Fine print can trip up insurance policyholders (continue)

The man could potentially forfeit about $4,000 of fund value if he held the policies of two other companies. These companies would not answer the survey or confirm the figures.

Cappon, of First Rate Insurance Inc., argues that the general descriptions in sales literature and the technical wording in policy contracts do not always highlight the restrictions of some policies explicitly enough. He would like to see provincial regulators investigate.
A spokesperson for the Financial Services Commission of Ontario invites consumers to raise their concerns if they feel they have been dealt with unfairly. "If we have specific examples, we can act," Brian Donlevy says. "But consumers should always ask questions if they do not understand."
Consumers know they will lose their coverage if they cannot pay their premiums for auto insurance, term life insurance or traditional whole life insurance (if they haven't already paid premiums for several years).
But the public perception — which is justified in the case of many companies' policies — is that universal life offers more flexibility.
Insurers promote the fact that policyholders can increase, decrease or skip payments, within limits.
They can also increase or decrease the amount of coverage, add additional lives or switch lives insured by a policy and choose between a number of investment options.
Consumers were captivated by policy illustrations, which assumed investment returns that have quickly proved unrealistic.
They were persuaded that a universal life policy was the most economical way to provide an estate for their heirs.
Most buyers did not contemplate having to skip premiums in the early years of the policy, or cancelling altogether. But the flexibility to do so would see them through an unexpected decline in income. When Cappon's friends suffered a drop in business income, they asked for advice. He suggested they should arrange with their broker to temporarily skip payments on their policies.
The husband and wife had built up thousands of dollars in fund value — money in excess of what was needed to cover the cost of insurance.
So Cappon and the broker who sold the policies to the friends thought they would be fine.
It came as a shock to both insurance specialists when the couple got a notice that their policies were about to lapse.