Ethics & Insurance: What Your Insurer Thinks of You

Quarterly meetings are blasé affairs in corporate America. When you have 40,000 employees reaching each of them personally is impossible. Those in charge summon the masses for slide show presentations aimed at showing the peons what a great job they do.

Designed to be motivational, the quarterly meeting can instead be depressing, especially when the chief financial officer inadvertently calls on employees to celebrate the death of a customer.

Insurance Company X sold immediate annuities to policy holders like yourself. We earned and lost money on two factors, the timing of death and length of people’s lives.

Here are three ethical questions that are raised when profits are made from death:

Do insurance companies really applaud life and death?

The answer unfortunately is yes. Some years ago during a Company X quarterly meeting an ethical dilemma was posed to about 500 employees. During a typical gala one of our executives made a rather insensitive declaration.

Pointing at our increased profits that quarter, he jokingly thanked “the immediate annuity contract holder who passed away, just one month after buying a $14 million dollar policy.”

The annuity contract he referred to was an immediate annuity, which are essentially insurance policies that guarantee a lifetime income after a certain age. The problem for this unfortunate client, was that the immediate annuity he purchased left no death benefit to his beneficiaries. He essentially handed Company X millions just before passing and never collected from the income portion of the contract.

I hope, for his sake, this wasn’t his lone investment.

Those of us who worked with immediate annuities eight hours a day, five days a week, knew exactly how we benefited from the misfortune. Awkward glances were exchanged as I caught the eye of bewildered co-workers in the know.

How can I trust an industry that profits from my death?

Many of us have professional advisers who look carefully after our money and long term interest. The sad fact, though, is some of us don’t.

Let this tale be a lesson to you. Be cautious with your investments. Don’t be the next person whose death is celebrated after the fact by heartless insurance moguls.

Get multiple opinions. Don’t trust your financial future to just one adviser or company. Don’t be afraid to rock the boat and ask questions about commission and fees. After all, it’s your money.

Why would I purchase an annuity if I stand to lose money upon death?

Good news! Not all annuity contracts are as risky as immediate annuities. Most sound financial advisers will only invest a portion of your portfolio into annuities.

What type of annuity is for you? That depends on your risk acceptance. Here are the two most basic types:

·   Fixed annuities

Fixed annuities offer small growth at a set interest rate. Almost every fixed annuity contract offers a guaranteed return of premium (to you or beneficiaries) so it’s impossible to lose money in a fixed annuity. Again, be sure to hammer out these details with your financial adviser.

·   Variable annuities

Variable annuities are more risky. You could lose money in a variable annuity contract because they’re market based; meaning if the stock market tanks, you could lose some of your investment. The flip side is variable annuities offer the potential for more growth. If you invest funds intelligently and catch a little luck, you can make money with a variable annuity.

Finding the proper financial fit is vital to your relationship with an insurance company or financial advisor. Know what you’re getting into before you become the next subject of Company X’s quarterly meeting. 

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