Nearing 100, Wisconsin Woman Finds The Insurance Money Is Gone

[This post has been updated]

Lorraine Guenther, 98, of Milwaukee, says she thought she had a deal with Minneapolis-based Thrivent Financial when a couple of insurance agents came to her Lutheran church when she was in her 60s.

“The men would come to church and talk to us and we knew them as friends. The man who prepared it for us was a friend of my husband’s,” she tells Jim Stingl, of the Milwaukee Journal Sentinel. “It’s your church that’s doing it so you do feel comfortable.”

So she’s paid her premiums, anticipating that when she dies, there’ll be enough money for her survivors to have her buried and sent off properly.

Now, she’s finding out, there’ll be no money. She outlived it.

Though the policy is supposed to “mature” when she turns 100, the company has told her its cash value has dwindled away to nothing and the death benefit will expire this year.

The agents are, no doubt, dead now. So is her husband, who bought the policy, so Thrivent put her in touch with a new agent.

“He said, ‘The Lord has been good to you and has allowed you to live all these years,’ ” she said.

“I’m very grateful. Thank you, mister,” she replied. “But I still expected to get my money when I passed away so I could be buried.”

She figures she’s put $20,000 into premium payments so far, although the numbers in Stingl’s column don’t quite add up because she says her premium was only $500 a year.

Thrivent wouldn’t talk to Stingl, he says.

I contacted Thrivent to see what’s going on here.They asked me to submit questions by email, which I did, ending with this one: Is this fixable, or just a cautionary tale?

A statement from Thrivent Thursday says a policy like Lorraine’s offers no guarantee of coverage until age 100. Notices are sent to customers to let them know how long their policy is expected to last, based on the premium, current interest rates, policy costs and the cash value. Low interest rates like we’ve seen in recent years may lead to higher premiums or earlier lapse dates.

“Members have a wide variety of life insurance products available to them. A life insurance contract for a 67-year-old female that guarantees coverage until the age of 100 would have a significantly higher premium, exceeding $1,200 a year, compared to a product with flexibility,” the statement says.

“In my words, they’re penalizing me for living,” Guenther said. “I hope nobody else takes out that policy because they’re going to have the same problem I’ve got right now. When they need it, it won’t be there.”

According to Thrivent, the policy was a universal life policy.

A universal life insurance policy provides policyholders with cash value and minimum interest rates that are guaranteed. Universal life insurance also allows flexible premium payments and uses the cash value of the policy to pay policy expenses. If interest rates were high at the time of purchase and then lower over time, universal life policy holders may have to pay higher premiums to offset lower interest returns or face earlier lapse dates as the cash value of the policy can no longer cover the costs of the policy. If interest rates rise during the time the policy is in force, premium amounts might be lower. Policy holders have an option to pay more toward their premiums if it appears lower interest rates will affect the lapse date of the policy.

Those who purchase this type of policy receive statements with updated information based on premiums paid, current interest rates, policy costs and the cash value of the policy. They also receive information regarding how long their policy is projected to last based on their insurance contract and its level of funding with their current premium payments. The purpose of these communications is to keep policyholders informed on a regular basis so they can take steps to protect their insurance coverage if the projected longevity does not meet their needs.

In a statement, Thrivent says Guenther was incorrect when she said she paid premiums every year.

Thrivent has record of the following ongoing communication with Ms. Guenther regarding her universal life insurance policy:

o In 1999, a Thrivent Financial representative had a detailed meeting with Ms. Guenther explaining how the universal life insurance contract operates, the status of her universal life insurance contract, and a review of her annual statements. In response, Ms. Guenther chose to make a premium payment adjustment to continue to fund the universal life policy rather than choosing different product options available to her at the time.

o In May 2011, Thrivent sent quotes to Ms. Guenther on alternative insurance programs to resolve the potential lapse issue prior to age 100. Despite receiving options that would have allowed her coverage to last longer, but she did not make any adjustments to her policy.

o Since 1999, annual statements to Ms. Guenther contained language indicating the projected longevity of the contract. For the past several year, the following language was included on the first page of her annual statement: “This contract is estimated to terminate without value at age [the specific age less than 100], which is prior to the contract’s Maturity Date. The estimate is based on the current cost of insurance charges, and any payment of planned premium or loan repayments. You may want to increase your premium payments to maintain your cash value and coverage. The billed premium amount will not be increased without your instruction.”

o Ms. Guenther has had numerous meetings with Thrivent Financial representatives over the years to discuss her insurance products, including product illustrations showing how long her contract was projected to last (using guaranteed and current interest rates.) These illustrations indicated the contract would not last to her age 100.

Further, Thrivent has been informed by the Wisconsin Office of the Commissioner of Insurance that they have closed a complaint file on this matter after reviewing Ms. Guenther’s contract and premium payments.

It is important for insurance policyholders to review their policy information on a regular basis to ensure they understand the benefits and risks of the policy. Annual statements provide updated information based on current interest rates and the insurance contract benefits, as well as anticipated contract longevity based upon current assumptions. Sharing policy information with loved ones and/or caretakers can also help minimize confusion about policy updates and benefits.

I used to sell policies like this when I was in the insurance business back around the time her husband bought this policy (I didn’t work for Thrivent).

Here’s what probably happened: Her husband was probably shown a chart that showed what the cash value would be over the life of the policy. Cash value is made up of a percentage of premiums paid and the dividends that the insurance company pays out.

Dividends were lot higher back then, so the chart probably included the fine print that it’s no guarantee of future results.

To keep premiums lower – and to get the sale – insurance agents would offer the option of using the policy’s cash value to keep the life insurance in force. This decreased the odds that a policyholder would later call and say, “my premiums are too high; the kids are grown. Let’s cash in this insurance policy.”

Encouraging policyholders to keep the policy is important because every year, the agent who sold the policy gets commission on the policy, even years after he/she sold it. Theoretically, this also encourages the agents to keep providing service and communication to the policyholders.

And that works great for policyholders and agents, until the cash value – thanks to premium payments and declining dividends – dry up.

This policy dried up.

As savings plans, life insurance is a lousy tool, even though they’re often sold as forced savings. At their core, policies are a bet you make with an insurance company that you’ll get more money from them, than they get from you.

Insurance companies rarely lose that bet.

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