Whole Life - Additional Insurance Negated

[pinto375]

A claimant (beneficiary) made a death benefit claim with an insurance company on a Whole Life Policy upon the death of the insured. The Whole Life Policy allowed for the additional paid insurance (above the amount of the face value of the policy) thru dividends to increase the value of the policy. According to the policy statement one month before the insureds death, the Face Value of the policy was 50,000 and Additional Paid Up Insurance was 18,000 giving the claimant a 68,000 Total Policy Benefit. One month before the insured's death, the claimant had called the insurance company and asked for some money against the policy. The insurance company agent told the claimant they had accrued 2,600 in dividends (over the life of the policy), that no dividends were ever paid out from the policy, and the claimant could request that amount and the withdrawal would be tax free. The insurance company agent made no other representations. The claimant accepted the withdrawal. When the insured died two months later, the claimant called the insurance company after filing the Death Claim asking for the amount they would receive. The insurance told the claimant they would receive 50,000 (face value) of the policy. When the claimant inquired about the Additional Paid Up Insurance of 18,000 the insurance company said that portion of the Total Death Benefit was reduced to Zero since the claimant took a dividend withdrawal.

My question is in regards to Bad Faith on the part of the insurer for not making representations to the claimant that a dividend withdrawal on a Whole Life policy would reduce the Additional Paid Up Insurance portion of the Total Death Benefit to Zero, and not offering other options such as a loan against the policy (which would have been in the best interest of the claimant) and only have reduced the Total Death Benefit for the amount of the loan - not Zero the Additional Paid Up Insurance. In effect, a 2,600 withdrawal by means of cashing in the dividends negated 18,000 in benefits.

What is the name of your state (Pennsylvania)

 

[justalayman]

Just to be clear:

the insured was not the policy owner. The beneficiary was, correct?

Who are you in this issue?

 

[anteater]

My question is in regards to Bad Faith on the part of the insurer for not making representations to the claimant that a dividend withdrawal on a Whole Life policy would reduce the Additional Paid Up Insurance portion of the Total Death Benefit to Zero, and not offering other options such as a loan against the policy (which would have been in the best interest of the claimant) and only have reduced the Total Death Benefit for the amount of the loan - not Zero the Additional Paid Up Insurance. In effect, a 2,600 withdrawal by means of cashing in the dividends negated 18,000 in benefits.

I am doubtful. The insurance agent does not have a fiduciary relationship with the policy owner and/or beneficiary.

But you can check with the PA Insurance Department and/or an attorney.

 

[justalayman]

I am doubtful. The insurance agent does not have a fiduciary relationship with the policy owner and/or beneficiary.

But you can check with the PA Insurance Department and/or an attorney.

I disagree, in part. The agent does have a fiduciary relationship with the policy owner/purchaser. While the policy is in force, they would have no such relationship with a bene though since a bene has no current rights but only future rights and as such, have no right to actions that can affect the policy. Once the policy is payable due to the action insured, the bene does then step into a more formal relationship with the agent and as such, I suspect they may develop a fiduciary relationship with the agent (although this last part is speculation on my part)

 

[anteater]

If life insurance companies and their agents were considered to have a fiduciary relationship with clients, the life insurance industry would be rocked to its foundations.

The world will end first.

 

[justalayman]

If life insurance companies and their agents were considered to have a fiduciary relationship with clients, the life insurance industry would be rocked to its foundations.

The world will end first.

I believe that if you research the situation, there can be a fiduciary relationship created between an agent and a client. It does not appear to create such a relationship if the client simply asks for some specific policy inclusions but when seeking the advice of the agent, it appears such a relationship can in fact be created.

To me, it only makes sense, especially considering the various products an insurance agent sells which the typical layman is basically required to depend on the agents representation and information with which to utilize to make a decision.

New Jersey had this to say on the situation:

The essence of a fiduciary relationship is that one party places trust and confidence in another who is in a dominant or superior position. A fiduciary relationship arises between two persons when one person is under a duty to act for or give advice for the benefit of another on matters within the scope of their relationship. The fiduciary’s obligations to the dependent party include a duty of loyalty and a duty to exercise reasonable skill and care. Accordingly, the fiduciary is liable for harm resulting from a breach of the duties imposed by the existence of such a relationship.


Munoz v. Perla, 2001 WL 6341182,*9-10 (App. Div. Dec. 20, 2011) (quoting McKelvey v. Pierce, 173 N.J. 26, 57 (2002)).

and I thought the world wasn't supposed to end until 12/21/2012

 

[Betty]

Life ins. agts. have been determined by some courts to have a fiduciary relationship with anyone who is their client in "specific situations/circumstances." The courts decide each case on an individual basis.

One Pa. court case: Agent has fiduciary relationship toward client, requiring full and frank disclosure of contract terms. Han-non Motor Lines, Inc. v. Liberty Mut. Ins. Co., 214 F. Supp. 250 (W.D. Pa. 1963).

OP, please answer justalayman's questions re was the beneficiary the owner -need verified (assume so since bene took dividends) & also how are you involved in this situation? In any case, bene might want to talk to an attorney for his/her opinion or file a complaint with the Ins. Dept. of Pa. & see what they say.

Thanks.

 

[pinto375]

Life ins. agts. have been determined by some courts to have a fiduciary relationship with anyone who is their client in "specific situations/circumstances." The courts decide each case on an individual basis.

One Pa. court case: Agent has fiduciary relationship toward client, requiring full and frank disclosure of contract terms. Han-non Motor Lines, Inc. v. Liberty Mut. Ins. Co., 214 F. Supp. 250 (W.D. Pa. 1963).

OP, please answer justalayman's questions re was the beneficiary the owner -need verified (assume so since bene took dividends) & also how are you involved in this situation? In any case, bene might want to talk to an attorney for his/her opinion or file a complaint with the Ins. Dept. of Pa. & see what they say.

Thanks.

Your advice here was well stated as well as the other members.

(re was the beneficiary the owner)
The beneficiary is the policy owner and has since made a request to the insurance company to reconsider based on their agent not offering the best advice. Let me clarify that this was not a field agent or broker who the policy owner spoke with, but an agent at the corporate office of the insurance company.

(how are you involved in this situation?)
My involvement is as a family member who has been asked by the policy owner to seek out advice before contacting an attorney.

 

[justalayman]

even after all the discussion and the realization that a fiduciary relationship can be created in some situations, I hesitate to state, or even suggest is was such in this situation. As you can see, it is all over the place as to when and what it takes to create such a relationship so, as a answer, about the best I can do is suggest you speak with an attorney who can apply current PA law on the issue and give you an opinion. Then you can go from there.

 

[anteater]

My reading is that the courts have pretty consistently declined to impose a fiduciary level of care on the life insurance industry. But I fear that I have led us off into the thickets.

Because, even if a fiduciary relationship did not exist, that does not mean that a lesser standard could not be applied in this case.

And, after thinking about, I've changed my mind from a "I'm doubtful" to a definite "Maybe."

 

[justalayman]

My reading is that the courts have pretty consistently declined to impose a fiduciary level of care on the life insurance industry. But I fear that I have led us off into the thickets.

Because, even if a fiduciary relationship did not exist, that does not mean that a lesser standard could not be applied in this case.

And, after thinking about, I've changed my mind from a "I'm doubtful" to a definite "Maybe."

I'm glad I could add confusion to your normally and typically solid advice.

My position is: check with a lawyer. I think this is beyond what we can do here.

 

[pinto375]

Even the most reasonable of people find it difficult to figure out the meaning of hard-to-understand language in an insurance policy without the help of his or her insurance agent. Insurance representatives at least have a trust relation imposed upon them by the very nature of the service they provide even if they technically may not have a fiduciary one. Doesn't that count for something somewhere?

 

[justalayman]

yes but if it reaches the level of creating a duty of any particular sort is something the courts will determine. It is not clear at what point any particular level of duty is created between an agent and client so, as suggested before, an attorney that is familiar with the current status of the law in your state is going to be the best source for information.

I would love to be able to provide you with a definite answer but I do not believe there is one to be had on an internet forum.

 

[Betty]

Agree, there is no way we can know what any individual judge/court would decide in this particular case. You need to get a local attorney's opinion who knows the courts there better than we do.

 

[pinto375]

Life Insurance Agents Balk at SEC Proposal

Life insurance agents are expressing concern about a proposed change emanating from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

At a congressional hearing this week, insurance industry representatives weighed in on a Securities and Exchange Commission study which was mandated under section 913 of the act. Released in January, the study recommended creating a common fiduciary standard of care for broker-dealers and investment advisers.

Life Insurance Agents Balk at Proposed SEC Rule - Financial Planning