Tuesday, December 11, 2007

An Enigmatic Conundrum

Group term life insurance is the ugly stepchild of "real" life insurance. Typically sold as part of a group medical plan, it pays a minimal amount (often multiplied in the case of accidental death) and is owned not but the insured, but the employer (who has the right to cancel or change the plan).
Which is not to say that GTL is a bad or unnecessary thing; simply that it is a poor substitute for personally owned life insurance.
So what brought that on?
Well, even though GTL is not my favorite product, it does serve a very important purpose: for many, it is the only life insurance they own. For these folks, it may actually mean bread on the table for the family they leave behind.
There's one other interesting difference between "regular" (underwritten) life insurance and GTL, as well: terrorism coverage. Almost all* individual life policies have clauses about war and (especially) "acts of war" which could be a problem in the event of a terrorist attack.
Most GTL plans lack this distinction.
Which brings us to the conundrum:
At least according to the text of a new terrorism bill being debated in the House. The challenge is that carriers face huge losses, many of which are apparently not reinsured, in the event of another 9/11. By placing the treasury of the United States as a "backstop" against this kind of loss, it lessens the likelihood of any one (or several) carrier from going down the tubes. And that would be important to the beneficiaries, those left behind.
On the other hand, this is the nature of business, and particularly the insurance business: risk management. If the risk of terrorism is of concern (as it obviously should be), then it seems to me that the industry is obligated to come up with solutions on its own. It shouldn't count on the gummint (which is to say, the taxpayer) to bail out carriers who made poor choices.
No easy answers.
*I'm not aware of any that don't, but there may well be.
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