Life insurance helping to meet the cost of long term care

Genworth Financial each year publishes a long term care cost of care survey that is very informative as to what services cost by location.   LTC costs are eye popping and daunting, and make college seem like a bargain.

Long term care is expensive but often not all that long.   According to National Health Care Statistics provided by the Montana Department of Insurance:

How long do people stay in long-term care facilities?

36% stay less than 1 year
32.5% stay from 1 to 3 years
14% stay from 3 to 5 years
17% stay 5 years or longer

Most people, whether by choice or necessity, opt for in home care.   Life insurance with an accelerated living benefit for long term care can help cover LTC costs.  This hybrid coverage will grow more and more popular because the premiums are fixed, not like traditional LTC insurance where the company reserves the right to increase premiums.

Finding the most cost effective Indexed Universal Life (IUL)

Request an IUL quote and many agents will be inclined to show a rosy scenario return assumption.  After all, high return assumptions are what the companies provide as their default settings to generate quotes.  Carriers often use a 30 year historical look back for the S & P 500 Index that show returns in the high 7% to low 8% range.  Showing that level of returns over a span of 20, 30 years or longer runs up the non guaranteed cash values and death benefit. Comparing carriers apples-for-apples with the same high interest rate is one measure of performance, but not the only measure. Since there are good times and bad times with index performance, it’s best to see the plan put under stress and a variety of scenarios to see how may performs.  Observing how these affect the internal rate of returns is a good way to see which carrier shows the best cost of insurance charges

In addition to the default setting last week comparing carriers I ran:

Quote at 6%
Quote at 3%
Quote solving $1 cash value at age 100
Quote showing no further premium contributions after 15 years

Quotes assuming a 5% or 6% index return are good to temper expectations more realistically. Cap rates, currently in the 11% to 15% range, are likely bring down return averages regardless of what the historical average may show.  Quotes assuming 3% helps reveal which carriers are best with cost of insurance charges. Quotes solving for $1 cash value to age 100 helps show which carrier has higher mortality charges in the later years.  Quotes premiums stopping in 10 or 15 years is a method to see how cash values holds up over the years and to to if and when the policy projects to lapse to compare mortality charges.

It’s prudent to request multiple illustrations showing many possible outcomes: low, medium high, over funded and under funed.

The Supreme Court on burial insurance

In the Supreme Court arguments March 27th on health care, this exchange occurred:

“JUSTICE ALITO: Do you think there is a, a market for burial services?

GENERAL VERRILLI: For burial services?

JUSTICE ALITO: Yes.

GENERAL VERRILLI: Yes, Justice Alito, I think there is.

JUSTICE ALITO: All right, suppose that you and I walked around downtown Washington at lunch hour and we found a couple of healthy young people and we stopped them and we said, “You know what you’re doing? You are financing your burial services right now because eventually you’re going to die, and somebody is going to have to pay for it, and if you don’t have burial insurance and you haven’t saved money for it, you’re going to shift the cost to somebody else.”
Isn’t that a very artificial way of talking about what somebody is doing?

GENERAL VERRILLI: No, that –

JUSTICE ALITO: And if that’s true, why isn’t it equally artificial to say that somebody who is doing absolutely nothing about health care is financing health care services?

From my experience as as a health and life insurance agent, scarcely any young people buy burial insurance, better known as life insurance, although it is very inexpensive. Very few young people buy health insurance either.  The cost of someone dying without someone stepping forward to pay for it is borne by the taxpayer.

To use Justice Alito’s analogy, let’s say that a young person walking in downtown Washington is struck by a car and is uninsured.  If the person dies, the cost of creation most likely would be less than $1,000.  If the person suffers a traumatic brain injury, the average cost for those who do not survive is $454,717.  For those who survive, there are many levels of cost depending on the type of care.  The “average costs for medical and long-term care services averaged $196,460 for survivors receiving rehabilitation services”.

It will be interesting to see what the Supreme Court decides. Regardless, the cost of health care and dying occurs and must be borne by someone.

Higher interest assumptions with Allianz and ING Indexed UL (IUL)

Looking closely over the last few days at the Allianz Indexed Uniersal Life (IUL) product “Allianz Life Pro+”  I was impressed by its cash value accumulation and for loans for tax free retirement income.  The index account loan rate of 5.30% is excellent.

But what interest rate should the illustration be shown?  Allianz “Blended Index II” can be illustrated at 8.78%. This percentage reflects a 25 year historical performance Dow Jones Industrial Average 35%, Barkleys Capital U.S. Aggregate Bond Index 35%, EURO STOXX 50® 20%, Russell 2000 ® 10%.  I’m sure agents go right ahead and use the highest allowed 8.78% on an illustration because it makes the non guaranteed assumptions look better.

But when comparing  Allianz 8.78% to Lincoln at 8.22% or for their S & P 500 point-to-point allowed illustrated rates, is that an fair comparison?    Lincoln recently announced that they too would follow a 30 year historical look back.  Given Allianz’s much higher assumption on their 25 year look back, their non guaranteed projections look better.  Carriers provide time frames on historical look backs partially based on what helps produce the highest number and to keep up with their competitor’s assumptions.  When comparing these three products, Allianz does have a different index, but is it superior?  Will any index with a 20% Euro stock element outperform the S & P 500?   The recent history of the European Union doesn’t make that a safe assumption.

ING‘s “Global IUL” can currently be illustrated at 10.00%.  It’s uses three indices: the S&P 500®, the EURO STOXX 50® and the Hang Seng.  The top performing index is weighted 75%, second best 25%, lowest 0% on a 5 year look back.  That 5 year look back has a powerful appeal: the two strongest are credited on past performance.  But really can one expect 10.00%?

Recommendation:  Request illustrations for each carrier at the same rate: 8%, 7%, 5% or lower for direct comparisons and to see how they may perform.

Hybrid life long-term care looking even better after Prudential’s exits LTC market and increases premiums

Prudential announced it will stop selling individual long term care (LTC) insurance policies at the end of March. Prudential ranked fifth in the LTC market.  They will still sell group products.

In 2011 Prudential announced rate increases on its first and second generation individual LTC policies. The premium rate increase percentage requests were substantial: 18% or 32% on the first generation product, and 15% or 30% on the second generation. That higher tier of increases was on plans with a cash benefit rider.  The actual increase for those policy holder depends on what each state’s Department of Insurance approves.  From what I reviewed, states were approving most of what was requested and premium increase letters were going out this year to Prudential LTC policy holders.

All individual long term care insurance policy holders have to worry about rate increases.  In contrast with a hybrid life insurance LTC policy, the policy owner is able to lock in a fixed premium for life with a guaranteed UL plan.  For those with other retirement or estate planning goals, Indexed UL plans provide an opportunity for cash accumulation and increasing death or long-term care benefits.

 

 

 

Betty White raps for life settlements: seniors beware

Nationwide suspended underwriting on coverage over $1,000,000 for one of the universal life (UL) products due to “improper use”.   Nationwide did not elaborate, but this could be due to stranger-originated life insurance which prompted a similar restriction in 2010 sales for individuals over 65 with face amounts over $100,000.

Looking into what’s new in the dubiously ethical world of investors buying life insurance policies, it was a surprise to see that Betty White has clocked over 1 million views with a video pitching life settlements.

I wonder what her late husband Alan Ludden would have thought.  Betty White’s video opens at the Los Angeles Zoo.  A walkway there is named in Ludden’s memory.  As a  kid in the 1960’s,  I developed a good deal of respect for his intelligence and warmth watching him host the G.E. College Bowl and Password.

Policy holders considering a life settlement should be aware of all their options to maintain their coverage for their beneficiaries.  Not all of those options might be given by a life settlement agent, called a viatical settlement provider.  This article by JJ MacNab gives a good overview.  Viatical settlements requires a separate license for agents.  To make sure of an objective overview, ask a life insurance agent that is not licensed for life settlements for options to retain or replace coverage.  Ultimately, find an agent that holds a high standard in maintaining their fiduciary responsibility to advise and act in the policy holder’s best interest.

Here are some alternatives to selling your life policy:

Borrow from the cash value to pay premiums

Accelerate a portion of the Death Benefit  (if terminally ill)

Replace the coverage and either taking out the cash surrender value or roll it over in with a 1035 exchange

Beneficiaries taking over ownership and making premium payments.

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Second bad mail offer for life insurance from United of Omaha

As if once wasn’t bad enough, I received a second life insurance mail offer from United of Omaha.  It’s for graded benefit life insurance, the kind a person might consider, as a last resort, if uninsurable or terminally ill.

One insert read, “IF YOURE STILL UNDECIDED – It’s probably for one of these reasons…”   None of those reasons included the probability there is better and less expensive coverage available than graded benefit whole life insurance.

 

 

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

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Licensed Agent:  Sean Drummey
phone:  (910) 328-0447
email:  spdrummey@gmail.com

 

United of Omaha Insurance Company
a Mutual of Omaha Company

 

 

 

Cash value in Guaranteed Universal Life

 

To follow up on a post last week comparing non guaranteed interest rates for seventeen major life insurance carriers,  Met Life 5.45% was the highest and Banner the lowest at 3.00%.  But non guaranteed rates are a secondary consideration with Guaranteed Universal Life products, as these were.

For example, compare MetLife’s “Guarantee Advantage Universal Life” with Banner’s “Life Choice UL”:  $250,000 Face amount, age 63, female, preferred non tobacco rate, lifetime guarantee no lapse.

Annual Premium Carriier  Guaranteed Interest Rate Current Non Guaranteed Interest Rate Guaranteed
Cash Value
Year 20
Non guaranteed Cash Value
Year 20
$3,724.44 Banner 3.00% 3.00% $20,854 $20,854
$4,568.02 MetLife 3.00% 5.45%   0 0

With a Guarantee UL, also called no lapse guranteed UL, the lowest premium is the most important factor, locking in lifetime coverage fixed premium.  Cash value is usually not a factor at all, but can come into play in a few important ways.

1. Cash value acts as a safety net if premium are not paid on time to prevent the policy from lapsing.   That’s the biggest risk and challenge of a no lapse UL.    Can the policy owner make timely payments for 10, 20 years or longer?    That’s a detail that can be missed when juggling accounts or switching banks.   The bank draft should be set up to be fool proof.   If a mistake is made, missing two or more payments, cash value can rescue the error.

2.  Drawing down cash value instead of premiums if the policy holder is in failing health or terminally ill.   On a level face amount policy, whatever cash value becomes irrelevant when the policy holder passes away.   The policy will only pay out the face amount.   It’s use it or lose it with cash value.    Proper management of cash value in any universal life policy can save the policy owner thousands in premiums.

Banner’s guaranteed UL  builds guaranteed cash value making it one of the top guaranteed ULs on the market.   Banner also has very competitive premiums.   Metlife’s non guaranteed 5.45% projects $12,860 cash value in year 10, but declines steadily thereafter as age related cost of insurance rises.   Metlife’s premium is much higher for the same coverage, with the non guaranteed rate only a marginal factor in the early years of  coverage, Banner has by far better plan.

Quotes run on 3/6/2012 to the best of my knowledge and are subject to change, as are non guaranteed rates.

Carriers and Products:
MetLife Investors U.S.A. Insurance Company: “Guarantee Advantage Universal Life”
Banner Life Insurance Company:  “Life Choice UL”

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Sleeping pills as life threatening and impact on life insurance rates

news report came out last week on a class of drugs called hypnotics that includes Ambien and Lunesta, to a much higher risk of cancer and dying prematurely.  Even using these drugs occasionally appears dangerous.  The doctor who conducted the study Dr. Daniel F. Kripke has concluded that taking them is not worth the risk.

Perhaps this is an over reach.  The study was not a peer reviewed.   The statistics imply a causal relationship, but many other health factors may be involved.

For insomniacs, there are tips for better sleep habits.   If it was just a matter of some following a routine, I’m sure there wouldn’t be so many people taking sleeping pills.  One avenue to explore is understanding the body’s natural clock, the circadian rhythm.  I highly recommend Jeremy Campbell’s “Winston Churchill’s Afternoon Nap” which gives many insights into how our biological clocks work.

Impact on Life Insurance Underwriting
In itself taking a sleeping pills for insomnia would not affect life insurance rates.  One still could qualify to preferred and preferred best rate.   Underwriters will be looking to see if the underlying cause of taking the sleep aid is anxiety or depression.   That would be determined on a case by case basis by reviewing the applicant’s medical records.

Indexed Universal Life (IUL) switching between variable and standard loans

When selecting an Indexed Universal Life (IUL) for retirement income the loan rules are crucial. John Hancock this February announced a significant change in their loan features.  Policy holders are now allowed to switch between their “Index” loan, which is a variable loan, and the standard loan once per year on the policy anniversary.  Prior to that once a loan option was selected, the loan option could not be changed while any outstanding debt remains.

North American has a similar feature, although it’s much more flexible.  North American allows loans to switch between variable and standard interest rate at any time without a cash payoff.

An escalating variable loan rate could choke off and cripple an Indexed UL designed for retirement income.  North American has recently capped their variable rate at 6%.  In contrast many carriers, including John Hancock, the variable rate is uncapped.  Many carriers base their variable rate on Moody’s Corporate Bond Yield Average.   Historical rates for this bond yield have fluctuated considerably, and it’s quite possible they will do so again over the coming decades.

It’s favorable news that John Hancock has changed their rules on switching from variable to standard loan accounts without a payoff.   Standard loans do not tend to perform very well in the illustrations I’ve run with the exception of Lincoln.   North American has a far superior competitive edge with the variable loan rate capped at 6%.