Multiple Term Life and Death Benefit Payouts

[Mrboone2]

So I remember back when I did my CA L&H class that there are circumstances where life insurers will coordinate the death benefit payout if someone has multiple individual term policies (something about not making beneficiaries rich).

Does anyone know when that happens, what it's called, etc.?

 

[DHK]

Never heard of that.

You may be confusing that concept with disability insurance where there is a coordination of benefits with state disability as well as social security. (Don't want there to be too much incentive to not go back to work.)

There's also, in the case of MediCal Long Term Care, where the state will place a lien on homes to recapture its cost - unless you bought sufficient protection through a qualified CA Partnership LTC policy.

But I haven't heard anything regarding life insurance death benefits being coordinated with anything.

 

[WMG]

So I remember back when I did my CA L&H class that there are circumstances where life insurers will coordinate the death benefit payout if someone has multiple individual term policies (something about not making beneficiaries rich).

Does anyone know when that happens, what it's called, etc.?

I am not really sure what you are saying/asking, so perhaps you can clarify this a bit more. However, based upon your comment about not making beneficiaries rich -- are you talking about "settlement options" for the death benefit? That has nothing to do with multiple policies, or coverage/policy being term.

In the case of a client having multiple policies -- term or otherwise -- my experience is that the carrier will pay each claim, and as long as it meets the requirements, they will offer various settlement options.

Please further explain and I am sure one/many will be able to answer your questions. Thank you.

 

[DHK]

Insurers WILL limit the amount that they will APPROVE you for initially. This amount is coordinated with maximum limits.

For example: If you're in your late 20's and earn $50,000/year, the maximum amount of in-force life insurance you can have is usually 30x your earnings - or $1,500,000.

If you already have a $1,000,000 term policy, insurance companies will not underwrite an additional $1,000,000 - without proper justification.

 

[WMG]

Insurers WILL limit the amount that they will APPROVE you for initially. This amount is coordinated with maximum limits.

For example: If you're in your late 20's and earn $50,000/year, the maximum amount of in-force life insurance you can have is usually 30x your earnings - or $1,500,000.

If you already have a $1,000,000 term policy, insurance companies will not underwrite an additional $1,000,000 - without proper justification.

OK, so if that's what the OP was talking about...I had no idea that's what he was asking! LOL.

OK, so if that's the basis of the question, yes, there are underwriting guidelines and carriers will only underwrite and issue up to a maximum. Depending on your age, it will be based upon:

1) Income
2) Estate size
3) Wealth replacement, estate planning
4) Debt
5) Other business factors, if there is a business
6) Other factors

Depending on the case, client, etc. -- there could be a lot to it actually.

 

[DHK]

As far as what it's called... I'm thinking its a "policy benefit aggregation"? I might've just made that up, but it fits.

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WMG - I'm guessing right along with you. I'm not sure exactly what he's referring to, but we're trying!

 

[VolAgent]

As far as what it's called... I'm thinking its a "policy benefit aggregation"? I might've just made that up, but it fits.

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WMG - I'm guessing right along with you. I'm not sure exactly what he's referring to, but we're trying!

Financial underwriting.

I would guess this is what he is thinking. He is mistaken as to when it takes place, as it is done in underwriting not at claim time, EXCEPT

If someone lied on the application as to the amount of existing coverage and/or intention to replace an existing policy, the company(s) may contest the claim for misrepresentation or potentially even fraud.

This is yet another reason why it is important for agents to ask the questions on the application. Most SIWL companies don't care about existing coverage except as it applies to their duties regarding replacement. For ordinary life, you better bet they care about all existing coverage.

 

[WMG]

As far as what it's called... I'm thinking its a "policy benefit aggregation"? I might've just made that up, but it fits.

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WMG - I'm guessing right along with you. I'm not sure exactly what he's referring to, but we're trying!

Hey, everyone be clear...it's month-end!!! LOL.

 

[Mrboone2]

I am not really sure what you are saying/asking, so perhaps you can clarify this a bit more. However, based upon your comment about not making beneficiaries rich -- are you talking about "settlement options" for the death benefit? That has nothing to do with multiple policies, or coverage/policy being term.

In the case of a client having multiple policies -- term or otherwise -- my experience is that the carrier will pay each claim, and as long as it meets the requirements, they will offer various settlement options.

Please further explain and I am sure one/many will be able to answer your questions. Thank you.

This is where I wish I still had my original training modules.

I'll make up a scenario:

The Insured has a $500k 20-year term policy from MetLife. Ten years in, he buys a $1 mil 20-year term from ING. 2 years later, he buys another $1 mil 20-year term from SBLI. He passes away 15 years into the first policy's 20-year term.

I remember the course I took saying that since insurance is supposed to restore what was missing after a loss, carriers would limit payouts from multiple policies of the same type. If that's true, would his beneficiaries get $2.5 mil or just $1 mil total paid out by all three carriers?

 

[VolAgent]

This is where I wish I still had my original training modules.

I'll make up a scenario:

The Insured has a $500k 20-year term policy from MetLife. Ten years in, he buys a $1 mil 20-year term from ING. 2 years later, he buys another $1 mil 20-year term from SBLI. He passes away 15 years into the first policy's 20-year term.

I remember the course I took saying that since insurance is supposed to restore what was missing after a loss, carriers would limit payouts from multiple policies of the same type. If that's true, would his beneficiaries get $2.5 mil or just $1 mil total paid out by all three carriers?

Where are you getting this 2.5 million or 1 million figure from?