Are Your Life Insurance Policies Written In Gibberish?

I recently read four news items that relate to how consumers perceive Life insurance:

• Numbers one and two above result in part from what some call “gibberish,” or incomprehensible policy language. Sometimes, the proposals or other explanation of the policies can leave the buyer confused, unclear, or misinformed about what they read. As I’ve discussed in previous columns, although policy language is necessarily complex, it can be deliberately confusing or worse when discussing issues such as Life insurance dividends and cash values.

If you’re one of these buyers, don’t feel that you’re alone. Sometimes the very people who create policies will announce up front I’ve been there on occasions when they’ve done it that, although they wrote as clearly as possible, they still need to await court interpretations before they’ll know the full impact of what they wrote. Even policies tried and tested in court cases are still open to further conflicting interpretations in different jurisdictions.

Because every insurance policy is a legal contract, it should be precise and unambiguous. However, even with careful writing, policies are subject to claim situations which could be interpreted in more than one way. Although insurers try to be clear about what they do and don’t intend to cover, it seems nearly impossible to describe every possibility of coverage and of exclusions in a single contract. As court interpretations become known, insurers will sometimes adjust policy language accordingly and these adjustments will then require interpretation.

In other word, policies need to be written in legalese that anticipates how they might be challenged, misunderstood or distorted into paying claims that were not intended to be covered, all while remaining understandable to the non-technical lay policyholder. It can’t be done!

For the consumer, it comes down to this: If it were theoretically possible to have this choice, would you prefer to buy a simple, non-technical policy written in third-grade language which forces the insurer to pay many claims not intended to be paid and thus forced to charge premiums several times higher than a relatively clear and court-tested policy? As an alternative, would you rather pay the lower premiums based on policy language that narrows down claim payments to those defined more clearly (although perhaps not perfectly)? We’ll need to be satisfied with the latter because I don’t think that many state regulators will approve over-simplified policies even though there’s a movement toward plain language policies which might be a compromise.

I share with you the agonies of reading complex policies. As an agent and consultant, I need to wrestle with their intricacies and shadings and try to explain them; and, as an expert witness, I need to offer these explanations to judge and jury. Still, as an insurance buyer like you, I feel far more comfortable knowing that the policy will serve me as spelled out (although necessarily at length) in its language.

As the drafters of policies, then, insurers have little choice but to have some complexity in their policies. It’s up to agents to try to help policyholders to understand them. Although agents’ help can be invaluable, they, too, are limited not only by the patience of their clients, but also by time constraints and the impracticality of discussing every possible eventuality.

The only other party to complete the delivery of understanding, then, is you, the insurance buyer (“you” includes your accountant, lawyer, consultant or other qualified advisor). Although everyone, including courts, might recognize reasonable limits on how deeply you’re expected to read or understand all of your policies, it’s also reasonable to believe that you should be at least somewhat familiar with some of the most critical documents in your life. After all, Life insurance policies protect your most valuable assets including your income and provide for the financial security of your beneficiaries even after your death.

That’s why story # 3 above disturbs me. Three in five people (60%) who own Life insurance know very little about this valuable property. They can’t blame this lack of knowledge on the policy language because: (a) this language is clear in most policies; (b) the agent can certainly explain the policy, verbally and in writing; and (c) Life insurers generally have policyholder service departments that can help.

As for the 29% of folks who need more insurance but aren’t asked about it, this provides another illustration of how today’s consumers are taking more responsibility in dealing with all aspects of insurance. Much of middle America, and almost all disadvantaged Americans, are ignored by Life insurance agents because there are fewer agents serving our growing population, and most of them are dealing with the higher-income prospects. However, a comprehensive annual review of all your insurance needs with your agent should open the door to a discussion of all your needs.

This series of columns is dedicated to helping consumers understand their policies and how to deal with them. Still, at best, these columns singly or collectively can barely scratch the surface. I hope that, at a minimum they help show you how you can get help and self-help, and why you should want to do so.

Now we come to story #4, dealing with consumers’ preference for buying insurance through the Internet, mail, or over the phone, rather than from an agent. The main reasons for using these impersonal, by-the-numbers sources are: price, getting-over-with-it, avoiding agents who might mislead or use sales pressure on you, and preserving your privacy.

Let’s discuss each of these issues.

Price. Internet or mail-order insurance is often less expensive than buying through an agent but not as often as you might think. Lower premiums can be misleading because other charges or fees (sometimes hidden or camouflaged) can hit. Agents might well be able to offer rates lower than the lowest Internet offerings, but you won’t know this unless you talk to an agent. Still, even if the internet-mail-phone source is genuinely less expensive, bear in mind that premium alone does not dictate value. The agent might and often does, add value to the relationship far beyond the difference in premium.

Getting over with it. Shopping for insurance should not be a painful experience; it should be the reverse. After all, you’re protecting your assets, your money, and your family’s financial health. Buying insurance should leave you with a solid feeling of accomplishment. If there’s tedium in the process and there can be dealing with a helpful professional can alleviate the problem It should be a refreshing experience, and as you review your coverages (yearly at least) you should feel that you’ve mastered it.

Avoiding agents This might involve wanting to avoid dealing with such technicalities as policy language, why premiums differ among similar-looking policies, agents’ explanations of policy terms, having to evaluate what agents are saying, and guarding against abuse if you don’t know the agent.. Although these feelings are understandable, you can overcome them by reaching for a comfort level of feeling  and then knowing that your agent is putting your interests above all else, is competent and able to deliver far more value than a premium difference (if any) , and is working for you to manage the unknowns that you fear about buying insurance. For you, this heading should be “avoiding unknowns through the help of an agent,” and it should be on the plus side of your decision-making. Previous columns have discussed how to evaluate agents and get maximum leverage through them.

Preserving your privacy. Unfortunately, there’s no “fool-proof” guarantee of total privacy anywhere; ongoing incidents of data theft from even giant computer-savvy firms (not to mention the U.S. government and the military) are far too common. Your privacy will be as much at risk in dealing with sources thousands of miles away as it will be with a local professional agent, lawyer, or accountant.

The Bottom Line

We don’t live in a perfect world. Despite its faults, there’s no substitute for insurance – so let’s deal with it on the most favorable terms possible. It makes sense to identify and neutralize potential pitfalls, rather than to close your eyes to them. This applies to both insurance policy language and how you buy insurance.