to the policyholder.

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