What I don't understand is why some companies contest ROP plans? Wouldn't just paying the 10% be cheaper than having to pay someone to review their medical records?
Golden..
- Thread starter NuUzr
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What I don't understand is why some companies contest ROP plans? Wouldn't just paying the 10% be cheaper than having to pay someone to review their medical records?
- 4,307
I've had graded policies that were contested, but never a ROP that I can remember. Has that happened to you? What companies?
I have had claims investigated that occurred during the contestable period but have never actually had a claim "contested" which is legal term meaning that the company disputes the claim. The company makes the decision to contest or not based on what the investigation reveals.
- 4,307
I guess that's what I'm saying. I've never had a ROP policy investigated that I know of. If there are companies that do that, I agree with Rirwin that it doesn't make much sense.
Other than a company has a legal obligation not to pay unjust claims.
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It also just occurred to me that not all of the ROP plans are guaranteed issue. So, for example Settlers Bronze asks about HIV/AIDS. If that question is answered no when it should have been yes, the policy is rescinded. The bene still gets the premium refund, just without the 10% additional. But the agent gets charged back 100% of all FYC & renewal commish. So, yeah, I can see where the company might find it worthwhile to investigate.
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A couple of reasons why a company might want to "investigate" an ROP policy within the first 2 years: 1. They want to make sure it wasn't an accident where they would have to pay out the full face amount. 2. They want to make sure there wasn't a lie on the app. If there was they would only get premiums returned, not premiums +10% or 20%.
- 15,041
1. Only an issue if the cause of death is listed as an accident. A rarity I suspect.
2. That is a dangerous road to go down. The company risks getting a bad reputation within the industry and the public as a whole. Also, it is very easy to spend more researching it than they are saving on interest. Plus, if they don't get to rescind, they also owe interest for the time spent researching. I doubt financially it would ever make sense unless it gives them the ability to chargeback commission they otherwise would not. Which again will get the company a bad rep in the industry. Even then, it could easily cost the company more versus just paying.
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Sad case, but many companies would look at the cash outlay and evaluate their potential loss on the case... if the investigation fell in a gray area, the DB would play a large part in the decision. It's a business...
- 15,041
It is always a business decision.
My point is, the 10% or 20% is roughly what it would cost to investigate and quite often less.
For instance, let's assume the annual premium was $1000 and the company was paying 20% on top and the person died a day before 2 years. So we'll round to $400 in addition to the return of premium. Well, what does one APS cost, maybe $50 to the doctor's office plus a fee to EMSI or whomever chases it down, so at least another $50 to them. What if you need more than one APS, what if it takes EMSI a long time to get it? You can easily spend that $400 on APSes. Plus the time employees spend reviewing it.
Now, you also get to chargeback commission for a rescission, which you may or may not for early death. Assuming it was 80%, then that is another $800. So you save $1,200 if you can deny the claim. But how much of that $1,200 will you spend to determine if you can deny it? How often will you be right? And how much damage will you do to your brand by investigating and denying ROP claims?
