NML Dividend Misrepresentation

[Bill Boersma]

I have a client who purchase a few NML policies a handful of years ago. Though the dividend at that time was only five point something the agent kept referencing 8%. I'm familiar with these "tax equivalent" tricks. When the client asked for something more conservative the agent provided him with something that he termed a "worst case scenario" which was a ledger assuming a 5.0% dividend. Evidently he doesn't understand what worst case scenario means when NML was BELOW that a handful of years later.

Of course the client saw this as a 300 basis point spread rather than the 85 point spread it really was so he was left with a very different understanding his risk. His dividends are supposed to be paying his NML LTC premiums which can't because the dividends are down AND the LTC premiums are up.

Any comments are recommendations as to a course of action? Thanks.

 

[DHK]

Unfortunately, I don't see any real course of action available. I assume (I hate that word) that these policies are past a period of legitimate complaint with the company? (Isn't that a 3 year period?)

Premium offset with policy values is an old strategy that certainly wasn't meant for low interest rate environments, like we're in now. And his "performance selling" was based on selling his COMPANY rather than truly advising the client.

"NAIFA Live" just did an on-demand webinar on the "tricks and traps of life insurance" last month. Of course, the point was made that any funding below the target/maximum premiums is introducing more and more risk into the policy and plan.

 

[Mr_Ed]

I have a client who purchase a few NML policies a handful of years ago. Though the dividend at that time was only five point something the agent kept referencing 8%. I'm familiar with these "tax equivalent" tricks. When the client asked for something more conservative the agent provided him with something that he termed a "worst case scenario" which was a ledger assuming a 5.0% dividend. Evidently he doesn't understand what worst case scenario means when NML was BELOW that a handful of years later.

Of course the client saw this as a 300 basis point spread rather than the 85 point spread it really was so he was left with a very different understanding his risk. His dividends are supposed to be paying his NML LTC premiums which can't because the dividends are down AND the LTC premiums are up.

Any comments are recommendations as to a course of action? Thanks.

1) Has your client had a rate increase? If so, how much?

2) In which state did your client reside when he/she purchased the policy?

3) What was the effective date of the policy?

 

[Tahoe Ray]

1) Has your client had a rate increase? If so, how much?

He's talking about a whole life policy in this thread (vs the LTC one) so I am going to guess in this respect, 0%.

 

[Newby]

When the agent explains “worst case scenario” it is implying to the client that he is explaining the GUARANTEED projection. Since the worst case IS guaranteed to be the worst case.

The guarantee would be zero dividends.

 

[Bill Boersma]

When the agent explains “worst case scenario” it is implying to the client that he is explaining the GUARANTEED projection. Since the worst case IS guaranteed to be the worst case.

The guarantee would be zero dividends.

Exactly. Which is one of the multiple misrepresentations in this situation. But how does a client get the complaint to stick? The carrier model to deal with a complaint is as follows. Steps 1, 2 & 3: Ignore it. Steps 4, 5 & 6 we did an investigation and we disagree.

The issue is that no one can afford and risk suing a carrier over a $300,000 policy and the agent simply says he didn't say such things. What is an effective path to fixing things? Or are we simply in a world where might makes right and policy owners have to suck it up when they get hosed?

 

[Bill Boersma]

He's talking about a whole life policy in this thread (vs the LTC one) so I am going to guess in this respect, 0%.

Yes, I am talking about the NML whole life misrepresentation. However, the dividend decreases does result in an increased premium for the adjustable complife product.

 

[Bill Boersma]

1) Has your client had a rate increase? If so, how much?

2) In which state did your client reside when he/she purchased the policy?

3) What was the effective date of the policy?

He has had both his LTC premiums and whole life premiums increase. This is a Michigan case from 2012.

 

[Tahoe Ray]

Yes, I am talking about the NML whole life misrepresentation. However, the dividend decreases does result in an increased premium for the adjustable compile product.

Apologies. I thought that you were talking about one of their traditional WL plans (which wouldn't have premium increases), not CompLife.

 

[Allen Trent]

Exactly. Which is one of the multiple misrepresentations in this situation. But how does a client get the complaint to stick? The carrier model to deal with a complaint is as follows. Steps 1, 2 & 3: Ignore it. Steps 4, 5 & 6 we did an investigation and we disagree.

The issue is that no one can afford and risk suing a carrier over a $300,000 policy and the agent simply says he didn't say such things. What is an effective path to fixing things? Or are we simply in a world where might makes right and policy owners have to suck it up when they get hosed?

All illustrations & policy contractual information & annual statements that I have seen are pretty clear that dividends are not guaranteed to be any rate or even paid. I am not a big fan of NWM, but most clients of theirs did much better than many carriers the last 10-15 years. I believe their dividend scale stayed higher for a longer period as they had went long in the bond market back in the 1980s, buying more 30 year treasuries, etc when most carriers held much shorter durations. I may be wrong about that, but it always seemed like their dividend scale had stayed higher from say 2000-2015 as many other carriers had dividend reductions