California - Life Insurance Recommendations

Lost Life Insurance Policy in California: Search, Find and Recover A Valid Claim

June 24, 2013

3:50 PM

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2013, California, life insurance policy, lost life insurance policies

Detail California seal

The California Department of Insurance advises here how to go about locating a life insurance policy.

California has reached a settlement with 18 life insurance carriers on unpaid life insurance benefits In a June 2013 press release of the settlement with 11 carriers the agreement provisions include:

Like previous settlements, the agreements announced today require the companies to do the following:

Restore the full value of all impacted accounts dating back to 1995;

Fully comply with California’s unclaimed property laws and cooperate with the Controller’s efforts to reunite these death benefits, annuity contracts and retained asset accounts with their owners or, in many cases, the owners’ heirs;

Pay the policy beneficiaries 3% compounded interest on the value of the held amounts from 1995, or from the date of the owner’s death, whichever is later.

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

Indexed Universal Life (IUL) compared to a ship’s journey

by Sean Drummey

November 17, 2011

10:38 AM

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California, Cash Value, Equity Indexed Universal Life Insurance, Estate Planning, Indexed Universal Life, Internal rate of return, IUL, Modified Endowment Contract, policy illustration, Variable Life Insurance, variable universal life, VUL

Think of IUL as a means to achieve desired goals: to build cash value and to provide a death benefit. It is like going by yacht across the Pacific from California to Tahiti. This is a long journey, under many weather conditions, and this vessel is particularly designed to be safe and to reach its destination.

Prior to this life insurance that captured stock market, equity, returns was a more perilous journey. Variable Universal Life, a VUL class yacht, was favored. It is a sleek craft with the potential of performing very well (direct stock market participation), but like a yacht without an engine, it has proved to be risky for loss of cargo (cash value) and to capsize and sink (lapse).

So along came Indexed Universal Life as a safer alternative. It is like a powered yacht. Call it a IUL class yacht. She is backed by the ship builder (carrier) with no direct participation in the stock market. She has a sail or multiple sails (Index Account). Sails are designed for use when the winds are favorable (bull market) to build up the cargo (cash value) and ship’s value (death benefit). If there is a typhoon (bear market) approaching, the ship’s owner can use the engine instead (Fixed Account). If there are varying winds or doldrums, the owner may use both sail and engine (Participation Rate). The owner must decide in advance which mode to use for a period of time (Segment). This segment is generally one year. When the segment is over, the yacht owner is awarded for its performance (Interest Rate Crediting ) that increases the value of the cargo (cash value) and yacht (death benefit).

Now this IUL yacht has a very sturdy deck (Floor). Generally this deck is totally protected against leakage (0% market losses). It may even a raised deck (1% or higher Floor). As with a double hull, there are also guarantees in place for the ship not to sink (lapse). These guarantees may be for a set period of time like 10 years, 20 years or for life.

There are, however, certain restrictions placed on the ship’s speed in favorable conditions. The height of the mast is limited by the ship builder (Cap) or the top mast lowered (Spread). The yacht owner may gain extra by increasing the volume of sail (additional premiums). There are however certain rules as to how much sail is permitted (IRS rules for Modified Endowment Contract or MEC).

With an Indexed Universal Life cash value is built higher by increased premium contributions, and by gauging the direction stock market performance. Ideally, when the market is in an upward trend, the owner has directed premium into a high performing index, and when the market is in a downward trend, premium is directed into a fixed account. Regardless of choice or performance, the policy is protected against any losses by the floor. It is similar to a powered yacht that sets the maximum amount of sail with favorable winds, and uses the engine when conditions are unfavorable. There are various possible coverage goals. Some may use an IUL for early cash value accumulation for retirement, others can use the cash value for premium payments in retirement and estate planning.

Keep in mind when reviewing Indexed UL products
Just as yacht makers may brag about the boat’s sails, engine and design, life insurance carriers will promote their Cap (e.g. 13%), Fixed Account guarantee (e.g. 3%), Floor guarantee (e.g. 1%) and other bonus features. What is not evident is the product’s cost of insurance, expense and policy charges, the ship’s drag, how that affects the performance over a long period of time, especially 20, 30 or 40 years out.

How to Evaluate Competing Indexed UL Products
Fortunately, you don’t have to buy this IUL yacht after just reading the specs and trusting that it sails well. Request from the agent a policy illustration to test the product’s projected future performance. This will simulate how load and expense charges affect policy values, and compare that side-by-side with other carriers. This will help determine the all important internal rate of return. It’s similar to computer modeling a yacht race factoring each boat’s design, tonnage and various wind conditions. The carrier’s financial strength and viability is another important consideration because cost of insurance and other expense charges are subject to change, and you are also selecting which carrier will perform best and deliver the best results over time.

Sean Drummey
Contact for a free quote
Phone: (910) 328-0447
Email: spdrummey@gmail.com

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New consumer protection at claims time

by Sean Drummey

October 4, 2011

10:26 AM

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Annuities, California, Claims, Consumer, Policy holder, Policy Review, Policy servicing agent

Life insurance policy holders should carefully plan ahead so their beneficiaries are promptly paid their life insurance money. The beneficiary should be aware the pay out procedures of the life insurance carrier.

California adds some protection

On October 2nd Governor Jerry Brown of California signed a new law requiring life insurance companies to get approval from beneficiaries to keep death benefit payments in retained asset accounts. This is good news for California consumers. Any steps taken to safeguard this process are welcome.

Check vs. check book

Life insurance is not necessarily paid out as a lump sum. Don’t assume the beneficiary of a $500,000 life insurance policy gets a $500,000 check in the mail. Starting in 1983, life companies began adopting the practice of sending beneficiaries a check book with pay out options. Nothing to stop the beneficiary for writing a check for the lump sum and depositing it a bank, but if not the benefit is kept in a retained asset account. Why did this happen? Simple. Life insurance companies earn a profit on the money retained. Was this a bad deal for the consumer? It depends on the company, the interest rate offered, protections and fees charges. Financially sophisticated beneficiaries would find the highest rate of interest possible for their money and move their money immediately for the highest rate of return or to lock in an annuity or investment. This retained account works against beneficiaries who delay making a decision or do not shop around for the best return on their money. Also this money is not FDIC insured.

According to the National Association of Insurance Commissioners, the key issues for retained asset accounts: (emphasis mine)

What interest rate will be paid on the proceeds, how will the interest rate be determined and how will the interest amount be credited to the account?

Will the proceeds be held in a bank, which would make the proceeds FDIC insured up to the limit permitted by law?

Will the proceeds be held by the insurer, which would make the proceeds subject to coverage by a state guaranty fund should the insurer fail?

Will the proceeds be held in a bank checking or an insurer draft account and what banking services, if any, will be provided?

What services will be provided at no charge and what services will involve a fee?

More consumer protection and awareness is needed

Beneficiaries who do not move their money were taken advantage of with uncompetitive interest rates, high fees and lack of protection offered by federally regulated banks. Keeping the money in a retained asset account opens the beneficiary to other possible abuses.

It’s important for someone to give the beneficiary sound financial advice at claims time. Given the beneficiary is possibly grieving and at the insured passing away, he or she may not ready to make a good decision in a timely manner.

A policy owner should have a life insurance agent who is actively servicing the policy. If you are not in contact with the agent who sold your policy to you, an agent like myself can become your servicing agent. When the insured passes away, the agent can assist the beneficiary with the death claims: contact information, the claims form, and which other collaborating information is required: the death certificate and often a public notice of the insured passing away. Also the agent should inform the beneficiary of the company’s pay out practices, to give the beneficiaries advice on what is in their best interest. Remember an independent agent is not employed by the life insurance company. The agent duty is to work in their client’s best interest.

Ideally what the beneficiary does with the life insurance money is an informed choice made in council with a family adviser, financial professional or executor. Life agents can serve the beneficiaries by informing them of their annuity options. It is important for the beneficiary, if desiring an annuity, to shop for the best deal, and not automatically take an annuity offered by policy holder’s company. What best will depend on the beneficiaries situation. A conscientious servicing agent knowing the policy holder’s intentions and instructions is in a very good position to help serve in the beneficiary’s best interest.

West Coast Life Insurance Company merges out of existence

by Sean Drummey

August 30, 2011

1:35 PM

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California, Conversion

West Coast Life Insurance Company merged with Protective Life in 1997, and Protective has announced to life insurance agents that they will stop accepting applications on West Coast Life paper on December 1, 2011. It’ll be all Protective Life from that point forward. Protective did a similar thing with Empire General Life Assurance Company back in the 1990’s. West Coast Life was begun in 1906 in San Francisco right before the great earthquake. The company’s founders rightly considered that the West Coast of the US needed it’s own life insurance company, and it quickly prospered. Given the death toll from the great earthquake in 1906 was above 3,000, and remains the greatest loss of life from a natural disaster in California history, that tragic event undoubtedly motivated survivors to protect themselves with life insurance coverage.

West Coast Life policy holders will likely see their policy’s name changed to Protective Life in 2012. There will be no impact on policy provisions, but name changes are not good. It’s adds a potentially obscuring layer to the paper trail for the beneficiaries and contribute to unclaimed life insurance, which has made the news this year in the life insurance industry.

For West Coast Life term policy holders, I strongly recommend you consider other options, especially if you may want or need permanent life insurance after your term coverage ends. West Coast Life term policies, sold years ago, were initially strong for conversion: up to age 75 with a wide range of product options, including guaranteed universal life. However during this Great Recession, Protective Life has sharply reduced term conversion options, and West Coast is in my bottom tier of carriers for conversion: very limited and relatively expensive permanent products.

Image source: Wikimedia Commons