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AIG Just Doubled my Insurance Premium!
Old 11-23-2011, 12:08 PM   #1
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AIG Just Doubled my Insurance Premium!

Without notice (or any logic that I can figure) my life insurance company, AIG, American General increased my semi-annual payments from $625 to $1,348 dollars. I have had this policy since December 1984 (for $200,000 dollars). The premium, until this just received bill, had always been for $625 dollars, semi-annually. At one time the policy had cash value of around $10,000 dollars. The value as of this moment is around $500 dollars.

The policy also states:
INTEREST IS CREDITED TO THE POLICY MONTHLY IN THE DETERMINATION OF CASH VALUE. THE GUARANTEED RATE IS 4.500%. (the underlined above is as seen on the policy report, which is the most current one I can locate, from 12/08/09)

The heading of the policy states the following:

ANNUAL REPORT FOR THE MEDALIST ADJUSTABLE LIFE INSURANCE POLICY WITH FLEXIBLE PREMIUM, DEATH BENEFITS AND CASH VALUE

I have no doubt whatever the company is doing to me is perfectly legal. I offer this up as a warning for all when dealing with an insurance company regarding what one is told and led to believe (that this policy would be useable for my entire life, up to age 99 as I recall) and that the semi-annual premium would be $625 dollars, the amount I paid for the previous 26 years.

Fortunately we can let the policy go as we have no debt and my wife would be fine without it should I predecease her. Its just very annoying that the company is able to get away with marketing such a misleading product.

Rich
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Old 11-23-2011, 12:09 PM   #2
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I run away from almost any insurance product which touts "lock in low rates while you're young and healthy" but reserves the right to frequently jack up rates in the future. This is an example, and LTCI is another one.
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Old 11-23-2011, 12:15 PM   #3
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Always read the fine print of any contract with a jaundiced eye.
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Old 11-23-2011, 12:25 PM   #4
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You need to make some calls and check out what the real cause of this billing amount change. Doesn't seem reasonable. Might be a mistake someplace and you should get more information before dropping.
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Old 11-23-2011, 12:26 PM   #5
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Always read the fine print of any contract with a jaundiced eye.
Brewer, I can't understand the fine print on these darn premiums!! Understandable, as I only have a Masters degree and published four books...

Rich
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Old 11-23-2011, 12:27 PM   #6
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It is likely that this change is due to the design of taditional universal life policies. If the interest on the funds in the account plus the regular premium is not sufficient to cover insurance charges, the policyholder can get billed more to make up the difference. When these things were originally sold, the agents often made representations about teh policies that were not born out in the contract language.
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Old 11-23-2011, 12:28 PM   #7
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Brewer, I can't understand the fine print on these darn premiums!! Understandable, as I only have a Masters degree and published four books...

Rich
Then buy very simple products that have very little fine print.
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Old 11-23-2011, 12:29 PM   #8
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Originally Posted by brewer12345 View Post
It is likely that this change is due to the design of taditional universal life policies. If the interest on the funds in the account plus the regular premium is not sufficient to cover insurance charges, the policyholder can get billed more to make up the difference. When these things were originally sold, the agents often made representations about teh policies that were not born out in the contract language.
Wouldn't surprise me. A "guaranteed 4.5%" in particular sounds like it would be resulting in significant underpricing now, and frankly I think for several years to come as I don't see the War on Savers ending any time soon.
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Old 11-23-2011, 12:45 PM   #9
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Then buy very simple products that have very little fine print.
Absolutely right! I know that now! My only excuse for buying this lousy policy is, I was very naive back then, didn't know a thing about finances or insurance and didn't have the internet back then for learning about such things (Al Gore was just finishing his work up on the project at the time).

Rich
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Old 11-23-2011, 01:02 PM   #10
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That is why I like my 20 year level term insurance.
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Old 11-23-2011, 09:33 PM   #11
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I suggest that you call them and ask them why the increase is occurring. I would not dump the policy until understanding why.

A 4.5% guaranteed interest rate is valuable in this day and age. If it is a universal life policy you may want to actually pay more than the requested premium to take advantage of the high guaranteed rate. Where else can you get 4.5% today?
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Old 11-23-2011, 09:36 PM   #12
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Wouldn't surprise me. A "guaranteed 4.5%" in particular sounds like it would be resulting in significant underpricing now, and frankly I think for several years to come as I don't see the War on Savers ending any time soon.
The guaranteed interest rate makes no difference on a UL contract without knowing the cost of insurance charges. If the guaranteed interest rate is 4.5% with one company charging double the cost of insurance as a different company guaranteeing 3.5%, which would you choose? This is the same concept as how the guaranteed income riders are manipulated for marketing sizzle by insurance companies on annuities.

When these policies were sold in the 1980's, interest rates were at 8-12% and the 4-5% guaranteed rate was considered to be very conservative. Not many people thought interest rates would drop to record lows. The cost of insurance charges in the old UL policies is also based on the 1983 mortality tables, not the 2001 mortality tables that are available today with lower cost of insurance due to higher life expectancy.
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Old 11-23-2011, 09:49 PM   #13
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I bought a Universal Life policy in the mid-80s. Young, dumb (even dumber than today) and, having been exposed to a salesman, believed it would soon "pay for itself," tax savings, etc. Fortunately, I bought it from USAA. When I bought it the rep as much as tried to talk me out of it. I bought it anyway, but what she said stuck in my head. A few years later when I was re-evaluating things I crunched the numbers again and bought a term life policy that was a much better fit for my situation. The USAA rep told me I was making a good move. That experience was another reason I like that company.
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Old 11-24-2011, 07:19 AM   #14
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The guaranteed interest rate makes no difference on a UL contract without knowing the cost of insurance charges. If the guaranteed interest rate is 4.5% with one company charging double the cost of insurance as a different company guaranteeing 3.5%, which would you choose? This is the same concept as how the guaranteed income riders are manipulated for marketing sizzle by insurance companies on annuities.

When these policies were sold in the 1980's, interest rates were at 8-12% and the 4-5% guaranteed rate was considered to be very conservative. Not many people thought interest rates would drop to record lows. The cost of insurance charges in the old UL policies is also based on the 1983 mortality tables, not the 2001 mortality tables that are available today with lower cost of insurance due to higher life expectancy.
With respect to your question I guess that it depends on whether the difference in COIs exceeded the 1% difference in account value. So as with the OP, more information is needed to make an informed decision.

I agree with what you said that OP needs to look at all aspects of the policy and that a carrier can use COI or other charges to offset a high guaranteed interest rate.

I would not be so quick to lapse a 4.5% guaranteed rate just because I got a bill where the premium increased without calling the carrier and having them explain why the premium increased.
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Old 11-24-2011, 07:51 AM   #15
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Education is when you read the fine print; experience is what you get when you don't !
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Old 11-24-2011, 10:16 AM   #16
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Education is when you read the fine print; experience is what you get when you don't !
I defy you to read a prospectus from an insurance company and fully understand the import of the words! It truly is a rigged system, designed to obfuscate, confuse and mislead their customer base.

Rich
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Old 11-24-2011, 11:14 AM   #17
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I defy you to read a prospectus from an insurance company and fully understand the import of the words! It truly is a rigged system, designed to obfuscate, confuse and mislead their customer base.

Rich
And there lies the reason I have not, as of yet, purchased an insurance company annuity. Casual, verbal explanations sometimes make a product look OK for my purposes, but then I sit down to read the fine print............ Later, when the agent can't give me concise, complete, easy to understand explanations to my questions, I wind up not buying.
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Old 11-24-2011, 11:15 AM   #18
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And there lies the reason I have not, as of yet, purchased an insurance company annuity. Casual, verbal explanations sometimes makes a product look OK for my purposes, then I sit down to read the fine print............ Later, when the agent can't give me concise, complete, easy to understand explanations to my questions, I wind up not buying.
Time to find a better agent! A fixed annuity policy shouldn't be more than 20-40 pages or so. VA's are a different animal.
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Old 11-24-2011, 11:24 AM   #19
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I suppose so.

The question they fail the most is when I ask for an explanation of how/where/when the insurance company is making money on the deal. I only want a product where I'm confident the insurance company is doing well in the deal, yet it's a good product for me too. The salesmen agents I've talked to all get defensive when I ask that question as though they shouldn't be explaining this. It's like they paid too much attention in "closing the sale" class.

I'm not really a serious customer and therefore probably haven't done enough of my own research. Our retirement income is already approximately 50% annuity (SS + pension) based which is probably enough for my taste.
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Old 11-24-2011, 12:02 PM   #20
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I suppose so.

The question they fail the most is when I ask for an explanation of how/where/when the insurance company is making money on the deal. I only want a product where I'm confident the insurance company is doing well in the deal, yet it's a good product for me too. The salesmen agents I've talked to all get defensive when I ask that question as though they shouldn't be explaining this. It's like they paid too much attention in "closing the sale" class.

I'm not really a serious customer and therefore probably haven't done enough of my own research. Our retirement income is already approximately 50% annuity (SS + pension) based which is probably enough for my taste.
If you are talking about a SPIA, the insurer is simply making a spread on what they pay you vs. what they get from their portfolios (which are dminated by investment grade corporate bonds).
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