NEW YORK -- Are you starting to think about nursing home costs? Do you have a pool of savings to help provide for your retirement? That combination makes you red meat for certain hard-charging life-insurance agents. Your worry, plus your savings, leave you vulnerable to a financial mistake.
Wilma Warner, 65, of Lexington, Ky., says she made that mistake. She bought a life insurance policy in the mistaken belief that she was primarily buying nursing home insurance. To try to recoup, she has just filed a lawsuit against the Prudential Insurance Co. of America and one of its Lexington agents, Dennis Lanzarone, alleging misrepresentation.
Lanzarone had no comment except to say, "everything was proper." In a letter, Prudential told Ms. Warner that it had investigated her complaint and concluded that she had indeed wanted life insurance. "We conducted a fairly careful and thorough review of the facts," says Prudential spokesman Robert DeFillippo. "Now we will take an even closer look."
Wilma Warner's story could be yours, if you don't take care. Here's what she says happened, according to her complaint:
For 10 years, she had owned a Prudential tax-deferred annuity in her Individual Retirement Account. It was invested conservatively, at fixed interest rates. By spring 1993, it was worth around $21,000.
Then Dennis Lanzarone called. He suggested that she switch the annuity to a Prudential high-yield bond mutual fund (high-yield bond funds buy bonds that carry above-average investment risk).
Next, the complaint says, Lanzarone advised that she use the interest from her bond fund to pay the premiums on $60,000 worth of "nursing home insurance." The policy would cost $1,900 upfront. But from that point on, she would have significant nursing-home protection at no out-of-pocket cost.
Ms. Warner took the plunge. She knew it was life insurance, her attorney Ron Parry says. But she bought it believing that it provided $60,000 toward nursing home expenses.
Not quite. A special option lets her withdraw some of the $60,000 death benefit if she enters a nursing home, but only in limited circumstances. She can't collect a dime until she has been in the nursing home for six months. Furthermore, a doctor has to certify that she'll probably have to stay there for the rest of her life. The insurance pays nothing for temporary stays.
Even for a permanent stay, she couldn't get the full $60,000. Pru would pay 70 percent to 80 percent of the policy's death benefit, according to Vice President and Assistant Actuary Elizabeth Hartley.
In two other ways, this insurance policy doesn't seem to suit Ms. Warner's needs. The policy's cash values are invested in two funds that rise and fall with the stock market -- something she says she didn't realize. And if she paid the insurance premiums with the interest from her bond fund, as she alleges Lanzarone suggested, she'd be making withdrawals from her Individual Retirement Account. That would cost her unnecessary income taxes -- although as it turned out, Pru billed her directly instead of tapping her IRA.
Ms. Warner's children are grown, her husband doesn't depend on her for support, she doesn't have an estate-tax problem -- so what's the life insurance for? "She needs that policy like she needs a hole in the head," says her financial adviser Robert Cole of Financial Architects in Louisville.
Cole complained to Prudential and to the Kentucky Insurance Department. The department bucked his letter to the state securities commissioner, where the matter died. "Handling consumer problems is what the regulatory departments get paid for, but they did nothing," Cole asserts.
Pru's limited nursing home benefit is a nice extra for people who are shopping primarily for life insurance. But it's not true nursing home coverage, which pays for temporary nursing-home stays as well as for home health care. Be sure you know which one you're buying -- and whether it's something you really want. As for Ms. Warner, Cole sold her a true nursing home policy last week.
Jane Bryant Quinn is a syndicated columnist. Write to her at: Newsweek, 444 Madison Ave., 18th Floor, New York, N.Y., 10022.