Some Answers for Executive Life Policyholders

A month after Executive Life Insurance Co. was seized by regulators, policyholders are plagued by a host of unanswered questions and, in some cases, misinformation. Most policyholders don’t know what questions to ask the authorities who have seized their companies.

The answers in this column will primarily relate to the 400,000 individuals who hold Executive Life insurance policies and annuities. But the questions and issues raised are applicable to anyone who owns an insurance policy and is concerned about the financial health of their insurer.

What do you do if you have a premium payment coming up and your insurer has been seized?

In the case of Executive Life, regulators are allowing policyholders to use automatic policy loans to pay the premium. These loans allow the policyholder to keep their insurance in force, without risking more of their own money. The premium amount, however, will be deducted from the principal or cash surrender value of the policy.

Why would you want to keep your policy in force?

Executive Life has not been liquidated. It has simply been placed into conservatorship. Conservatorship gives regulators the authority to handle the day-to-day operations of the company. It is usually the first step to more permanent action, such as a liquidation or a sale.

In most cases, regulators have been able to sell failed insurers’ business, which protects policyholder interests by simply transferring their accounts to a new company. Keeping the policy in force ensures that your policy gets transferred if regulators are able to find a buyer for Executive Life.

If buyers cannot be found and the company must be liquidated, you also need to have a current policy to be covered by the California Life Insurance Guaranty Assn. CLIGA’s protection is limited--and even questionable in the case of Executive Life--but it is better than nothing.

There have been differing reports about whether Executive Life’s policyholders will be covered by the California Life Insurance Guaranty fund if the company is liquidated. Will policyholders be covered?

This is still uncertain. California’s life guarantee fund bars coverage for companies that were already insolvent or impaired before the fund was launched last January.

Insurance regulators are currently assuming that Executive Life was not insolvent or impaired at that time, which means the policyholders would be covered. But that is only an assumption, and several sources close to the company note that it is an arguable point.

That is important because other insurers finance state guarantee associations. In other words, if Executive Life is liquidated, the company’s former competitors will have to come up with the cost of protecting Executive policyholders. Some speculate that these insurers will balk at such an expensive and unpleasant task and take the question to court. That could delay any payments to policyholders for years--assuming they get paid at all.

What does the guarantee fund cover?

It guarantees policyholders for up to $250,000 for death benefits, and up to $100,000 for annuities. However, the fund will pay a maximum of 80% of the policy amount and will reduce payments further if the insurer was paying high interest rates. What’s “high” in the opinion of the guarantee fund? Right now, anything over about 4%. There is no coverage for less traditional products, such as guaranteed investment contracts.

Is there anything individuals can do to ensure Executive policyholders are covered by the guarantee fund and, possibly, to improve guarantee fund coverage?

Write to your representatives in the Assembly. These state lawmakers made the rules that created the guarantee fund, and they can change them.

Where can you go for more information about Executive Life?

Two policyholder support groups have formed in recent weeks to help provide information about Executive. One is headed by Donn Sigerson, a 77-year-old Los Angeles policyholder. His group, called the Executive Life Support Network, can be reached at (213) 896-9566 or P.O. Box 24070, Los Angeles, Calif. 90024.

The second group, Action Network for Victims of Executive Life, is run by Maureen Marr, who also organized a group of Lincoln Savings bondholders when that company was taken over by regulators. Marr can be reached at (213) 823-8789 or P.O. Box 2549, Venice, Calif. 90294.

Insurance Commissioner John Garamendi has agreed to meet with the groups and answer questions on May 17 at 10 a.m. in the County Board of Supervisors office at 500 W. Temple in downtown Los Angeles. All policyholders are invited to attend.