Help a client who’s lost insurance paperwork

The expert

Lawrence Ian Geller, president of L.I. Geller Insurance Agencies Ltd. in Campbellville, Ont.

Client profile

In-Kyung Choi, 48, is an anchor for a local news station in Halifax. Retirement’s almost 20 years away, but she’s recently changed advisors because she felt her assets weren’t producing adequate returns. Her new advisor asks her to do an asset inventory as part of the planning process.

The exercise jogs her memory. Her late father had mentioned a life insurance policy he took out on her when she was born. Problem is, she doesn’t know which company issued it, how much it’s worth or if it’s still active. The policy could have significant cash value, so In-Kyung’s determined to track it down.

The problem

Insurance regulation in Canada is highly decentralized, so there’s no single database of policies and policyholders, notes Lawrence Ian Geller, president of L.I. Geller Insurance Agencies.

In-Kyung’s first step, he says, is to search her father’s files for the original paperwork. Unfortunately, her efforts yield nothing.

Next, she should look for bank records that show premium payments. She finds the records, but they’re sparse and there’s no sign of payments.

6

Degree of difficulty

6 out of 10. A lot of the difficulty falls on In-Kyung since she’s the one who has to scour her father’s files. But the advisor’s response to her problem is critical because it can set the tone for the new relationship. If he simply tells her to get help from someone who specializes in insurance, he sends the message that he’s not taking a genuine interest in her financial affairs. By finding a broker himself and getting the information she needs, he demonstrates his ability to solve tricky problems, and to be there when she needs him.

In-Kyung’s sure she combed through everything her dad kept in a safe deposit box, but she gives it another try. Sure enough, tucked away in a file folder is a handwritten note that says, “Policy for daughter, WXY Mutual— $5,000.”

In-Kyung’s never heard of the company and a Google search reveals it closed its doors about 30 years ago. With no evidence of premium payments, it could mean the policy’s lapsed; but if it was a dividend-paying policy, her father could’ve elected to have them automatically cover premiums.

The solution

Geller says CompuOffice’s LifeGuide software is the best way to find the company holding In-Kyung’s policy. The program includes M&A data on more than 400 life insurers, reinsurers and fraternal benefit societies in Canada, dating back to the early 1800s.

But In-Kyung’s advisor is an IIROC-only rep, so he doesn’t have a subscription. And it doesn’t make sense to buy one because he doesn’t plan to get an insurance licence. Now what?

Ami Maishlish, president and CEO of CompuOffice Software Inc., says his firm does free traces for consumers and their lawyers. The firm would contact the insurer that now has carriage of the client’s policy. “If a contract is in force, they’re obligated to make proper disclosure.”

Don’t simply refer a client to another expert who can help. Instead, be hands-on by providing advice and locating insurance information. This strengthens the client-advisor relationship.

If an IIROC dealer makes the same request, Maishlish has a different way to help.

“I would never tell him his client should call us,” he says, because it would compromise his neutrality. “We would suggest he find a subscriber and ask [him or her] to do the trace.”

The client’s name and other information isn’t needed for this, so breaching privacy isn’t an issue. All In-Kyung’s advisor needs to ask is which firm has carriage of the policies issued by WXY Mutual. If he doesn’t know a subscriber personally, he can find one on winquote.net. All the brokers generated by that search function have LifeGuide.

“Chances are there’s one down the block,” says Maishlish. “Give them a call and ask them to do you a favour.”

In-Kyung’s advisor finds an insurance broker through winquote.net and does the trace. It shows WXY Mutual was acquired by XYZ Life. The profile information on XYZ Life says it was bought by industry giant TVV Life.

The advisor learns from TVV Life that In-Kyung’s father bought her a “jumping juvenile” policy, which Geller notes was a popular product in the 1960s and 1970s.

“In some cases, if you buy a $10,000 policy at birth, when the child turns 10 the death benefit rises to $20,000; when she’s 21, it rises to $30,000; when she’s 30, it’s $40,000. A policy that’s 40 or 50 years old could easily hold more than $50,000 [in cash value].”

Dividends were high, Geller explains, until the early 1990s. In a typical arrangement, half the dividend would pay the premium and the other half would buy more paid-up insurance. That’s what increases the policy’s cash value beyond the original guaranteed amount.

“As dividends were reduced in the 1990s,” Geller adds, “there may have been just enough to keep the policy in force.”

In-Kyung’s father elected to have dividends cover premiums, so the policy’s still in force. There’s more than $60,000 waiting for her if she wants to cash out.

And she’s lucky. If she hadn’t found that scrap of paper in her dad’s safe deposit box, LifeGuide wouldn’t have been able to help because the trace requires the name of the original insurer. This would’ve drastically lowered her odds of finding the policy. But all hope wouldn’t have been lost.

Geller says MIB Group’s policy locator service might’ve been able to dig it up using In-Kyung’s name and date of birth. The cost is $75 and MIB pegs the success rate at about 30%.

Client acceptance

10/10

In-Kyung’s pleasantly surprised to find the policy is still active and worth more than $60,000. She decides to cash it out, but has to pay tax “on the portion of the cash surrender value that’s above the cost basis of the policy, which is reported on a T5,” notes Geller.

The remainder then goes to her portfolio. She’s relatively young, so she takes her advisor’s advice to use part of the sum for the explore component of a core and satellite investing strategy.

Emerging market equities have taken a hit recently, so this means the time is right to buy good companies at significant discounts. Don’t forget to check suitability and do due diligence before investing.

Have an effective insurance sales review

Doing a multi-product sales review can be easy if you follow these four steps.

• Collect your sales data for the last twelve months.

• Fill in the number of sales by product line, as noted below.

• Look at how many sales you’ve made in each product category.

• Finally, consider how many clients you have and what products you haven’t talked to them about.

– Helena Smeenk Pritchard, principal of Helena Smeenk Pritchard & Associates

Dean DiSpalatro is a Toronto-based financial writer.