Beware Zero Premium Life Insurance

Transcription

1 Life & Health Insurance Advisor Life Insurance June 2014 Volume 7 Number 6 Beware Zero Premium Life Insurance State insurance departments are warning citizens to beware socalled zero premium life insurance arrangements. If you receive such an offer and it sounds too good to be true, it could be. Sellers of zero-premium life insurance might refer to it by other names, such as investor-owned life insurance or stranger-owned life insurance. In these schemes, a salesperson approaches someone, usually between the ages of 65 and 85, and induces them to apply for a life insurance policy that they might not have bought otherwise, often for a high face value. An investor pays the premiums and the applicant names the investor as the policy beneficiary. In exchange for participating, the applicant either gets a percentage of the policy benefit immediately, or his/ her heirs receive a percentage upon his death and the investor/owner gets the balance. Many states ban this type of arrangement, called stranger-originated life insurance (SOLI or STOLI). They require the owner of a life insurance policy to have an insurable interest in the life of the insured, such as a family or employer relationship. In other words, they should have a greater interest in MRCT SmartBenefits is a comprehensive employee benefits, wellness and Human Resources consulting firm offering a variety of financial services to businesses and individuals 230 S. Bemiston; Suite 900 Clayton, MO (314) FAX (314) This Just In In what the website Health Insurance Crisis (healthinsurancecri sis.net) calls a cruel paradox, the number of people with health insurance seeking bankruptcy protection due to high medical bills could grow. This could occur despite the Patient Protection and Affordable Care Act s goal of expanding the safety net of individual health insurance. Policy analyst Fred Pilot says medical bankruptcies are most likely to occur in hospitalizations where multiple practitioners attend to a patient and only some are in the patient s health plan provider network. Calendar year out-of-pocket maximums for non-grandfathered plans ($6,350 for individuals; $12,700 for family coverage) apply only

2 Life Insurance having the insured be alive than dead. In testimony to the Special Committee on Aging of the U.S. Senate in 2009, James Avery Jr., president of individual life for Prudential Financial, spoke on behalf of the American Council of Life Insurers against SOLI. He said that these arrangements are fraudulent and they are contrary to both public policy and State law, which require life insurance policy owners or beneficiaries, for that matter to have an initial insurable interest in the continued life of the insured. Quite to the contrary, STOLI policy owners and beneficiaries have an interest only in the death of the insured. Quite frankly, the sooner the better. Some investors try to get around legal or insurer prohibitions on SOLI by providing a two-year loan to the policy applicant in exchange for a collateral assignment on the policy. At the end of two years, the policyowner can either repay the loan plus interest and keep the policy, not repay the loan and let the policy lapse, or sell the policy on the open market. The Risks of SOLI Participating in a SOLI scheme poses several risks to consumers: 1 No state laws prohibit a life insurance policy obtained in this way from being sold multiple times. This exposes your health records to multiple third parties. 2 Applying for a SOLI policy could affect your future insurability, as life insurers generally cap the amount of coverage on a single individual s life from all sources. 3 SOLI arrangements could create tax liabilities. Unlike a life insurance policy s death benefit, which beneficiaries generally receive tax-free, a payment you receive for participating in a SOLI scheme could affect your tax liability. 4 In many senses, you are trusting your life to total strangers. SOLI Versus Viatical Settlements SOLI differs from viatical or life settlements, which became popular during the AIDS crisis in the 1980s. Policy owners have a legal right to sell (or assign ) their life insurance policy. In a life settlement, a chronically or terminally ill insured assigns a life insurance policy he/she already owns to a life settlement company. The policy owner typically receives more than the policy s cash value, but less than the full death benefit. In exchange, the life settlement company becomes the policy s beneficiary and receives the death benefit when the insured dies. As insurance transactions, life settlements fall under state insurance law. Stephan Leimberg, an estate and financial planning attorney, told the committee, Legitimate, appropriate life settlements can benefit seniors, but noted that abuses occur. In addition to unscrupulous settlement companies that cheat sellers, some sellers go into the transaction without a clear understanding what their policy is really worth. In many instances, the policy could be worth much more to the policyholder than the value of the settlement. A hold/fold analysis could help policyholders better understand the financial tradeoffs of a settlement. Life & Health Insurance Advisor June 2014 This Just In to care rendered by network providers, potentially exposing patients to significantly higher bills. Pilot further notes that an increase in medical bankruptcies could lead to pressure to make available all-inclusive major medical coverage for hospital stays and other types of high-cost care. Limited provider networks may work fine for routine care like physician visits and exams, but can potentially leave major gaps for catastrophic care, he says. Supplemental plans, such as critical illness and hospital indemnity insurance, can help patients pay expenses that their health plan does not cover. Please contact us for more information. Leimberg also says that 42 percent of all 2008 settlements occurred in states with no settlement law. few states have modern settlement laws so, rogue brokers change the legal location of a transaction to avoid a tough state s laws. As with SOLI, a life settlement could affect your tax liabilities. And since you are selling your life coverage, your beneficiaries are losing valuable life insurance protection. If you have a whole life policy that has built cash value, it might make better financial sense to take a policy loan or withdrawal against cash value and retain your valuable life coverage. For more information on life insurance and the many ways it can protect your family s finances, please contact us.

3 Health Insurance Anatomy of a Health Insurance Policy Life & Health Insurance Advisor June 2014 How many people actually read their health insurance policy? Knowing what your policy covers can help you better plan your healthcare expenditures, and help you avoid unpleasant surprises if you file a claim. Although health insurance policies vary from insurer to insurer, and even within insurance companies, most share a basic structure. In the typical individual health insurance plan, you ll find: 1 The Insuring Agreement. Any legal contract involves a promise to perform a service or provide goods in exchange for payment (the consideration. ) The insuring agreement of your policy, generally the first page, creates the contract between your insurance company and you. In exchange for your payment of premium, the insurer agrees to provide coverage to you (and your dependents, if applicable) according to the terms of the policy. State laws provide for free look periods for most major contracts. The insuring agreement also contains the free look provision, which allows you to return the policy within a certain number of days, as specified by state law, to receive a full refund. The remainder of the policy contains the terms, conditions, limitations and exclusions of your policy. All these determine what exactly your policy will cover and when. 2 Summary of Benefits. If you look at no other section of your policy, please read this section! The Summary of Benefits tells you your lifetime maximum benefit (which applies only for grandfathered policies), calendar year deductibles for preferred providers and non-preferred providers, and the calendar year coinsurance maximum, or your out-of-pocket maximum. These numbers, more than any other, determine the true value of your coverage. Please note that although the Affordable Care Act prohibits insurers from putting lifetime limits on essential health benefits in any health plan or insurance policy issued or renewed on or after September 23, 2010, they can put limits on other benefits. After this information, the Summary of Benefits will list the services your policy will cover, with the deductibles and coverage percentages that apply to both preferred and non-preferred providers. Knowing what services your policy covers can help you avoid unpleasant surprises when you file a claim. You can use the Summary of Benefits to discuss any treatment plan with your healthcare providers, who might be able to modify a plan to ensure you have the needed insurance coverage. 3 Maximum Allowable Amount Disclosure. This portion of the policy discusses the

4 Health Insurance Life & Health Insurance Advisor June 2014 Maximum Allowable Amount, otherwise known as the usual, customary and reasonable (UCR) amount. Most health plans will limit the amount they pay toward any provider s charges based on the UCR amounts. Usual means the provider s usual charge for this treatment (i.e., she s not charging you more because you have insurance!), customary means customary for all providers in your geographic area, and reasonable takes into account the particular circumstances of your claim. If your insurer deems your provider s charges above the UCR amount, you could be responsible for the difference. You re more likely to run up against UCR charges in indemnity plans or when using an out-of-network provider. PPO, POS (point of service) or HMO plans negotiate fixed payment schedules with providers, so when you use an in-network provider who accepts your plan, he or she has likely accepted the insurer s fixed payment. Otherwise, you could be liable for charges over the maximum allowable amount. 4 Detailed coverage descriptions. Following the Summary of Benefits and Maximum Allowable Amount Disclosure, the typical policy will provide a detailed discussion of how you obtain services. It also contains further details (including definitions and limitations, such as number of covered visits) on the covered services listed in the Summary of Benefits. 5 Claim-Filing Information. When you use an in-network provider, he or she will generally bill your insurance company directly. When you use a non-network provider, you might have to file a claim with the insurer. This section tells you how to obtain a claim form and the types of information you will have to provide. 6 Other Coverage section. Nearly every type of insurance policy has a coordination of benefits provision, which addresses the order in which your policy will pay claims if you have other coverage that will also apply. Insurers use coordination of benefits provisions to prevent overinsurance, or situations where an insured will profit from filing a claim. 7 Third-Party Liability (Subrogation) Provision. Sometimes insureds can receive a settlement from a third party for injuries or illnesses that your health insurance policy covers, such as in an auto accident where you are not at fault. When this occurs, the insurer reserves the right to subrogate, or claim a credit against any settlement or recovery you receive. Subrogation prevents an individual from collecting for the same injury or illness twice; it also helps lower health insurance costs and ensures the party liable for injuries or illness bears the cost. 8 Grievances or complaints. State insurance laws require insurers to have procedures for handling policyholders grievances or complaints. This section applies when you have a complaint about the benefits you receive or the health care services your policy pays for. It also applies if you have a claims dispute, particularly if you think your policy should cover a claim that the insurer denies. This section describes how you file a complaint, the insurer s procedures, and how you can appeal a decision if the insurer s resolution is not to your liking. 9 Eligibility for Coverage. This section describes how to apply for coverage and who is eligible. If you have dependents, including a spouse, you will want to read this section carefully. Although the Affordable Care Act requires new health plans to cover your adult children to age 26, regardless of where they live or their dependent or marital status, this provision does not apply to grandfathered plans. 10 Premium and Grace Period. This section describes the payment terms of your policy, including due dates, information on rate changes, and grace periods. 11 Coverage Termination. This section describes how to cancel a policy. It also describes the circumstances under which your insurer can cancel your coverage. 12 Definitions. Most policies will include a glossary, or section that defines various terms used throughout the policy. State law affects many of these definitions. Taking the time to read and understand your health insurance policy allows you to take advantage of covered preventive benefits and could help you avoid unnecessary expenses when you need to access health services. For more information on what your plan covers, please contact us.

5 Life & Health Insurance Advisor June 2014 Avoiding Medical Identity Theft Risk Management Like financial identity theft, medical identity theft can leave you responsible for bills you did not incur. But unlike other types of identity theft, it can also affect your medical records, jeopardizing your health. It could even jeopardize your health insurance coverage. Medical identity theft occurs when another person uses your identity or insurance information to obtain medical services. Since the U.S. Department of Health and Human Services started keeping records in 2009, between 27.8 and 67.7 million Americans have had their medical records breached. By 2013, medical identity theft accounted for nearly half (43 percent) of all reported identity thefts in the U.S., according to the Identity Theft Resource Center. Victims of medical identity theft do not have the same rights and recourse as the victims of financial identity theft. Federal law limits liability for unauthorized credit card charges to $50, while your liability for unauthorized use of an ATM or debit card depends on how quickly you report the loss. But when your medical identity is stolen, no law limits your financial liability. If you discover fraudulent charges, you must clear your records and prove that the charges are not yours; until you do so, any bills remain your responsibility. A study by the Ponemon Institute found that more than half of medical identity theft victims had to pay for medical care they didn t receive to restore their health coverage them more than $22,000, on average. Fraud caused nearly half the victims to lose their health coverage, while one-third saw their premiums rise after the incident. Fewer than 10 percent were able to completely resolve the problem. The Federal Trade Commission ( recommends the following steps to prevent medical identity theft: Don t give out personal or medical information on the phone or through the mail unless you ve initiated the contact and you know who you re dealing with. Medical identity thieves may pose as employees of insurance companies, doctors offices, clinics, pharmacies, and even government agencies. If you keep copies of your medical or health insurance records, make sure they re secure, whether they re on paper or online. If you are asked to share sensitive personal information like your Social Security number, insurance account information or any details of health or medical conditions on the Internet, ask why it s needed, how it will be kept safe, and whether it will be shared. Read website privacy policies: They should specify how site operators maintain the accuracy of the personal information they collect, as well as how they secure it, who has access to it, how they will use the information you provide, and whether they will share it with third parties. If you decide to share your information online, look for indicators that the site is secure, like a lock icon on the browser s status bar or a URL that begins https. Remember that is not secure. Treat your trash carefully. Shred your health insurance forms and prescription and physician statements. It s also a good idea to destroy the labels on your prescription bottles and packages before you throw them out. Read any Explanation of Benefits you receive from public or private health insurers. If anything appears wrong, ask the insurer or provider.

6 Life & Health Insurance Advisor June 2014 Monitor your credit reports with the nationwide credit reporting companies Equifax, Experian, and TransUnion to identify reports of medical debts. If you discover medical identity theft, HIPAA, the Health Insurance Portability and Accountability Act, gives you the right to receive a copy of your health records and make any corrections. It also allows you to receive a notice that tells you how your health information may be used and shared, and a report on when and why your health information was shared for certain purposes. For more information on protecting your identity, both medical and financial, please contact us. When Life Happens, Accident Insurance Helps It s almost summer, the busiest time of year for hospital emergency rooms. Unintentional injuries spike, due to increased outdoor activities and sports, vacations, teens spending more time on the road, and kids spending their time outside the relatively safe confines of the classroom. If a family member needs to visit an emergency room due to accidental injury, your medical insurance will cover the claim. However, you re sure to have expenses that your policy doesn t cover, including deductibles, copayments and lost work time. Several different types of accident insurance can help you cover the costs of unintentional injuries. Accidental death and dismemberment (AD&D), one of the oldest types of accident insurance, will pay a benefit if the covered individual suffers death or dismemberment due to an accident. Most policies define dismemberment broadly as the permanent loss of use of a limb, and include coverage for loss of hearing or sight as well. Although accidents are the fifth leading cause of death in the U.S., AD&D policies seldom pay disability benefits, as they apply in only a limited range of situations. Accident insurance can cover a broader range of situations. Accident policies pay benefits according to a schedule whenever an insured experiences a covered event. Coverage varies by insurer, but many will pay claims for such benefit triggers as an emergency room visit or hospitalization due to accidental injury, concussion, laceration or broken tooth. Accident insurance provides only limited benefits and it does not cover illness, so it cannot replace your medical insurance plan. But it can help you cover those costs your health insurance doesn t cover, including deductibles and copayments, lost wages, travel and other expenses. Most policies cost very little, and they do not require a medical exam. For more information on accident insurance and other ways to supplement coverage under your medical plan, please contact us. SmartsPro MARKETING The information presented and conclusions within are based upon our best judgment and analysis. It is not guaranteed information and does not necessarily reflect all available data. Web addresses are current at time of publication but subject to change. SmartsPro Marketing does not engage in the solicitation, sale or management of securities or investments, nor does it make any recommendations on securities or investments. This material may not be quoted or reproduced in any form without publisher s permission. All rights reserved SmartsPro Marketing. Tel