Certificate Vs. Policy

[MattNewbie]

I see that the fraternal orgs offer CERTIFICATES and not policies. There is a thread here where somebody says they are NOT the same, well can somebody explain the difference?

 

[Newby]

I see that the fraternal orgs offer CERTIFICATES and not policies. There is a thread here where somebody says they are NOT the same, well can somebody explain the difference?

A policy is a closed contract. Neither party can change the terms of it.

A certificate is not. If you read the certificates issued by a fraternal (or your agent guide) you will find that the company can take money back from the certificate IF they need to.

In some states you are required to have them sign a disclosure form that they know the difference. In all states the agent is supposed to be aware of it.

With a strong fraternal, it is very unlikely that they will ever have to do that. If the economy changes for the worse, they will reduce the non-guaranteed fraternal benefits (Foresters did this 4-years ago), raise premiums (Foresters also did and RNA is rumored to do it soon), tighten underwriting (also done) to prevent getting anywhere near a financial situation where they would have to excercise the right to take money back from the members certificates.

But the fact that they CAN do it is a strength and weakness of fraternals.

Group insurance has certificates also. The bad part of those is that they can be canceled by the policy holder (the employer) at any time. If the employees had an actual policy they would be better off. Group life insurance gives employees a false sense of security in my opinion.

AARP/New York Life issues group certificates rather than policies. It says in the fine print that the policy holder (AARP) can cancel the certificates. They could not do that if they issued policies.

With certificates you have to place your trust in the policy holder. Many people trust their employer, AARP or their fraternal organization to always do the right thing. Most don't even understand that they have given them the option not to.

I am very, very conservative. I always look for iron clad guarantees. I believe some fraternals are very reputable. I don't think AARP is going to upset their money train. I don't have much faith in employers. But I prefer to not have to trust any of them.

 

[rousemark]

A policy is a closed contract. Neither party can change the terms of it.

A certificate is not. If you read the certificates issued by a fraternal (or your agent guide) you will find that the company can take money back from the certificate IF they need to.

In some states you are required to have them sign a disclosure form that they know the difference. In all states the agent is supposed to be aware of it.

With a strong fraternal, it is very unlikely that they will ever have to do that. If the economy changes for the worse, they will reduce the non-guaranteed fraternal benefits (Foresters did this 4-years ago), raise premiums (Foresters also did and RNA is rumored to do it soon), tighten underwriting (also done) to prevent getting anywhere near a financial situation where they would have to excercise the right to take money back from the members certificates.

But the fact that they CAN do it is a strength and weakness of fraternals.

Group insurance has certificates also. The bad part of those is that they can be canceled by the policy holder (the employer) at any time. If the employees had an actual policy they would be better off. Group life insurance gives employees a false sense of security in my opinion.

AARP/New York Life issues group certificates rather than policies. It says in the fine print that the policy holder (AARP) can cancel the certificates. They could not do that if they issued policies.

With certificates you have to place your trust in the policy holder. Many people trust their employer, AARP or their fraternal organization to always do the right thing. Most don't even understand that they have given them the option not to.

I am very, very conservative. I always look for iron clad guarantees. I believe some fraternals are very reputable. I don't think AARP is going to upset their money train. I don't have much faith in employers. But I prefer to not have to trust any of them.

+1 Well said... .

 

[deadhead]

So can they raise premiums on current insureds?

 

[Newby]

So can they raise premiums on current insureds?

No. They can require that all fraternal members pay money in to bail out the company (members helping members). The way they would actually do it is to take loans against the cash value of everyone's certificates.

 

[deadhead]

Kinda makes one hesitant to sell a fraternal

 

[Newby]

Kinda makes one hesitant to sell a fraternal

Most of them have never had to resort to that in over 125 years. But the fact that they could makes people a little nervous.

I would be more concerned with someone canceling the sale and buying elsewhere than the fraternal actually having money problems. I have four Fraternals. I rarely sell them. I have no problem with agents who mainly sell them. People don't all like the same things.

 

[GoCubsGo]

Fraternal's can't reduce a death benefit and they can guarantee premiums will not change.

As I understand it they can take money from a cert holder to make up a shortfall in their reserves. Reserves are a percentage required by law. A shortfall could trigger it. Now if it's a tend down they can do things to reverse the trend before going to cert holders but something sudden wouldn't be totally out of the question. May not be likely but not out of the question. We have seen bigger surprises over the last few years.

 

[gordon112]

The ratings or having a policy vs a certificate is usually not much of a big deal to be concerned about. There is plenty of great companies like RNA that have a much better track record then some A rated companies that some thought where in good financial shape like AIG.

The real question should be, do you want a privately held company or a public one where investors have a bigger say?

 

[Mah]

A policy is a closed contract. Neither party can change the terms of it.

A certificate is not. If you read the certificates issued by a fraternal (or your agent guide) you will find that the company can take money back from the certificate IF they need to.

In some states you are required to have them sign a disclosure form that they know the difference. In all states the agent is supposed to be aware of it.

With a strong fraternal, it is very unlikely that they will ever have to do that. If the economy changes for the worse, they will reduce the non-guaranteed fraternal benefits (Foresters did this 4-years ago), raise premiums (Foresters also did and RNA is rumored to do it soon), tighten underwriting (also done) to prevent getting anywhere near a financial situation where they would have to excercise the right to take money back from the members certificates.

But the fact that they CAN do it is a strength and weakness of fraternals.

Group insurance has certificates also. The bad part of those is that they can be canceled by the policy holder (the employer) at any time. If the employees had an actual policy they would be better off. Group life insurance gives employees a false sense of security in my opinion.

AARP/New York Life issues group certificates rather than policies. It says in the fine print that the policy holder (AARP) can cancel the certificates. They could not do that if they issued policies.

With certificates you have to place your trust in the policy holder. Many people trust their employer, AARP or their fraternal organization to always do the right thing. Most don't even understand that they have given them the option not to.

I am very, very conservative. I always look for iron clad guarantees. I believe some fraternals are very reputable. I don't think AARP is going to upset their money train. I don't have much faith in employers. But I prefer to not have to trust any of them.

Wow this is a great info...I just got my material from RNA...and I was wondering how certificate differs from policy.