Over a year ago I wrote a Blog entry entitled Are You Sure That Guaranteed Universal Life Policy Is Guaranteed? In that Blog entry I wrote that the key to managing this type of policy is to “pay the policy premium in full and on time each and every year the policy is in effect EXACTLY as shown in the life insurance illustration”. As I mentioned in that Blog, “Unfortunately that happens in a perfect world, not the TOLI world we live in”.
At ITM, we recently confronted an example of the real world we live in. We took over the management of a block of policies for a client. One of the policies was a Guaranteed Universal Life policy that had a specified annual premium to be paid over the first ten years of the policy’s life to guarantee the policy to maturity.
By the time we took over the policy management the first 4 years of premium payments had been paid. Unfortunately, after reviewing the policy, we realized that in 2011 and 2013 the premium payments were each made 1 day late (to be crystal clear, 1 day after the grace period had passed).
The effect on the policy was to raise the premium needed over the next 6 years to guarantee the policy to maturity by approximately 20%, potentially costing the trust thousands of dollars.
The policy was given over to our Remediation Team for further review. After investigating the premium payment made in 2013 we found that the policy premium was credited one day after the grace period, which ended on a Sunday.
ITM drafted a letter to the carrier for the Trustee in which we requested that the carrier “credit the policy with the 2013 premium payment...as received within the grace period”. The reason we gave was that the “last day of the grace period was on a Sunday”. Certainly you could assume that the premium check could have been in the carrier’s possession sometime over the weekend and simply not credited until Monday. The carrier acquiesced and credited the policy as if premium was received within the grace period.
Emboldened by this positive result, we sent a second letter to the carrier to deal with the 2011 premium payment that was also one day late. In that situation, because the dates did not line up to our benefit, our argument was not as strong. However, probably because the premium was only one day off and maybe simply because we were asking, the carrier again yielded and allowed for the premium to be credited within the grace period, putting the policy back on track.
Two morals to this story. Obviously the first is to monitor the premium payments made on these types of policies as even a small error can be costly. But do not miss the other big story here. If you do have an issue around a policy, one that the carrier could change to your benefit, you need to deal with the issue quickly and forcefully. Often, with a well-reasoned argument and a well written request, you can reverse a negative situation and mitigate a possible liability.
One interesting aspect to this story is being left out of this Blog entry as we are still working with the carrier to remedy that situation. It is an interesting dilemma, one that I have never come across in over 20 years of dealing with life insurance (and nobody I have spoken to yet has ever come across, either). As soon as we get to an end point (hopefully positive), I will update the Blog.