Shelter Life offers no haven 20 years later

Question: In December of 1991, I bought a Shelter Life Policy with Jamaica Mutual Life Assurance Society. The premium was J$544.10 per month. My beneficiary would get J$300,000 when I died. I paid the premium for nearly 20 years and only took J$25,000 and J$12,000 from the policy. Now I am told that I have four options to keep the policy relevant. One is that I pay about three times the monthly premium in order for my beneficiary to get the J$300,000 sum insured at the time of my death. Another is to continue to pay the same amount per month and my beneficiary will receive a vastly reduced amount. I am perplexed. The company has gone back on the contract. It is now telling me that I cannot get any more money for what I have paid. I feel that I have been robbed of a considerable amount of money. What can I do?

HELP-LINE: Jamaica Mutual was one of the island's oldest commercial institutions. One of our National Heroes - George William Gordon - was said to be among its founders. It was also one of the life insurance companies that disappeared during the local financial meltdown that occurred during the mid-1990s. Many of that company's policy obligations were sold to another entity.

I contacted the customer service manager of that company to get more information about your case. Here is what she said: "This policy was designed as a Universal Life Plan where the death benefit payable under the policy comprises the basic sum insured, plus the accumulated fund value. This benefit is funded by the premium payments, a portion of which goes to building the fund value. In later years, the premium payments, together with the fund value, may be required to maintain the coverage.

"Our recent analysis of some of these policies indicates that at the current premium rate, the fund value is unlikely to remain positive for the remainder of the lifetime of the client. Should the fund value become negative, the policy will be terminated under the provisions of the policy contract, even though the premiums may be up to date. In order to avert the premature termination of the policy and secure the benefits therein, (the company) has provided four options to the clients which will allow them to extend the life of their policy contract(s).

"Where this is unaffordable, we have been asking the respective clients to visit us so that the options can be specifically tailored to each individual, (we have) asked (the policyholder) to make contact with us."

The fact that you paid J$130,854 in premiums over the course of 20 years, those premiums earned interest, and you received J$37,000 in accumulated fund value and now feel robbed does not appear to be a big thing. This conclusion is based on the nearly 200 words the company used in its response. Do you understand the nature of the problem that affected your policy? The answer to this question appears to be of little concern. Exercise one of the four options the company offered or, in words attributed to a former prime minister, forget it!

Thousands affected

The problem that you have has affected thousands of buyers of universal life insurance buyers in Jamaica and elsewhere. It has taken place over the course of many years. In August 2004, I wrote a three-part article about the problem: 'Were buyers of universal life insurance duped?' Almost five years later, I wrote the second. This was in response to a question posed by a 70-year-old reader. Its headline was: 'Taken for a ride on my universal life policy?' The editor quite brilliantly captured the gist of my response. He/she placed the photographs of two jackasses standing in an empty field below the headline.

According to your insurer's representative, the company's actions are consistent with your policy. I am not familiar with the terms of your contract. Here are a few excerpts from the contract of another local insurer, whose policy I studied in 2004, that I believe are relevant to your case:

• 1 If the total number of units allocated to the policy is reduced to nil or becomes a negative figure, this contract shall terminate forthwith;
• 2 At each policy anniversary, the policyholder may increase the basic sum insured in force without medical evidence of health;
• 3 Following an increase or decrease in the basic sum insured ... the basic minimum premium will be increased or decreased as appropriate by an amount to be determined by the company;
• 4 The company reserves the right to increase the policy fee to the level of that applicable to new policies of this plan of insurance;
• 5 None of the benefits under this clause are guaranteed in monetary terms but will fluctuate with the market values of the assets of the funds;
• 6 A management charge shall be deducted each month for each fund. The charge, which may be adjusted from time to time by the company, taking into account such factors as it, in its absolute discretion, considers appropriate;
• 7 The total basic premiums are payable on the due dates as specified and except to the extent provided elsewhere in the policy, continue to be payable until the death of the life insured.

What happened in your case, I suspect, is similar to those of thousands of other buyers. The company made a number of guesses about how much it would earn on the premiums it collected from the sale of this product. Some of those guesses were used in sales literature to persuade persons like you to buy the policy.

The actual earnings on the premiums over the years have turned out to be less than the insurer had guessed, hence the negative fund value.

The sale of universal life insurance products was conducted by persons who were regulated by the state. The policies were marketed by companies that had the regulator's seal of approval. However, many buyers — you included — were unaware that they carried all of the investment risks.

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