Sean Drummey - Life Insurance Recommendations

Goodman Triangle or the unholy trinity

January 23, 2013

11:40 AM

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Estate Planning, Goodman Triangle, irrevocable life insurance trust (ILIT)

When three different parties are designated as the owner, the insured, and the beneficiary of a life insurance policy exposes the proceeds to gift taxation. (1) This so-called “unholy trinity” for example having the husband as the insured, the wife as the policy owner and the children as the beneficiaries. (see Goodman v. Commissioner, 1946)

To avoid this typically the owner and the insured are are same, for example the husband as the insured and owner with the child as beneficiary, or owner and beneficiary the same, for example the wife as owner and beneficiary with the husband as the insured, or an irrevocable life insurance trust (ILET) is set up, for example the ILET as the owner and beneficiary with the husband as the insured.

The current lifetime gift tax exclusion is $5.25 million. ($10.5 million for a married couple) (1)

The large gift tax exclusion means the Goodman Triangle may not be of significance to many individual policy owners but could still be a factor business life insurance policy owners with income tax consequences.

(1) Tax information is general and for information purposes only. Please seek professional advice for personal income tax questions and assistance.

AIG pays back TARP funds and its effect on American General Life Insurance Company

by Sean Drummey

January 7, 2013

1:42 PM

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Conversion, guaranteed universal life, indexed life insurance, Indexed Universal Life, IUL, No Lapse Guaranteed Universal Life, no lapse universal life, No-lapse guarantee, Universal Life, universal life insurance

I saw one of AIG’s “Thank You America” commercials this weekend, and that’s how I found out that AIG had paid back in full their TARP bail out money. That’s good news for American General Life Insurance Company. I’ve been an agent for American General for over a decade, well before they were acquired by AIG back in 2001.

American General’s independent ratings have declined since AIG’s liquidity crisis 2008 and now have stabilized. 2008 exposed the ratings system to be very flawed, and since the rating system has not been reformed, it is a tenuous means to judge a carrier. From a life insurance agent’s point of view, to recommend a carrier is in part observing a life insurance company’s price and product changes, underwriting practices and rules for term conversion. It’s also telling how much interest they are crediting on current policy holder’s permanent plans.

There is also a distinction between recommending a life product that’s guaranteed, and those that are non guaranteed, that depend on crediting interest to the policy for cash value. A guaranteed no-lapse universal life, G-UL, is very straight forward, as opposed to a performance based product like indexed universal life, IUL, or a traditional UL. Term or return of premium term has a guaranteed level rate for a fixed period of time, but conversion options to a permanent plan without evidence of insurability is another key consideration, especially since so many people run into health problems in the 10, 20 or 30 years after their policy is taken out.

I will take a wait and see approach to American General. They can prove their worth by proportionately crediting of their UL policy holders and expanding conversion options.

NAIC Valuation Manual for Life Insurers

by Sean Drummey

December 13, 2012

12:06 PM

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California, New York

The National Association of Insurance Carriers (NAIC) has adopted a new life insurance valuation manual. LifeHealthpro has a good overview. It has not been implemented yet, not by a long shot. The process has similarities to amending the US constitution where a percentage of states have to ratify the changes, but in addition the state’s size matters. 42 states and 75% of written life premium in the United States are needed for it to be instituted. Since New York and California have objected, and their share of written premium is a sizable, the outcome of this is still in considerable doubt. What is revealing are some of those objections. From the LifeHealthpro (emphasis mine):

Critics said passing it would be a failure of state regulation, with New York’s Deputy Insurance Superintendent and General Counsel Robert H. Easton arguing that PBR will lead to lower reserves “in the aggregate” at a time when the economy is still fragile, when interest rates are low for the foreseeable future and, most interestingly, when Easton said some carriers are “facing stress” because of guarantees currently on their books. Easton did not elaborate on who those companies are and how stressed they may indeed be.

Critics and some concerned state regulators also raised the state resource issue for implementing and understanding the new models with all the training necessary, most explicitly described by California Insurance Commissioner Dave Jones.

“There is no fiscal analysis now. We have no idea what this will cost,” Jones said. “It requires a different skill set to look at these black boxes,” said Jones, who discussed all the unknown and known resources and expertise needed at the state level.

From the Wall Street Journal:

Benjamin Lawsky, superintendent of the New York Department of Financial Services, had urged fellow regulators to vote no in a letter dispatched last week.

“The insurance industry weathered the financial crisis well precisely because of the careful reserving state regulators have historically required,” Mr. Lawsky said Sunday. “To ignore the lessons of the financial crisis and deregulate the industry, allowing them to keep less in reserves, is unwise.”

The jury as to the merits of the change is still out in my mind. To be objective requires an in depth evaluation of the proponents reasoning for the change as well as the validity of the objections, but I tend to be skeptical given what happened to AIG and the causes of The Great Recession.

image source: Wikimedia Commons

More Beneficiary Information Now Required by New York

by Sean Drummey

December 5, 2012

1:35 PM

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New York

New York now requires the address and phone number of all beneficiaries for life insurance applications. Called Regulation 200, it applies to all life policies and annuity contracts issued or delivered in the state of New York. This is a valuable consumer protection. If policy holder dies, it makes it harder for beneficiaries to collect on their claim if there are unreachable, and especially problematic if the beneficiary is unaware that the life policy exists.

Any life insurance applicant or policy holders regardless of where they live should heed New York’s higher standard. Carriers applications vary as to how much beneficiary information they request, and often it is minimal. The basic is merely the beneficiary’s name and relation to the insured. Genworth is more comprehensive; they also request the address, social security or tax identification number and date of birth. None that I know of have prior to New York’s ruling asked for the beneficiary’s telephone number, though the way people change numbers, it’s doubtful how useful that information will be years or decades from now. The worst offenders for omitting beneficiary information are simplified issued whole life plans, also called final expense plans. Many of these only request the primary beneficiary’s name, and don’t even ask for a contingent beneficiary.

Whatever is requested on the application, the insured should provide the agent and carrier with as much information as possible, and update beneficiary information when changes occur. Many life insurance death benefits languish unclaimed because of lack of contact information. Having been taken to task and fined for now doing so, carriers are required to make a more concerted effort to initiate death claims and notify beneficiaries. But if the policy owner dies and the beneficiaries are unaware of the policy’s existence what little contact information the carrier has will probably be outdated and cause the death benefit to go unclaimed.

Life insurance with living benefits to offset out of pocket expenses over age 65

by Sean Drummey

September 5, 2012

4:31 PM

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Accelerated Benefit, Accelerated Death Benefits, Age 65, Altzheimer's disease, Alzheimer's, Chronic Illness Accelerated Benefit Rider, Chronic Illness Rider, dementia, memory loss

Medicare doesn’t solve all health care problems over age 65 especially in the last 5 years of life. From ScienceDaily:

They measured total out-of-pocket healthcare expenditures in the last five years of life, and looked at these costs as a percentage of total household assets. More than three quarters of households spent at least $10,000, with spending for all participants averaging $38,688 in the last five years of life. Even more shocking was the fact that a quarter of participants made an average contribution of $101,791, and the same number spent more than their total household assets on healthcare.

Dementia was the most costly.

One solution is to buy life insurance with chronic illness benefits which allows the policy’s to be used long term care, if needed.

Hybrid life insurance plans covering home health care

by Sean Drummey

August 27, 2012

1:32 PM

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Accelerated Benefits, Accelerated Death Benefits, Chronic Illness Accelerated Benefit Rider, Chronic Illness Rider, Critical Illness Accelerated Death Benefit, hybrid life insurance policies, hybrid long term care insurance and life insurance, Indemnity Benefit, long term care insurance, long term care plans, Ohio

The Dayton Daily News has posted an article on the growth of home health care companies in Ohio.

“I think there’s been a real renewed interest in home care,” Thompson said. “I think people are looking for alternatives for care and again to remain in their homes I think [because of] the cost of moving into a facility, and they have to give up a lot to do that. I think independence is important to that population.”

Many life insurance plans at no extra upfront cost come with an accelerated benefit rider for chronic care. Being unable to perform 2 out of 6 activities of daily living, like dressing or bathing, or cognitive impairment allows the policyholder to accelerate portions of their life insurance benefit for long term care. The better plans allow an accelerated cash benefit.

These hybrid life and chronic care plans offer fixed premium, guaranteed for life. They can be structured to build cash value and have an increasing benefit. Once certified by a doctor as needing chronic care and a plan was devised that home health care was a suitable option, the accelerated benefit could pay for home health care services. Any benefits not needed would pass on as a life insurance death benefit.

This kind of coverage is affordable and a very good solution for the associated costs of home health care.

Long term care insurance options: Partnership or hybrid

by Sean Drummey

August 21, 2012

4:17 PM

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Annuities, annuity long term care rider, hybrid long term care insurance and life insurance, Lincoln Life, Lincoln National Life Insurance Company, long term care insurance, long term care life insurance hybrid with return of premium, long term care plans, United of Omaha

Life insurance agents who reside in North Carolina are required to get 24 hours of continuing education credits every two years. Nationally, my licenses for other states have cross reciprocation with my NC requirements. To help get my credits for this cycle, I’m taking a couple of courses that are required for the long term care (LTC) partnership program. I have been licensed to sell LTC/Medicare Supplement since 2003, but now to sell a traditional LTC plans in NC requires educational credits for the Partnership Program which NC has adopted.

Partnership Programs have standardized LTC coverage features that protect the consumer. Regardless, the fundamental flaw is that traditional LTC insurance plans are subject to rate increases. Those increases must be approved by state insurance commissions, if sufficiently justifiable, but over the years they have occurred and likely will occur in the future. Also if you don’t use traditional LTC insurnace coverage, it’s money out the window.

The hybrid solution: Life insurance with LTC
A solution to can be a life insurance policy with a decent LTC accelerated benefit rider. With it you can lock in a guaranteed level premium for life, and the benefit is not wasted. If you never need LTC, your beneficiaries get the LTC benefit. According to the course I’m taking, the amount paid for an accelerated LTC benefit is usually in the range of 50 to 90 percent of the policy’s death benefit.

The question becomes: can you afford a policy with a death benefit big enough for potential LTC cost of care?

Annuities
Annuities are another good option. It is an investment that can grow and then used if needed to fund LTC.

Hybrid Annuities
Two products: Lincoln LTC fixed Annuity and United of Omaha Living Care Annuity come with LTC riders that augment the total amount of LTC coverage.

The question becomes: can you establish an annuity big enough for potential LTC costs?

Survivorship Universal Life: age 105 versus age 120

by Sean Drummey

June 26, 2012

12:58 PM

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Age 105, Age 120 guarantee, American General Life Insurance Company, guaranteed universal life, Joint survivor guaranteed universal life, Protective Life Insurance Company, Prudential, Prudential life insurance, Whole Life, whole life insurance, whole life vs. universal life

Protective Life is reintroducing their life insurance survivorship product “Protective Survivor UL” which will replace “Protective Centennial Survivor GUL”.

Survivorship, or second-to-die life insurance is for couples for estate planning purposes. It is much less expensive than taking out two policies, and can provide coverage even if one of the couple has health problems and is uninsurable. Guaranteed Universal Life is far less expensive than traditional whole life insurance.

Notable is the trend of certain carriers away from lifetime guarantees. Though lifetime is available, Protective Survivor UL is competitive to age 105 and lesser ages. Given the projected rise in the number of centenarians in the coming decades, selecting coverage to age 120 is advisable, since there are still multiple carriers like Prudential and American General that offer these lifetime guarantees at competitive rates.

Survivorship Guaranteed Universal Life at 50 something

by Sean Drummey

June 19, 2012

2:27 PM

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American General Life Insurance Company, Estate Planning, In your 50's, Legacy Building, Nationwide, Pruco Life Ins. Co., Prudential life insurance, Second-To-Die Insurance, Survivorship Guaranteed Universal Life, Survivorship Life Insurance, Survivorship Universal Life

After reviewing yesterday 13 major life insurance carriers for a couple in excellent health in their early 50’s for Survivorship Guaranteed Universal Life, multimillion limited pay some companies were clear leaders for lowest premiums:

American General Life Insurance Company: “AG Secure Survivor GUL”
Pruco Life Ins. Co. (Prudential): “PruLife SUL Protector”
Nationwide Life and Annuity Insurance Co: “YourLife No-Lapse Guarantee SUL II”

American General also has guaranteed cash value accumulation, and a versatile option to reduce the face amount and access that cash value while maintaining the lifetime guarantee.

The most competitive premiums are subject to age, face amount and health status. When shopping for life insurance for estate planning a thorough search is advisable to verify which are the most competitive. However certain carriers will tend time and again to have lowest premiums.

Sean Drummey

Contact:
Phone: (910) 328-0447
Text: (910) 803-1427
email: spdrummey@gmail.com

Bob Welch of Fleetwood Mac’s suicide: back exercise and spinal surgery

by Sean Drummey

June 11, 2012

3:10 PM

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Age 66, Early Grave, exercise

Being in the college class of ’76 places me directly in the Bob Welch era of Fleetwood Mac. The albums that Welch performed on and the songs he wrote were often spacious and lush, drawing the listener into another world.

Then the years go by, and it all seems to fade away by the rush of events and other music, until there’s a notice in the news, and your memory gets drawn back. According to news reports, Welch did not feel he was to recover from recent spinal surgery and didn’t want to be a burden to his wife, so he committed suicide at age 66. That’s not young, but it’s a life cut short, and a wife left behind.

A melancholy ending of Bob Welch may serve as a cautionary warning to others. Many of us, now in our 50’s, can’t help but look closely at performers a decade older than us and ponder on how they leave the biggest stage of all. Here are 10 tips for a healthy back. Walking or light jogging helps work out back pain and strengthens muscles. Since the outcome of Welch’s spinal surgery was a failure, those with severe back pain should carefully consider the consequences of surgery.