18 Sep Did dad get scammed with this insurance policy?

Q. My dad took out a $50,000 whole life policy on my mom 20 years ago. She’s now 90 and the company said the premiums are going up from $500 a year to $11,000 a year. Can they do that? They also said he only has about $500 in cash value. How can that be when he says he has always paid the premiums with checks and not from the cash value? What can we do?
— Trying to help

A. Yours is a disturbing question.

Assuming your facts are accurate, it seems your father has been paying all this time with certain expectations for the policy. But it’s possible the policy he was sold had specific provisions he didn’t know about – until now.

The details of the policy are what matters here.

First, let’s talk generally.

There are many types of life insurance.

“The two most pure are straight term, which is a death benefit only, and whole life, which provides death benefits and cash accumulation with certain guarantees and is permanent,” said Ed Gaelick, a Chartered Life Underwriter and Chartered Financial Consultant with PSI Consultants in Glen Rock.

But, he said, there are some hybrid whole life plans whose terms may change over time – depending on the exact type of insurance policy and how the cash accumulation has performed.

Among them are modified whole life, variable life, universal life, adjustable life, flexible life – and there are others.

“Each has specific features and may eventually require a larger premium if the accumulated values are ultimately used up to subsidize the premiums your dad has been paying, which were obviously not enough to cover the cost of insurance,” Gaelick said. “Those types of plans hope the investment or interest results sustain long enough for the policy to be `permanent.’”

Seems that did not happen with your dad.

Gaelick said your dad’s case may be tough to challenge because he probably received annual statements with values, and he would have seen a decline in the cash accumulation over the past few years at the least.

“But if the plan was misrepresented, he can certainly challenge it, yet in my opinion unlikely to be successful,” he said. “The only way to know exactly what happened in your case is for a qualified agent, broker to review everything dating back 20 years.”

That review would include sales material, illustrations, annual statements and the actual policy, Gaelick said, then you can determine if you should invest the time to challenge.

“I am very sorry this happened to your dad and can only stress to all the readers how important it is to thoroughly understand the policy type you purchase,” he said.

You can contact the New Jersey Department of Banking and Insurance and file a complaint, asking the agency to review the matter.

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