Shadow Insurance Risk Warning

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The superintendent of New York State’s Department of financial Services Benjamin M. Lawsky has issued a report “Shining a Light on Shadow Insurance”  describing practices derided as “financial alchemy”.

In a typical shadow insurance transaction, an insurance company creates a “captive” insurance subsidiary, which is essentially a shell company owned by the insurer’s parent. The company then “reinsures” a block of existing policy claims through the shell company — and diverts the reserves that it had previously set aside to pay policyholders to other purposes, since the reserve and collateral requirements for the captive shell company are typically lower. Sometimes the parent company even effectively pays a commission to itself from the shell company when the transaction is complete.

Some commentators to this report weren’t overly concerned about the practice. The financial crisis of 2008, the role of insurer AIG, the complicit enabling by the ratings agencies, the lack of accountability to the perpetrators, the absence of reform does not engender trust to insurance companies that paper over risk in opaque shells to boost quarterly profits. Policy holders have to rely on their life carrier’s ability to pay claims for a very long period of time.

Consumers shopping for life insurance should be aware of the distinction between publicly-traded life insurance companies, answerable to their stock holders, and those mutual or privately held, and to what extent a company has reinsurance is ceded to affiliated captives.

AARP life insurance simply much more expensive

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I first posted about AARP’s high priced life insurance program two years ago. Has there been any reform to that profit mill taking advantage of seniors?  No.  AARP member options are only among the most expensive.

AARP now promotes “The AARP Life Insurance From New York Life” on a separate website.  It’s “exclusively for AARP members.” Their mission statement: “To help make it simpler for AARP members to apply for affordable life insurance protection, AARP selected New York Life to provide a life insurance program just for its members.”  (italics mine)

simple = more expensive

The AARP New York Life insurance web page has three choices, all of them no physical exam, i.e. paramed exam.  Simple.  Higher priced simplicity.

Are you in good, average or even slightly below average health?  Focus on fully underwritten life insurance requiring a paramed exam. It’s free, at home or wherever you choose at your convenience, takes about 20 minutes and saves you a considerable amount of money.

Best value in rapidly descending order:

  1. full underwriting:      paramed exam
  2. simplified issue:      no paramed exam
  3. guaranteed issue:   no health questions

Unsure if qualified for fully underwritten coverage?  Find out. You’d be surprised. Type 2 diabetics with good control can get standard rates. Always check first before applying. Even if a simplified issue product is advisable, shop around for the lowest prices. There are much better deals than those offered through AARP.

Doubly more expensive permanent

For example, $25,000 permanent coverage female 66 years old, monthly premiums

$70.00     Transamerica at preferred non-tobacco, GUL*, age 121
$74.00     Transamerica at standard non-tobacco, GUL*, age 121
$127.52    AARP Life Insurance program from New York Life, age 121

Why would an organization, supposedly acting in its members best interest, not promote fully underwritten life insurance options?  How about: ease of issue, faster turn around, lower labor costs, higher premiums, higher profits.

Term:  At your age?

Term is to replace lost income or to cover a debt like a mortgage. If there is a shorter duration need, term life insurance might be suitable, but generally retirees should get permanent life insurance for estate planning and final expenses, not term.  Outlive the term period, and there’s zero benefit.  If for some reason term is needed, get fully underwritten coverage. No physical exam term is much more expensive. The AARP program term rates are five-year age bands: e.g., 65-69, 70-74.  Tiered rate term insurance is an inferior product and much more expensive. Level premium term is the best. The rate is the same for the entire term period.

Please contact me for a free and confidential quote.  Many more options available.

sean's profile picLicensed Agent:  Sean Drummey
phone: (910) 328-0447
email: spdrummey@gmail.com

* Guaranteed Universal Life (GUL), also called no-lapse Guaranteed Universal Life, look for lifetime no-lapse guarantee level premium to age 120 or age 121; three major life carriers have GUL products starting at $25,000.

Product and carrier details:
Transamerica Life Insurance Company: “TransACE”
Genworth Life Insurance Company: “Colony Term”

quotes 6/14/2013, rates subject to change

Trigger Method Fixed Indexed Universal Life (IUL) with Allianz

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Allianz recently announced enhancements to their Fixed Indexed Universal Life (IUL) product Life Pro+.  Why does Allianz call it fixed?  Well, that’s their terminology.  Known mostly as Indexed Universal Life (IUL) or sometimes as Equity Indexed UL (EIUL), the name may differ, but all these Indexed UL products have interest returns tied to a market index, most commonly the S & P 500 Index, and have a floor guarantee of at least 0% as downside protection against losses. That’s why Allianz presumably uses the word fixed as opposed to Variable UL which does not have a 0% floor.

One noteworthy feature in Allianz’s enhancements is a trigger method of interest crediting. If the S & P 500 Index annual point to point hits anywhere greater or equal to zero, will trigger 9% credited to the policy. This Trigger Interest Rate is subject to change on an annual basis but is guaranteed never to go below 2.50%. In years the S & P goes below zero, the floor crediting rate is 0%, and if the index measures in that annual point to point above 9%, the credit remains at 9%.

Most of the Indexed UL product caps are currently in the 11% to 13% range and in this strong market those higher caps make them a more alluring crediting strategy. Historical data does not show that 0% to 9% range to be as prevalent as 10% or higher. Allianz still offers the higher capped S& P 500 annual point-to-point option. Their trigger method is an added option in times when S & P 500 performance expectations were not very high.

Best Life Insurance for Other Nicotine Products


Prudential
has the best life insurance rates for those who use cigars, pipes, chewing tobacco, electronic cigarettes, nicotine patches or nicotine gum.  If the applicant has not used cigarettes in the last 12 months, and admits on the application the use of a tobacco or nicotine product, “Non Smoker Plus” rates are available.  That rate classification, generally called standard plus, is only rate class above the preferred non tobacco rate.  John Hancock allows their Standard Nonsmoker rate for non cigarette users in the last 12 months, smokeless tobacco or other nicotine product users, but e-cigarettes are not included in that category.

What separates Prudential and John Hancock out from the competition is that the applicant can test positive for nicotine on the paramed exam and still qualify for the non tobacco rate.  Some carriers allow an occasional use of a non cigarette tobacco product, but the nicotine test result must be negative.  For occasional cigar use with a negative paramed test result, several carriers allow preferred best rates.

e-cigarettes

Electronic Cigarettes:  The Early Days

The FDA in an advisory has come out against electronic cigarettes.  A non smoker rights website believes e-cigarettes are not a safe alternative and has a useful compiler of news articles.  For some e-cigarettes may be a legitimate avenue to quit smoking cigarettes.  The ins and outs of the health issues won’t deter some from cashing in on its strong market potential.  The downside potential is that “vaping” will suck in some young or not so young people down the rabbit hole of abuse or addiction and use these devices as starter or bridge drug or favored delivery method for an alternate drug.

Please contact me for a free confidential quote.

sean's profile picLicensed Agent:  Sean Drummey
phone: (910) 328-0447
email:  spdrummey@gmail.com

5 Top Reasons For higher Life Insurance Rates and How to Avoid Them

 

Weight
overweight = higher rates

What to do?

1. Carrier build charts vary considerably.  Shop for the most favorable.

2. Wear light clothing for the paramed exam.  There is usually a 5 pound clothing allowance.   If borderline between rate classes, make sure the paramedical examiner has an accurate scale and you meet the weight required, especially if withing a few point.

Don’t bother waiting to lose lots of weight before applying for coverage.  If the weight loss is over 10 pounds within the last 12 months, underwriters automatically add back half the weight.  Waiting to lose a significant amount of weight may takes time. That savings is usually offset by a higher age rate.

 

Age

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1/2 birthday matters. Most carriers rates go by nearest attained age.

What to do?

Apply 4 to 6 weeks before the age rate changes. It is permitted to backdate the policy up to six months to save age.  Some carriers and products set rates by actual age.  Find out if a carrier with actual age rates saves money.

 

High Blood Pressure

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possible preferred best
Aviva   UL only
Banner
ING   ages 61-80
John Hancock
Lincoln Life
Minnesota Life
Principal
Transamerica  – Ages 50 and up
United of Omaha

For borderline high pressure, take a few precautions for the paramed exam.  Artificially high blood pressure and pulse readings may be caused by alcohol, tobacco, caffeine and stress.  Schedule the paramed appointment at the least stressful time of the day, and when you are not rushed to minimize elevated blood pressure readings.

 

Family History

 

Did a parent have or pass away from heart disease or cancer prior to age 60?

If yes, what to do?

Be careful in choosing a carrier. Underwriting guidelines and rates classifications vary considerably.  Sometime sibling history is included and other major health conditions.

 

Not Comparison Shopping

This takes many forms, but ending up with unsuitable more expensive coverage is a result of not taking the time and effort to shop for the best deal.  Direct mail life insurance is the most expensive.  Life insurance requiring a blood test has much lower rates.  Choose participating whole life over non participating whole life unless much older.  For permanent life insurance, insist on reviewing an illustration.  Compare multiple illustrations using the same assumptions.  Contact an independent agent rather than a captive agent that only represents one carrier.  Solicit more than one agent in order to compare proposals.  Do not automatically assume that a carrier’s underwriting decision is the most favorable.

Costs of Long Term Care 2013 and Insurance Trends

Genworth, a leading provider of long-term care insurance, for the last 10 years has published a very informative cost of care survey, and a they released their 2013 report last week.   The report breaks down cost by state and within the state by location, so it’s a useful for comparing LTC costs if considering a retirement location.   The executive summary  shows LTC costs remain relatively stable for home health care, in the 1% range for 5 year compound annual growth, but for facility care: assisted living, nursing home, 5 year costs increased well over 4%.  The average cost of a private nursing home room is $83,930 a year.  The lower cost increase trajectory of home health care, currently averaging $17 to $18 an hour, is better news overall since 70% of Genworth’s first time claimants choose home health care.

Though costs for long-term care followed a fairly predicable upward pattern, traditional LTC insurance was roiled by market forces. Major headwinds exist.  Prudential exited market for covering individuals.  Other carriers increased premiums significantly on existing policy holders and made a series of revisions to current products with stricter underwriting.

Price and product restructuring in 2013 offers some hope to stabilize traditional LTC insurance going forward, but inherent flaws to that kind of insurance exist.  The most fundamental: policy premiums are subject to rate increases. I became licensed for to sell LTC insurance in 2003 in an era when it was a still selling point that the major carriers had never had a rate increase on existing customers. Significant rate increases have now occurred, so the obvious conclusion is that the premium instability undermines the trustworthiness of that coverage for retirement planning.

Alternatives

Life insurance, hybrid benefit plans, are a viable alternative to conventional LTC insurance.  Many life insurance products offer chronic care benefit riders that accelerates a portion of the death benefit out of the policy if the individual qualifies as needing assistance in 2 out of 6 activities of daily living or for cognitive impairment.  Some flaws to traditional LTC insurance are not contained in many plan options: guaranteed level premiums, indemnity benefits i.e. payment in cash, higher disbursement levels. Other plan riders, depending on the product or coverage structure, are not as advantageous: fixed benefit, a capped monthly benefit cap, uncertain fees and charges to accelerate the benefit, reimbursement type benefits.  Cost of the chronic care rider is either up front with the premium or back ended at time of election.  Despite some inherent limitations to chronic care riders, one main advantage is that one way or the other either the coverage delivers a benefit, either as a death benefit or living benefit, unlike traditional LTC insurance which may never be required.

For couples one option is to establish life insurance policies on each other with the death benefit as a contingent asset for LTC for the surviving spouse.  If used in conjunction with a life policy with chronic care benefit the policies would serve a dual purpose.  Since woman tend to live longer and require more often LTC, coverage on the husband could likely help in that direction.

Annuities offer another alternative.  Some annuities have long term care riders, or set up an annuity to commence a payout at a given age.

Traditional LTC insurance 

Every situation is different, and it never hurts to compare, so if considering a traditional LTC insurance plan with lower premiums, look to what is called a short and fat structuring of a plan.  Short meaning number of benefit years, as in 2 or 3 years.  Fat meaning a benefit amount to cover major care under a worst case scenario.  Since the average private nursing home is nearly $84,000 annually structure the monthly benefit, not as a daily benefit to avoid a daily cap, to be $7,000 a month.  Since costs for private care is experiencing 4% to 5% compound annual growth, opt for inflation protection at 4% or 5%.  Inflation protection has been an inherent strength to traditional LTC insurance, but higher levels like 5% compound have been targeted for higher premiums and higher policy rate increases, so starting with a higher base monthly benefit with a 3% inflation protection should be considered.

How much is enough?

One basic concept to long-term care insurance is to establish a pool of money to cover its potential cost.  It now costs, on average nationally and rounding off, $84,000 a year for private nursing home care, and the average stay in a nursing home is 2.5 years.  That comes to $210,000.   Is that enough?  To cover health care or assisted living would probably be less.  The average life expectancy for a person with dementia is 4.5 years. That comes to $378,000 currently for private nursing care.

MetLife Discontinues Lifetime Guaranteed Universal Life

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MetLife has announced, effective April 27, 2013, it will no longer offer the coverage continuation rider to its “Guaranteed Advantage Universal Life” product.  MetLife’s “MetLife Provider UL” product has an age 95 no-lapse guarantee.  Other MetLife products including whole life will still have lifetime guarantees.

Several major carriers are still offering age 120 or better no-lapse guarantees in 2013 despite the new cash reserve requirements.  For example, Lincoln National is a leader in competitive premiums for lifetime no-lapse GULs and has held that position over the years.  There are several Indexed UL products with lifetime no-lapse guarantees as well.

2013 has opened up some distance between the major carriers has to what lifetime permanent life insurance products they offer and their premiums.  There are age 90, 95, 100, 105 and age 110 no lapse guarantees, and have some merit in lowering cost, but instead of taking the risk of outliving the policy or entering a higher catch up premium bracket, it’s best to lock in a true level premium lifetime guarantee.

Life insurance: needed and inexpensive

Morning Interior Maximilien Luce, 1890

My American consumers evidently have a limited understanding of life insurance, but life insurance is really not all that difficult.  A competent agent can explain the basics in a few minutes.  Most people need term life insurance which for most is inexpensive and has a fixed rate for decades.  For example age 50, $250,000, 10 year term is $21.12 a month at preferred plus and $38.35 a month at standard; age 60, $250,000, 10 year term is $43.09 at preferred plus and $75.38 a standard.

It boils down to recognizing the need for coverage.  Does someone depend on your income?   What would happen to your children or spouse if you died?  What are your family’s needs for estate planning?

It’s hard to consider one’s own death, but that becomes easier as you get older because people you know start dying.  This usually starts in high school and accelerates in your 40’s and 50’s.

Applying for life insurance, even if you regularly see a doctor, gives you a broader understanding of your health.  Life insurance, fully underwritten, the least expensive kind, requires a blood test and often a review of medical records, all at no cost to the applicant.  The carrier then determines a risk classification: preferred best, preferred, standard plus, standard or substandard.  It’s objective with measurable criteria.  That decision can be very revealing because often doctors do not adequately inform patients of their risk, and people often do not know or adequately understand the state of their health.