Fraternal Organization Annuities

[JFBAgent]

Larry,

Insurance company contracts are NOT open-contracts. This concept of being able to change terms of the signed contract after the fact is something that fraternal societies can do that an actual company can't.

Hence my example of the fraternal society that assessed a lien on policyholder's accounts.

Part of the reason I won't sell a fraternal society benefit is because of the guaranty association issue. There are too many of these little societies running around selling life and annuity. Many don't even bother to release their financials in the literature because they suck. If they do go bust, the guarantee associations don't step in and NO ONE is going to want to buy them because of undisclosed/small/weak financials. Bad situation IMO.

The other reason is contract law. As a professional, I broker contracts between a company and a consumer. Fraternals DO NOT have to hold to the contract. They can change the policy terms years after the issue date. Even the big fraternals (Woodman, Thrivent) have done this and reserve the right to do it in the future. Oh, and Woodman and Thrivent can't be taken to court for it either - contract law.

 

[Larry Tew]

Larry,

Insurance company contracts are NOT open-contracts...

Re-read my post. I didn't say insurance company contracts were open. I said that fraternals are open. And to put things in perspective, how many people insured by fraternals have lost benefits compared to non-fraternals? The only company I was ever affiliated with who went into receivership was Kentucky Central in the late 80's. They were an A+ company on the move, but had gotten so enamoured with their rise to prominence that behind the scenes, they were making decisions that were unsustainable financially. Then there was Executive Life, Reserve Life, and even General American from St. Louis. All the people insured by these companies were EVENTUALLY made whole, but the stress and discomfort during the process was substantial. I would rather put clients in an A+ fraternal than some of the B-rated non-fraternals out there. I would always avoid the small weak companies of either type. Finally, being "covered" by the guaranty association is not a guarantee of immunity. However, I do believe that a company's financial position is the most important thing to consider... much more so than policy illustrations, dividend history, or yes... even commissions.

 

[JFBAgent]

I agree with most of what you are saying except that even some A+ fraternals (think Thrivent) have changed terms of contracts on people, because they have the right to. And in dire economic circumstances they may very well again.

That's why I don't write fraternals. Nor do I write anything less than an A rating on an insurance company.

 

[Norwayguy]

Fraternals definitely do NOT participate in the state guarantee funds.

I called the KY state insurance commissoner's office a couple of years ago to ask if that is a concern when choosing companies to sell. They said that an agent should NEVER consider the state guarantee funds in any of his decisions and if he mentions their existance to clients he can lose his license. No company is guaranteed to be "bailed out" by the state guarantee funds. Most have to pay into it but in a huge financial crisis they would not all be rescued by it.

He said any agent that uses the existance of the state guarantee funds to make sales or to persuade a client to choose one company over another is misrepresenting his products and can have action taken against him.

Maine takes that approach as well.....However when UCT was selling Med Supps in my state the State came out and bashed the agents that they were NOT disclosing the fact that UCT as a fraternal was not covered by the State Guarantee Fund....Great double standard.