Posts filed under 'AIG'
In these unprecedented financial times it is a breath of fresh air when a company is willing to not only be transparent, but also lay out step by step their game plan for survival. With consumer confidence at an all time low I would like to see more companies like Genworth Life and Annuity show us what they are doing to protect our life insurance investment.
Hinerman Group has always had a policy of being transparent and when I received this communication from Genworth, I felt it was worthy of passing on. genworth-strategic-highlights-11-11-08
I think, truth be known, that most of the big insurance companies are taking similar steps and I truly believe that people can have confidence in their life insurance given my oft mentioned caveat, your policy is based on guarantees.
If you have been sold or made the choice to purchase a policy that was based on assumptions, review it now and be ready to act. Most term insurance policies are guaranteed and should be safe. At highest risk is the giant pool of underfunded universal life policies in the hands of people who haven’t been serviced by the selling agent since he strolled to the bank with his commission check. If you have a universal life policy it is time to have it reviewed and please, have it done by someone other than the agent who sold it. It is my belief that the majority of universal life policies in force today were sold inappropriately and are at risk. Don’t get your second opinion from the original source.
Bottom line. There is much to be confident about in the life insurance industry. Even American General, the life insurance branch of AIG is solid. The rest of AIG is questionable, but American General’s guaranteed policies are still good and will be no matter what the end of the AIG saga brings.
November 14th, 2008
I was not in favor of the AIG bailout when it was “just” $85 billion, but knowing that AIG has the assets to sell to pay that off, and knowing that the government had taken control of the company, I decided that possibly more brilliant minds than mine really did have a plan.
When, less than 2 weeks later, the bill grew by another $34 billion I was starting to have a little less confidence that things were being handled correctly. Why wasn’t AIG or the government selling off assets and decreasing the price tag? I think it’s important to keep in mind that selling off those assets doesn’t hurt the people that are insured. It simply means the beginning of the end of a company that made some lousy choices. Survival of the fittest?
I woke up yesterday to an additional $40 billion going into the company and to date we have yet to hear of an asset being sold. There are companies lined up ready to buy AIG subsidiaries like American General Life Insurance, so why are we continuing to pour gold in to attempt to fill this money pit.
So, congress approves essentially $1 trillion to get our economic train back on the tracks and to date nearly 1/6th of that has been spent on one company. What’s with that plan of attack? Where’s the explanation for why that was needed? Where is the plan for how and when we will begin to see AIG dismantled and sold off to get taxpayers off the hook? Who the heck is in charge?
Bottom line. The best we can hope for is that this whole bailout thing is handled professionally and meticulously and with oversight and oversight on the oversight. If that happens it has a chance of accomplishing its’ task. So far I’m not convinced that we are seeing the best we can hope for.
November 11th, 2008
Following the recent bailout/takeover of AIG by the government, other life insurance companies including Prudential are holding their hands out wanting a little of our tax money to soften the impact of their unwise investment in risky real estate loans.
Investment of premium dollars is, of course, one way that insurance companies can take small premiums and hold out the promise of large death benefits. But the truth is that this is more true in cash value policies such as universal life and whole life. Term insurance seems more self sustaining simply because of the anomaly I’ve written about before where most term insurance policies never get to the point of a death benefit because they are either lapsed by the insured or the insured lets the policy go at the end of the guaranteed term.
I can’t seem to find the article now, but if my memory serves me Prudential was asking the Fed for a little less than $2 billion to help defray the poor performance in their investment portfolio that supports cash value policies. I had a hard time wrapping my mind around the $120 billion AIG fiasco, not quite knowing what to think, but this one seems to me to be a case of companies trying to get off easy and not bother their policy holders about their goof up.
Keep in mind that this problem with their investment strategy doesn’t impact guaranteed policies, but it can be slam dunk detrimental to variable universal life and UL’s that rely on assumptions and not on guarantees. It seems to me that the appropriate thing for the company to do is to exercise its’ option to raise the rates on all of those policies to offset their losses. I know that makes me sound mean, but non guaranteed policies are non guaranteed for a reason. It allows for potential upside gains and it also allows for risk to hurt those who choose to insure themselves in that way.
Bottom line. I don’t think I agree with the AIG bailout, but I darn sure don’t think insurance companies need to start lining up to beg for help that they should be able to put together internally.
October 27th, 2008
I was talking to a friend yesterday who, like many of us, is trying to compute how many additional years he will have to work to make up for the money he has lost from his assets over this past month. He calculated that he would have to work an additional 1.5 years to make up his losses just over the last two weeks.
He jokingly went on to say that the good news he will only be 111 by then and should still have a few good years to enjoy his retired life.
I know the state of our economy is no laughing matter and that for all of us who have been working long and hard for everything we’ve socked away, this last month has had kind of a smothering effect on our collective psyche. I know after the AIG fiasco, there might be a few skeptics out there when it comes to insurance, but the truth is that life insurance is an inexpensive way to make sure that your retirement plane really doesn’t go down in flames.
I know the closer you are to needing that money, the rougher things look. They keep saying that if you have 10 years before retirement, don’t worry, be happy. So what happens if you’re not worrying (which I recommend) and are being happy (ditto on that) and you die and your spouse is left without your income and a retirement fund that has taken a direct hit with a small nuclear weapon?
The answer is life insurance. And if all of the experts are right and 10 years will make the difference, good news…..10 year term insurance is the least expensive product out there. If you don’t trust the experts, take out a 15 or 20 year term policy. For the huge protection you can buy, the outlay is minimal especially considering the alternative.
Bottom line. Do your own bailout and make sure your estate, your networth, your nest egg, is protected.
October 10th, 2008
With the federal bail out and takeover of AIG a few days ago it is now pretty apparent that assets from the insurance giant will be up for sale soon. With the terms of the bailout loan only being two years in length and at an interest rate of 11.5%, while there won’t be a fire sale mentality, there will most certainly be very little foot dragging.
The good news for the government and AIG is that apart from their financial products unit, the branch that insured mortgages, there are some very healthy and profitable parts of the company. There will be some very healthy and wealthy companies that will be looking seriously at purchasing, for instance, American General Life Insurance.
For all of those policy holders with guaranteed products through American General, their term insurance products and their universal life products with external no lapse guarantees, the sale of the company will have virtually no impact other than who their premium checks are made out to. By law all of the guarantees that are part of the American General policy will remain intact with the new company.
Where the rubber, all I’ve said over the years about non guaranteed universal life and whole life policies, will meet the road will be in this sale. Because many of those products have no guarantees or short guarantees, they will be subject to rate increases when the guarantees run out and I think it is fair to say that those rate increases aren’t something that might happen. They will happen.
The good news will be for those who still have some guaranteed time left and even better for those that are still guaranteed and have cash value. If you work soon with an independent agent to look at alternatives, you may be able to replace your current policy with a fully guaranteed policy at potentially a better rate than you are currently paying. If you have cash value it can be rolled into the new policy tax free through a 1035 exchange.
Bottom line. In a few years this will be just another financial footnote. I can say unequivocally that none of my customers will be impacted by this as they all have guaranteed products. If I were king I would ban all non guaranteed products and force those who want to play with their money to do it outside of the scope of their family protection.
September 19th, 2008
I have frequently been a critic of Suze Orman when it comes to her advice on life insurance and I am not writing this because I feel I may have been wrong.
Suze was on Larry King yesterday praising God for our government bailout of AIG.
In her interview she noted as one reason that the bailout was justified was that “Everybody has an AIG insurance policy”. It is this tendency for her to stretch the truth on life insurance matters that leads me to offer my services as a personal consultant on life insurance to help her keep from gaffing herself to death on the subject.
Bottom line. If you don’t know what you’re talking about, try not to say anything until you get some professional advice. Obviously everyone doesn’t have an AIG policy and more importantly is that any restructuring they would have had to do would not have impacted the rates of their guaranteed policies and Ms Orman advocates guaranteed policies only. Need a hand Suze? No charge!
September 17th, 2008
I have brought up several times in the last two days the fact that those who have guaranteed policies don’t have anything to worry about in the whole AIG shake up. On the other hand, those with non guaranteed universal life policies, policies that rely on assumptions or external indexing, need to visit with an agent sooner rather than later.
Just so everyone is clear on the difference, I am pulling out my old friends, good UL and bad UL. I have used these two samples numerous times to illustrate what happens when a person focuses on all of the big numbers on the non guaranteed side of the illustration and takes their eye off the prize, the guarantee.
good-ul
bad-ul
It is the bad UL’s that are subject to “adjustment” in bad times. If a companies profits aren’t what they would like them to be, they have the right to make changes on the non guaranteed side of the policy. They can’t touch the guaranteed side, but they can blind side you on the non guaranteed side with a huge increase in premiums. The result is usually a lapsed policy.
Bottom line. If you’re still not sure, get a review of your policy from an independent agent.
September 16th, 2008
Wow, what a day. What a week! What a year! Being an independent life insurance agent, one of about 57,000 who have American General, AIG in their portfolio, I have had the opportunity to discuss the whole financial crisis of AIG several times today.
I have also see misinformation and even lies being spread around the internet about what would happen if AIG declares bankruptcy and while I have tried my best to intercept and shoot down some of the bad information, I simply don’t have that many missiles in my arsenal.
So, let’s talk about IT. IT seems to be coming together as a common question, “What happens to my life insurance if AIG goes bankrupt?” This is really a two part subject and answer with a few sub parts, but I will attempt to keep it simple and straightforward.
First, let’s address those who have fully guaranteed AIG policies. Those would be term insurance policies and universal life policies with a no lapse guarantee. If AIG declares bankruptcy in order to restructure, they will either keep or sell American General and it’s block of business. If they keep American General absolutely nothing will change. All of the values of your policy, the level premium, guaranteed term length and death benefit, are fully guaranteed and will not change. Other than reading about it you won’t even notice that AIG is in bankruptcy. If you die your beneficiaries will be paid in full in a timely fashion.
If AIG decides to sell off American General, which aside from AIG is a very prominent and respected life insurance company (note that AIG has been downgraded by ratings companies while American General has not), their block of business will be sold to another company who will obviously be on solid ground. If the do sell American General the only thing that will change for you is who you make your premium check out to. By law all of the guarantees of the policy have to stay intact.
I can tell you that if it does come to American General being sold, there will be plenty of interested buyers. American General has combined conservative underwriting with prudent but competitive pricing and some company will be able to pick up that block of business without the cost of underwriting. I suspect there is some lick lipping going on as we speak.
Now to the flip side of the coin. Policies that are not guaranteed. This would be universal life policies that are dependent on assumed values or are tied to indexes rather than guarantees. If AIG keeps American General you can bet your next premium check that your next premium will go up. Because you signed up for a policy with no guarantees, the company has the right to change anything it wants on the assumed side of the policy. The train wreck I have talked and talked and talked about is about to happen to that block of AIG policies.
If American General is sold, the purchasing company has the same right and you can bet they will exercise it just to recoup some of their investment cost and to force those policies into a more solid position or force them to lapse. Either way, rest assured they won’t be a liability to the new company.
Bottom line. Life insurance companies are bought and sold all the time. It just usually doesn’t happen in a hugely public way. Recent sales like Chase being bought by Protective and Traveler’s by Met Life didn’t make any headlines and the reason is that it all went down just as I explained above. I’m not saying that AIG’s problems aren’t big news, but the impact on policy holders will be minimal.
September 16th, 2008
