Posts filed under 'economic meltdown'
One of the considerations when you are putting together a life insurance program or portfolio should be flexibility, a way to deal with the “what ifs” in life.
I’ve seen this a little more than usual as people have dealt with different aspects of the recession. They put a policy in force prior to the economic meltdown that, if there hadn’t been a meltdown, would have been just fine. With everything getting tighter, suddenly the once budgetable premium on that $2,000,000 policy isn’t working anymore.
The first thing to look at is the mode you are paying. Most companies offer options of paying annually, semi annually, quarterly or monthly, monthly almost always being done by automatic bank draft. Can changing you modal premium from annually to monthly solve the issue? I know if I was facing tough times and got a bill for say, a $5000 annual premium I would probably been inclined to cry. But if I could change to monthly and pay a little over $400 a month for a while (or from now on), that might be a way to save the day and keep the insurance in force just the way I want it.
Now I know this is crazy, but a lot of companies won’t let you alter a policy once it is in force. In other words, if you decide that you can really be OK with $1,000,000, will the company allow you to cut the amount of coverage in half. I just did this for a client with Prudential and they were very gracious about it. I tried the same thing for a client not too long ago with AIG American General and they wanted the client to apply to have the face amount of his policy lowered, exam and all. When we ran into that I suggested that if an exam was required, let’s shop it and see if AIG was really the best bet at that point anyway. Turns out they weren’t and because they weren’t flexible they lost the business.
A way to proactively pave the way for this possibility is to take out more than one policy. I encourage a lot of clients to do this if they don’t believe they will need the full amount for the full term length, or at least they’re not sure. Instead of a $2,000,000 20 year term, why not two $1,000,000 20 year terms, or a $1,000,000 and two $500,000 term insurance policies. The very small downside to this approach is that each policy has an annual policy fee of $50-$75, so if you have multiple policies you could be paying slightly more. Transamerica has just put a program in place where if you do what I just described they will only charge one policy fee and give you the advantage of any price break that the total face amount might bring. Even without that advantage, multiple policies is still worth considering.
Bottom line. If it can be helped, don’t back yourself into a corner where a budget busting event can leave you making a choice to go completely without life insurance.
May 15th, 2009
Let’s face it. If you want to turn a few stomachs in a discussion about the recession all you have to do is throw out the name AIG, the epicenter of the current economic meltdown. AIG owns life insurance giant American General.
So, if you can control your gag reflex, should you actually consider American General as a company to apply with? I am as cautious as the next guy, but I think there are a couple of real upsides to going in that direction. Keep in mind that American General is not AIG, but rather they are owned by AIG. American General is a very respected and very profitable life insurance company, something that will bode well for AIG and all of us taxpayers as AIG begins to shed assets and start repaying debt.
My two thoughts go something like this. Historically when companies are positioning themselves for sale, their underwriting relaxes a bit. It doesn’t get sloppy, just maybe not quite as tight as a year ago. The more paying business they have on the books, the higher the value to potential suitors. With giants Met Life and AXA Equitable doing more than just sniffing around, the good news for AIG and I think for policy holders is that there are good companies out there big enough to write the checks.
The second upside is that when a company buys a block of term insurance business, by law the purchasing company has to honor all of the guarantees of the original company. Not unlike having a mortgage sold, the check may go to someone new, but the payments and contract remain the same.
Personally I think Met Life will win the day and to me that is good news for anyone that has American General life insurance. Heck, that’s a no cost upgrade since Met Life is a higher rated company than American General anyway.
Bottom line. Don’t let a knee jerk reaction to AIG spill over into passing up a good deal with American General. American General is a solid company that will end up being owned by another solid company.
April 30th, 2009
With the economic meltdown and/or recession and/or whatever is going on, the question of life insurance company ratings and their financial stability has received its’ fair share of scrutiny.
In an effort to demystify some of the ratings stories and bring some reason to the table I would like to share with you some information that probably isn’t that easy for a non agent to come up with. Let’s start with a spreadsheet of eight companies I use fairly frequently showing their ratings from the different rating agencies and a compilation of relevant financial information. For those unfamiliar with some of the terminology this cheat sheet can help.
One of the myths that people are dealing with right now is that life insurance companies are getting bailouts from the government. There is TARP money available for insurance companies that own or are affiliated with banks, but the truth is that while it has been offered and a number of insurance companies have actually purchased banks so that they could qualify for it if they need it, there just hasn’t been much, if any action on that front.
Insurance companies are uniquely positioned to be able to pull through these rough times because of the large profits they’ve had in years leading up to now, an income stream that hasn’t been impacted the way, for instance, automakers or other manufacturing industries have, and their huge reserves that they have to carry by law. While plenty of insurance companies have taken a beating on Wall Street, their rough ride has, like so many companies, not been a true reflection of their profitability.
Back to ratings for a minute. In the ratings and financial report provided there were ratings from the 5 major rating agencies and a “Comdex” score. Each uses slightly different criteria to come up with their rating. Here, from their own websites are how each assesses a company.
1. AM Best
2. Weiss (The Street.com)
3. Fitch
4. Moody’s. Moody’s must think they are exceptionally fascinating. Look around page 13 or 14 for relevant rating explanations.
5. Standard and Poor’s. I found very little relevant information on S&P just as I have generally found very little emphasis put on S&P ratings.
The tool I have found the most helpful in rating’s analysis is the Comdex rating. Simply put this ranks a company on a percentage scale against all of the other rated life insurance companies (about 1100). If a company is rated in the 90th or higher percentile you know you are dealing with a company that over the spectrum of all the rating agencies ranks among the top 10%. Would I put any huge weight on a company that has a 94%. Simply put, no! The only tangible difference I have found in the actual companies is that those rated at or within a few points of 100% tend to be large whole life or universal life, cash value companies. They are there due to their huge cash reserves, or should I say your huge cash reserves, not because they are a better managed or more stable company. I guess there is one other tangible difference that is fair to note. The companies at or near 100% are the most expensive insurance providers in the country.
Bottom line. Are ratings worth looking at? Absolutely. If there was a Swamp Life of Vermont, I suspect that ratings for that company might tell a very compelling story. Should you run from a company because they don’t have the highest rating available? Absolutely not. There are a large number of old, stable, profitable life insurance companies who believe as I do that cash value policies are one of the biggest rip offs out there, so their ratings reflect, not a lack of stability, but a lack of your cash and possibly a higher level of integrity. Just like the higher rated companies they too have to carry reserves to meet their obligations.
April 17th, 2009
It’s been a fascinating couple of years. I will sum it up by saying that we have helped a lot of people get life insurance who never thought they could. And what better way to celebrate the information we’ve shared and the victories we’ve had than with a shared meal, a key word salad.
Diabetes has been at the forefront of our life insurance efforts from the very start. We’ve made huge headway in finding aggressive underwriting for type 1 diabetes and type 2 diabetes. I think our strong point has been in education. There are a lot more people out there today that know what their A1c is than when we started.
I’ve been very clear about where some of the problems lie in our industry. The AARP/New York Life collaboration, on what can only be described as a sick crime against older folks, continue to offer the worst term insurance and whole life insurance in the business. They are simply not the advocate they claim to be.
I’ve stepped on some toes along the way. Selectquote and Zander Life insurance have taken exception to some of my observations. Being a Dave Ramsey fan and I think, ultimately, a reasonable person, I did apologize to Zander. In spite of Selectquote’s berating commentary, I still stand by my assertion that they are biased in what companies they offer (otherwise they wouldn’t be so easy to beat) and I still believe that Suze Orman should go back to waitressing. As to their assertion that I only use Selectquote and Suze Orman for search engine optimization, well, I don’t, even though they think I do. If I didn’t think there was better service elsewhere and more honest advertising, I would never have mentioned Selectquote.
We’ve touched on scuba diving and Prudential being a leader in great rates for recreational divers. Pru also stomps the competition on prostate cancer, sleep apnea and mild anxiety issues. While providing direction on those issues we have also been able to provide direction for those involved in skydiving and foreign travel to places where kidnap and ransom insurance is more than just a casual thought.
We’ve stayed abreast of the economic meltdown and recession that have whacked us all and tried to help people understand how best to handle their life insurance needs in these tight times.
We’ve held lengthy discussions about obesity and the impact it can have on other health issues such as hypertension or high blood pressure, cholesterol, heart disease, heart attack, stroke and cancer. We’ve discussed the risk and benefits of gastric bypass surgery as a means to avoid the life threatening side effects of being over weight.
Probably our biggest response has been from those suffering from depression and bipolar disorder. We reached a group of people that have truly been black balled in the insurance industry and we’ve been able to find some level headed underwriting and hit some major home runs for those who have the name tag but lead normal lives.
We have bared the facts behind the black eye of all black eyes in the insurance industry, the non guaranteed whole life, universal life and variable universal life policies and explained the alternatives in the permanent insurance market. There is nothing that provides greater value and peace of mind than a rock solid guarantee.
We’ve had frank discussions about business life insurance such as key man insurance and buy/sell life insurance. We did a whole series on women and life insurance. We’ve provided direction and information to private pilots that they aren’t getting anywhere else. We’ve talked about the guts of the policy when it comes to the two year suicide and incontestability clause and the accelerated death benefit and the beneficiary rights and the beneficiary issues for those who aren’t in a legal relationship such as a gay couple or an unmarried couple.
Bottom line. And the list goes on and on. We’ve tried to leave no stone unturned and no question unanswered in our quest to find life insurance for those whose mortality risk might be more challenging than average. As an independent agent it has been gratifying to have so many ways to help those who have been mishandled by the wrong agent or the wrong company. As we continue to reach out my prayer is that all who need help find it, and that more agents consider serving those who are harder to help.
March 18th, 2009
In our current economic meltdown there are a lot of people out there trying to say that the government or big business are trying to run our country. What this country really runs on is small businesses and what really makes those businesses work is the owners or the managers.
This is a country made of small businesses and generally speaking, all of those that have employees, have managers. As long as I’m being general, I think it’s safe to say that a good manager is a very valuable asset. I believe, generally speaking, that most business owners would agree that insuring the valuable assets of their business is a prudent idea. And logically, the loss of a valuable asset can cause a substantial financial loss to the if the appropriate business life insurance isn’t in place.
This is exactly why small business owners insure themselves and exactly why key man insurance was created for managers or other individuals that companies are dependent upon. The way key man insurance works is that a value is determined that represents the loss to a business if the key person should die. It can be done several ways, but for the sake of this example we will say that the life insurance policy, a return of premium term insurance, is two times the annual salary of the manager. We pay our manager $125,000, so we insure his life for $250,000.
We have determined, in this case, that it would take about a year to hire, train and bring up to speed a new manager. Because our manager is so integral in the success of the business, we anticipate that there may be some turmoil caused by his untimely death. There might be customers lost, production slow downs, employees lost, etc. We might also need to anticipate paying a hiring bonus so we can hire as high up the food chain as possible to minimize the turmoil. Anyway, suffice it to say, key man insurance is definitely justified.
Now to why I decided to buy a return of premium term policy to fund our key man policy. Let’s say that our manager has 15 year to go to retirement when we purchase the policy and, being the good employee that he is, he doesn’t die but keeps on doing a stellar job right up to his retirement day.
During those 15 years we have insured a valuable asset of the business to protect the business. And yes, you got to write that off.Our manager has made us tons of money and saved us hundreds of tons of headaches, because that’s what good managers do. So now it’s time to give him a bonus.
Our return of premium term policy has cost the company $4000 a year for the last 15 years and now, because our manager is still alive and we bought the right kind of life insurance policy, the company gets back all of the premium paid in. Well, that just freed up $60,000 that we can hand to our retiring manager at his going away party. A bonus for a job well done.
Bottom line. Things happen that we never expected as business owners. The scenario above is a win/win either way.
March 6th, 2009
I’ve been blogging since the first of the year about the coming changes in universal life products that have external no lapse guarantees. Well, there’s good news and bad news on that front.
The good news is that it is still available from the top companies at their present rates with the same outrageously good guarantees. The good news is that if you have it in force, those prices and guarantees are locked in and can’t be changed. The good news is that if you have an over funded universal life or whole life policy (has more cash than it needs), you can do a 1035 exchange into a NLG universal life and get far more bang for your buck. The good news is that even if you blow off the chance to get this permanent life insurance product at rates that will never be seen again, even at the new rates it will likely still be the best permanent option available. Prudential announced last week that they would be raising the rates on their no lapse UL by 5% which will still make it much more competitive than traditional universal life or whole life.
You won’t hear this from the cash value policy giants like New York Life or Northwestern Mutual, but doing things like estate planning or planned giving and building up cash value in the policy is a waste of money. When the insured dies, the beneficiary doesn’t get the death benefit plus the cash value. That cash value will have served no other purpose than maybe a lifestyle change for the agent that sold it.
Oh yah, the bad news. Protective Life announced today that they are discontinuing term conversion to their killer good UL with a no lapse guarantee. They haven’t announced any change in the product yet, but as of the middle of this month there won’t be any future conversions to it. To me this feels kind of like their first step toward ending or changing the UL. They have just ended one facet and limited the market for it. The largest UL market for most companies is their conversion business anyway.
Another interesting snippet in this Protective release was a rate increase for their 30 year term. This is the first change we’ve seen of a major player increasing term rates, but as this recession gets worse I think we can count on seeing more and more in this direction. Term insurance rates have been going down for, well it’s hard to count, but well over ten years now. The rates are at crazy historic lows and it is my belief, my prediction, that we have just seen the beginning of the end of that trend. There may still be a few rate wars, but I’m convinced you are looking at historic lows. Buy now or forever hold your peace.
Bottom line. The economic meltdown has affected everything. We are fortunate that it has not impacted life insurance as much as the rest of the financial sector.
March 3rd, 2009
We’ve discussed a lot of different aspects of how the current recession and economic meltdown can impact life insurance. There’s more to talk about that will be coming soon
Certainly any non guaranteed product will see rate increases. That’s no surprise since the only reason a company offers a non guaranteed product is so they have the flexibility of raising rates if the cost of doing business increases. One of the costs that is hitting many companies is the requirement to carry higher reserves on policies due to rating downgrades. If you have a non guaranteed policy, that increase in reserves will be passed on to you.
Variable universal life, traditional universal life and whole life policies that aren’t fully guaranteed will see their cash value growth dwindle or even go backwards. Companies will ask customers to make up the shortfalls and tens if not hundreds of thousands of policies will lapse. The amounts of money that the insurance companies will ask you for are not for the faint of heart.
I have tried to stay ahead of the curve as the tips of the icebergs pop above the surface. I recently warned of the impending demise or, at the very least, rate increases for future universal life no lapse guarantee policies. These are still available and are the only gem of the permanent product rock pile, but within the past few weeks companies have started to change the product either to a higher price or doing away with it entirely. The latest thing out of the rumor tub is that by summer most, if not all, companies will have altered that product in some way. Two things that are important to note about this change. First, it will not affect those who already have one of these great policies in force. Companies still have to honor their guarantees and prices. Second, they’re still for sale at what will, within a few months, be unbelievably good rates.
The other tip that popped above the surface today was an American General notice saying that some of their fully guaranteed term products will have a rate change in March that will increase the price of those products by about 50%. Again, this will not impact the rates of those with policies already in force and so far only the tip of the iceberg is showing. I would guess that we are seeing the end of the downward trend in term insurance rates. Like universal life no lapse policies, I would venture to say that by this summer we will see the rate increases flowing like spring run off.
Bottom line. Prices and guarantees on life insurance are as low and as good as they have ever been. If you need it or believe you will need it in the future, get it now. If you have insurance in force and aren’t sure if you can get a better deal, check it out now. If you want to extend your term length, do it now. If you want to add permanent coverage or dump a non guaranteed permanent policy and replace it with no lapse protection, do it now.
February 3rd, 2009
There has been no lack of financial “wisdom” floating around since our economy skipped right past recession and into economic meltdown. The Suze Ormans and Warren Buffets and Dave Ramseys have all espoused the time tested “don’t freak out and eventually your money will come back” philosophy, or the “this is a great time to buy” philosophy.
Personally I believe those are both true. I think the economy will come back and if I had any extra money right now I might very well buy some of the blue chip stock that is selling at hysterical lows. But there’s a piece to the whole investment/retirement puzzle that they used to talk about a lot and they seem to have forgotten at a time when it is more important than ever, life insurance.
I’m going to paint a scenario that I think is pretty close to where most folks are right now. Some will be older and younger than this picture, but the basic premise is still sound.
My wife and I are in our mid 50’s and our income is sufficient to meet our needs most of the time. We’re self employed and had the start of a good retirement portfolio. That has been cut in half in the past few months.
The business is actually mine so I guess I would be considered the primary breadwinner. My wife works for me. If I died it is highly unlikely that she would continue the business. No different really than if I had, as my mom likes to put it, a real job. If something happened to me my wife couldn’t step into that job and have the income continue.
So, as a breadwinner I have always carried life insurance. I don’t want my wife to have to sell assets and go to work somewhere where the employer isn’t as nice as me or where she doesn’t like the work. I want her to be comfortable and not lose anything from the lifestyle we have, modest as it is.
But, the life insurance I’ve been carrying has been based on the assumption that our retirement portfolio would continue to grow, not melt down. So, my advice to myself as a life insurance professional is to take out an additional policy, a ten year term in the amount of our retirement portfolio (in case the rest of it melts) and let financial nature run its’ course. If Suze and Dave and all the rest are right, the ship will be righted and all should be relatively stable within that 10 years. When the ship is solidly floating again I can drop the term insurance policy. If I die in during that period, recovery or not, my bride will have our full retirement tax free.
Bottom line. It’s times like this when we need to hold fast to things we can count on and a guaranteed term life insurance policy is dependable. It isn’t an investment, it’s protection. If you need it you don’t have to hope that it will be there. It will.
Just an aside. I was thinking about the about how frightening the whole financial scene has been and the eery resemblance to that famous short scene in the Wizard of Oz where another famous meltdown occurred. I wonder if she had life insurance?
January 31st, 2009
This is a good time to consider how you are paying for your life insurance because as this recession deepens, strict budgeting is becoming more and more a necessity.
When it comes to life insurance bills there are definitely different feelings about how often and how to pay. For me, getting an annual bill for however much always seems to catch me by surprise and always has a knack for coming at the wrong time. As for me and my family protection the small extra cost of having my policies on a monthly bank draft is worth it. No surprises and small budgeted amounts. For others saving that 5% or so by paying annually is significant.
Now that times are tougher, picking the right billing method or changing your current coverage to a new billing method just might be what it takes to make sure your family’s protection is protected. Having that $1000 annual bill come due when times are good and there’s plenty of income and extra money is one thing. When times are tough it may pay to call your agent and ask them to change it to monthly or quarterly for a while so the bite isn’t quite so big.
The lapse rate on in force policies has definitely gone up during this economic meltdown. Too often people, especially those who get talked into universal life and whole life policies, overload themselves with premiums. We, as a country, have tended to overload ourselves with debt forgetting that good times aren’t a guarantee. I always encourage clients to think long and hard about budget before they pull the trigger on a new insurance policy. Your family’s protection shouldn’t be a victim of a bad month or an unexpected expense like a car repair.
I would rather see a family have $250,000 of term insurance in force that they know they can afford even in tough times than to have them carry more and lose it at a time when it’s needed most. Keep in mind that the other life insurance we have is our net worth. During a recession like this our net worths have been plundered. An unexpected death right now would have a double impact if your life insurance lapsed and your net worth wasn’t worth much anymore.
Bottom line. Do what you need to do to make sure your life insurance isn’t a victim of the recession. If that means changing payment modes, do it. If that means dumping that expensive cash value policy and taking out an affordable term insurance policy, do it. If your insurance lapses, contact your agent right away and see what the alternatives are.
January 30th, 2009
I would like nothing more than to be blogging today to humbly admit that I had cried wolf and that all of my screaming about non guaranteed life insurance teetering on the precipice was wrong, but……..
I spoke with a client looking for term insurance about an hour ago. It seems his New York Life variable universal life policy that was doing fine a year ago is going to take an additional $60,000 over his regular premium to keep in force for another year and no promises about the year after. For those who haven’t followed my rantings about cash value and especially non guaranteed cash value policies, VUL’s are probably the most egregious of the lot. They don’t even pretend to have any guarantees. It’s all about the investment portfolio embedded in the life insurance policy and if the investment blows up (and haven’t most of them?), the policy blows up with it.
He is kicking himself now as he recounted the agent telling him that “this is New York Life”, supposedly meaning that they are bombproof. Yah, right!!
The economic meltdown is kicking all kinds of cash value policies to death. I was talking to another agent today who was rescuing a client who has a whole life/term blend insurance policy. These policies have some whole life and the use dividends and premium to purchase yearly renewable term to make up the full face amount. The dividends have been slaughtered in the last six months and his premium has been increased from $54,000 a year to $68,000 a year because there isn’t sufficient support for the annual renewable term portion of the policy.
Bottom line. If you aren’t absolutely, 100% positive that this can’t happen to you, seek out an independent agent and have your insurance evaluated before you take it in the nose the way these guys did.
I remember in the Navy that we had so many fire drills that we tended to be a bit lax. In order to compensate for that, it there really was a fire, during the alarm they would announce that “This is not a drill”. People, this is not a drill. If you have permanent coverage that you know doesn’t have great guarantees or you’re not sure if it does, seek help. Don’t wait. Replace it with something solid before you’re left with no insurance and a bitter taste.
January 20th, 2009
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