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Is it OK to have four death insurance contracts?

Published:Sunday | April 1, 2012 | 12:00 AM

Insurance Helpline With Cedric Stephens

Question: In 1999, I took out death insurance for my wife and myself. Several years later, I found out that our daughter bought similar coverage with the same company on both our lives. I have since learnt that a claim will never be paid under the four policies in case of the death of my wife and me. Is this true? Can we get back our money on two of the policies?

- J.R.C., Kingston 10.

HELPLINE: I was uncertain how to answer the two questions you posed. I grappled with them for weeks. Also, I was unfamiliar with the term 'death insurance.' I had an idea about the type of coverage you had bought.

As is now the norm for me nowadays, I typed that phrase in my favourite search engine. Thanks to Dayna Noffye, a contributor to eHow - http://www.eHow.com - I learnt that it is old and accepted way of describing a special kind of life insurance. That type of coverage provides a cash benefit to survivors upon the death of the insured person. The funds are used mainly to pay for funeral and other 'final' expenses.

The questions are complex and technical. Do our laws permit 'double' insurance on the lives of persons? What do the four contracts of insurance actually say about this? Would you get a premium refund if you cancelled the two policies you bought in 1999 with effect from the commencement dates of the policies your daughter bought?

Since I have not seen those documents, it is not possible to offer a precise opinion.

I asked a top official of one of the leading companies that sell life insurance to help me. Perhaps because he is in marketing, he gave a sales spiel. He wrote: "... generally speaking, the company would have to fulfil all the obligations under the contracts issued to the clients. We do not have the details of the various policies, numbers and contract types; however, I am confident that if (Company XYZ) ... issued these contracts all benefits would be paid when they become due."

When I visited the marketing guru's company website, I found a policy that closely matches what I believe you bought for you and your wife. The insurance "provides money (tax-free) to cover financial obligations, funeral expenses and ... critically needed financial help while (the insured is) alive!" Benefits will also be paid in the event of "a serious accident" to cover the cost of "hospital and medical treatment, disablement caused by the loss of a limb or on the diagnosis of a specified terminal illness."

Life insurance contracts - including those that you and your daughter bought - are age-sensitive. Premiums tend to increase with age. This means that the premiums on the policies that your daughter bought are probably higher than those on the two policies that you purchased in 1999.

On the other hand, depending on your financial situation, it could turn out that the premium that you are now paying could represent a bigger share of your income, especially if you are living on a fixed income.

Conversely, it is also possible that the premium your daughter is paying is a small fraction of her regular income.

The first step in the process of resolving this problem is to enter into conversation with your daughter. One of the aims of that discussion is to decide whether it makes sense to continue the four policies or to cancel two.

Those talks should take place within the context of the functions that the insurance should perform.

The second task is to examine the contracts to see if there are any provisions relating to double insurance and what will happen in the event of cancellation. This advice can be summed up in a single word: preparation.

Contact the insurance company's customer service department after you have completed your homework. The purpose of that exercise is to discuss your plans with the CSR and to seek their advice and guidance before you make a decision.

Bear in mind that life insurance companies are selling machines. Some resistance should therefore be expected if you or your daughter were to tell the CSR that it was your intention to discontinue two of the four policies.

Do not forget to send an email or letter to the company to confirm your decision at the end of your conversation.

Finally, I sincerely hope that it is now clear to you why I have studiously avoided offering any comments about whether the insurer could legally avoid paying the proceeds of the four policies. I do not have any information.

Cedric E. Stephens provides independent information and free advice about the management of risks and insurance.aegis@cwjamaica.comSMS/text message to 812-7233