NAIC Adopts Warning About Small-Face-Amount Policies.

NEW ORLEANS -- Regulators adopted a statement for exposure that would warn buyers of insurance policies with small face amounts that they may pay more in premiums than they will receive in death benefits.

The disclosure statement would apply to life insurance policies with face amounts of $15,000 or less.

Regulators were expected to take action on this issue, but it almost didn't happen. The working group discussed the possibility of conducting studies to learn more about small-face-amount policies, and consumer advocates argued that the disclosure statement didn't go far enough to protect policyholders.

Mona Carter, Kentucky's deputy insurance commissioner, has worked on this issue for six years. She urged the group to "stop dragging our feet."

"This is one of the few issues where we have failed to make a decision," Carter said. "Get it out of here. Stop doing studies."

With that, the working group voted unanimously to adopt the statement.

The working group also put the brakes on two proposed studies of small-face-amount policies. At the NAIC's Spring National Meeting in March, the working group had accepted an offer by the small-face-amount life industry to pay for two independent studies to examine issues of value. The Small Face Amount Study Subgroup on May 29 reviewed the proposed studies and determined they raised more questions than they answered and should be tabled.

Several consumer advocates urged regulators to take action to stop sales practices that allow consumers to pay more in premium than the face value of the policy.

"Why are you not prohibiting that practice?" asked Birny Birnbaum, of the Center for Economic Justice.

The disclosure statement is headed for the NAIC's Executive Committee, which will consider adopting it, Carter said.