Actuaries Respond as Policyholders, New Buyers Of Life Insurance Discover Ignorance Is Not Bliss
What life insurance buyers don't know about their policies can hurt them.</br></br>Just ask California businessman Eric Nielsen. He says he thought he had bought a policy that required three, or maybe four, big premium payments and then would be fully paid for life.</br></br>Three years after his purchase, however, the number of projected payments had ballooned to 10, and there were similar but less extreme changes in three policies covering his parents. "As we dug into it . . ., we were horrified," Mr. Nielsen says.</br></br>Mr. Nielsen and his parents are among many policyholders who are complaining about policies that are requiring more payments, or showing slower savings growth, than holders expected on the basis of computer-generated projections, or "illustrations." The policies are certain "whole life" and other cash-value plans combining a death benefit and a savings component. A major culprit: lower interest rates.</br></br>But the gripes also highlight an underlying problem: Many insurance policyholders don't have a clue as to their policies' basic workings and risks. "Consumers don't seem to understand what is guaranteed and what is not," says Judy A. Faucett, an actuary at Coopers & Lybrand who is head of a task force of actuaries looking into the problem.