Category: Estate Planning

Can you trust the ratings of life insurance companies?

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August 25, 2011

2:34 PM

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Estate Planning, Permanent Life Insurance, Policy Review, Term Life Insurance

The Business Insider, a breezy and irreverent online business website, last week came out with an article on a former Moody’s analyst who submitted a tell all to the SEC on how Moody’s, a major ratings agency, is in Business Insider’s words “corrupted to the core.”  How the ratings agencies escaped Department of Justice or congressional inquiry after the 2008 financial meltdown is still somewhat of a mystery to me.  You would think the large bulk of the investor class of whatever political persuasion would have demanded, howled for, an inquiry as to what happened, to hold those accountable, and to reform the rating agencies, so independent ratings agencies could serve their proper independent analyst function.

Well, prior to 2008, it was common for me as a life insurance agent and broker to the give ratings of life insurance carriers in a straightforward style.  For example, “American General Life, part of AIG,  is rated A++ by A.M. Best.”   As it turned out, A. M. Best downgraded AIG in October, 2008, one day and one step before the Fed gave them a bailout to prevented their collapse.

How do we stand today in 2011?   Most life insurance carriers are rated by A.M. Best, Standard & Poor’s, Moody’s and Fitch.   Some of the smaller carriers are only rated by one or two agencies.  For example SBLI is rated by A.M. Best and Weiss. But how does one give their ratings more than a fraction of credibility?  How much did the life insurance companies have to pay them to get their ratings?  Since there hasn’t been any ratings agency reform, how much the system is gamed for life insurance?   Moody’s and Fitch tend to rate the companies lower, so I tend to look at those ratings closer because they might be more realistic.   I track stock performance of the certain companies which is somewhat useful.   If you Google search a company and put “Downgrade” pulls up negative information ratings agencies have given on a company’s performance after 2008.   Put “Upgrade” or “Neutral”  will also provide information the ratings agencies have provided.   The overall trend since 2008 has been downgrades and then leveling off with some upgrades.

Fortunately, each individual state has an insurance commission which regulates life insurance companies.  They have to have certain financial reserves, and new products must be approved for sale.   The North Carolina Department of Insurnace, for example, has had a strong history of consumer protection.

Look at the ratings but don’t trust them as a window to the truth.

 

Image source:  Wikipedia Commons

Term vs. Permanent it’s all a matter of age

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July 29, 2011

11:43 AM

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Below Average Health: Substandard, Impaired Risk, Estate Planning, Final expenses, guaranteed universal life, In Your 20's or 30's, In your 40's, In your 50's, In your 60's, In your 70's, In your 80's, Term Life Insurance

Should one choose term or permanent life insurance?   Granted every situation is different, but a general guideline is simple.  Go by the age you need to cover.

Term before retirement and permanent after retirement –  Term to replace a breadwinner’s lost income: permanent for final expenses or estate planning.

Term –   pre-retirement

  • 20’s:  30 year term
  • 30’s:  30 year term
  • 40’s:  20 or 25 year term
  • 50’s:  10 or 15 year term
  • 60’s:  10 year term

7 to 10 times annual salary is general rule of thumb. Most important: get something with affordable premiums.  If need be, drop back on the term length, rather than the face amount, for affordability.

If you have children, get term long enough to cover your youngest child past college age.  For example, if your youngest is 9,  a 15 year term.   9 + 15 =  age 24.    It used to be that age 22 was the benchmark year for college graduation, but since the 5 year plan is more the norm, so you may want stretch it out a bit more.

Permanent  –    post-retirement:  60’s, 70’s, 80’s, 90’s

Ideally, start a separate permanent policy in your 30’s, 40’s or 50’s.  If not, permanent is available into one’s 80’s.  If unhealthy, you can convert your term policy into permanent in your 60’s.

First choice: fully underwritten life insurance, which requires a blood test and medical records.  It’s less expensive, and you get more coverage.  There’s a big industry out there, including AARP, that misleads seniors into needlessly expensive no exam term and permanent. That coverage is only plan B if very unhealthy and for permanent only.  Don’t be fooled into no exam term.

North American currently has the best policy for final expenses, a $25,000 guaranteed universal life.

For estate planning purposes there are guaranteed universal life policies at whatever coverage level that suits your objectives.  The most choices are for coverage at $100,000 or more.  Please refer to my sample quotes by age.

Images: Wikimedia Commons

Heading off trouble to life insurance policies in estate plans

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July 20, 2011

3:55 PM

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Estate Planning, guaranteed universal life, Indexed Universal Life, Permanent Life Insurance, Policy Review, Variable Life Insurance, variable universal life, VUL

The 2008 “market shock” may have an unwelcomed delayed effect on variable life insurance policies according to an article recently posted by the Wall Street Journal.  Variable life insurance usually refers to variable universal life or VUL.

One key point is the policy holder may only get 30 or 60 days notice that the policy requires more money. Another interesting point was that estate advisers should consult a good life insurance agent.

Edward F. Koren, chair of private wealth services at Holland & Knight in Tampa, Fla., also recently helped a client deal with a troubled policy. Because the policies are complicated, he says, an estate adviser should turn to a very good insurance agent for help. “You need someone who deals with insurance every day,” says Koren.

That advice goes for financial advisers as well.  They may sell life insurance on the side, but it’s doubtful they keep up with it full time.  Get a second opinion by contacting an independent life insurance agent and broker; it never hurts.

A variable life insurance policy owner, or any universal life policy holder, should request from their carrier a current illustration to see how a policy is performing.  A current illustration is much more clear picture of a life insurance policy than an annual statement.

I don’t recommend variable life insurance. It poses too much downside risk to the client, and puts too many eggs in one basket. Life insurance should be a more conservative element to an overall estate plan. There is guaranteed universal life that guarantees coverage to age 121 at a fixed rate.  Also there are universal life products with strong guarantees that build cash value.  Besides now there is indexed universal life that correlates to market performance but has a floor against market losses and is not directly involved in the stock market.

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Unclaimed life insurance in New York

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July 6, 2011

1:54 PM

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Estate Planning, Life Insurance Benefits, Policy Review

Following other states, New York has ordered life insurers to search their files for unpaid claims.   Bloomberg provides interesting details on standard procedures for holding funds.  (emphasis mine)

Life insurers are generally required to pay claims after being notified of a policyholder’s death and receiving a valid death certificate. If insurance companies aren’t notified of a death, they usually are required to hold the funds until the insured would be about 100 years old, plus an additional three or five years, depending on the state, before turning the money over to the state as unclaimed property.

100 plus years is a long time, given average life expectancy.  Under pressure now from state governments, expect life insurance companies to sweep their files in every state checking against the Social Security master death file, and expect many surprised beneficiaries to be notified of life insurance funds payable to them.  The problem for all too many unclaimed funds will be locating the beneficiaries.  Companies often have very little to go by, some applications don’t even require the address of the beneficiary, and their information may be decades old. Many unclaimed funds will end up in state treasuries helping their balance sheets.

For current life insurance policy holders this is a cautionary tale.  Take steps so your policy get paid out properly. Provide your beneficiaries with the company names and policy numbers of your policies.  Make sure your beneficiary information is up to date, and also make sure you have a contingent beneficiary established with current contact information.  Contact your life insurance agent, and make sure your agent has all your current beneficiary information.  If you’ve lost touch with your agent, you may select another to be your agent of record.

image: Wikimedia Commons

Prevent your life insurance going unclaimed

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May 18, 2011

10:58 AM

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Estate Planning, Policy Review

Life insurance carriers will probably in the future be more proactive in paying death claims because right now their feet are to the fire. State regulars are banding together to investigate carrier past practices with the National Association of Insurance Carriers is becoming involved.

States are doing this to collect money on unclaimed death claims.   Policyholders should take the necessary steps to avoid any delay in their life insurance going unpaid for any unnecessary length of time.  Here are a few suggestions:

Contact your life insurance carrier and verify your contact information, and especially the contact information of your primary and contingent beneficiaries.  If you need to make any changes to your primary or contingent beneficiaries, request from the carrier the appropriate change form, fill it out and send it back.

Contact your beneficiaries or executor and make sure they know the names and contact numbers of your life insurance carriers.  Make sure they know that they will have to file a death claim with the carrier when you pass away.

Contact your life insurance agent and make sure your agent has all the correct beneficiary name and address information.  Your agent can play a crucial role in making sure your policy will remain in force for the rest of your life.  If it is a term policy, when does the level term period end?   What are your conversion options?   If it is permanent life insurance, whole or universal life, review your annual statement.  What are the guaranteed and non guaranteed cash value projections?  Since annual statements are often incomplete, request from the carrier an in force illustration.   You can save your policy from lapsing or save yourself thousands of dollars in premium if you know how the policy is projecting and how to manage your cash value.

If you no longer have an agent, you may request to an agent to become your agent of record.

 

Life Settlements

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May 4, 2011

11:36 AM

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Estate Planning, life settlement, Life Settlements, Policy Review

A recent article about selling your life insurance policy advises you to interview at least three brokers.   Here’s more insight into what to look for in a broker.

  • A broker with a strong sense of ethics to act in your best interest.   After all the life insurance was intended for your beneficiaries, have all the avenues been explored to save the policy?   You need a broker to review your policy, best by obtaining an “in force illustration”, and provide a range of alternative recommendations.  Can the cash value in your policy be used to pay all or part of your premium?   Can you replace your policy and use the cash value to lower your premiums or pay up a policy?   This is called a 1035 exchange.   Is there an accelerated death benefit to tap into?

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Ohio treasure hunt for lost life insurance policies

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April 28, 2011

12:57 PM

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Estate Planning

If you had a relative who lived in Ohio, perhaps they left you some life insurance money that you didn’t know about.   The easiest starting point is to type in your name in Ohio’s Division of Unclaimed Funds.

A life insurance carrier may have unclaimed money where they don’t know the policyholder has died or cannot locate the beneficiaries. Ohio’s Department of Insurance has a program to help find missing life insurance policies.  Ohioans with questions on life insurance may call their toll free consumer hotline (800) 686-1526.  Continue reading “Ohio treasure hunt for lost life insurance policies” →

Make Sure Your Life Insurance Claim Gets Paid

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April 27, 2011

10:39 AM

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Estate Planning

MetLife is being probed for not paying claims in California allegedly for policyholders they knew to have died, but no claim was made by the beneficiaries.  John Hancock recently settled with California over the same issue, which I wrote about a few days ago.   Expect more, as the Wall Street Journal reports:

The news comes as authorities in 35 states are looking at whether nearly two dozen of the U.S.’s most prominent life insurers are failing to determine if policyholders have died, and aren’t turning unclaimed funds over to states in a timely fashion.

This is a very positive development for policyholders, since carriers will be compelled to be more proactive in finding beneficiaries.  But given some beneficiaries are unaware of the life insurance policy, have died or moved away, many will still be unpaid.  The state will be the beneficiary of unclaimed money left in limbo.

Lessons for life insurance owners

Make sure your beneficiary names and addresses are up to date.  You may contact your carrier’s customer service department directly and provide them with that information.  If you wish to change your beneficiary or contingent beneficiary, the carrier will provided you with a form to fill out and sign.  Your writing agent can assist you with the proper forms and contact information.

If you have lost track your agent, the carrier may have your agent’s contact information.  It depends on whether the agent is still in the business or still writes new business to that carrier.  If your agent is no longer in the business or hasn’t contacted you periodically, it is in your best interest to ask another life insurance agent or to become your servicing agent.   This is another layer of protection to make sure your claim gets paid.  A good servicing agent will conduct an annual policy review.   That’s what I do with my clients.  This is especially important with cash value life insurance policies, either whole life or universal life, where you receive an annual statement.   You can save thousands of dollars in premiums or by transferring your cash value into new coverage or spending down your cash value instead of paying premiums towards the end of your life.

 

The Danger of being a policyholder without an agent

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April 25, 2011

11:01 AM

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Estate Planning, Policy Review

How is your life insurance carrier going to know you’ve died?    Carriers traditionally require the beneficiaries to notify them.   But what if your beneficiaries don’t know you have a policy or have died themselves, and your life insurance agent no longer is in touch with you?    Some light was shed on this problem when last Friday John Hancock  agreed to settle with the state of California over unpaid death claims.   If a policy becomes on orphan, the final resting place of the orphanage is your residence state.  The carrier sooner or later has to transfer that money over to the state as unclaimed property, and states right now can certainly use interest on that money, so that end is tightening up.   That’s a break for consumers because carriers will be more proactive in checking if their clients are alive or dead.   But it should never come to that.

Just think of it.  All that money sitting around waiting to be claimed.  (Check by residence state) What a waste. Let your beneficiaries know you have a life insurance policy and the carrier’s name.  Place your policy with your will and other vital papers in a place where they can be easily identified and retrieved.

Also have another layer of protection, don’t be an orphan policy holder.   If your life insurance agent is no longer in the business, you have an orphan policy.  That’s not a good idea, agents are more than helping you buy a policy.  They should be monitoring your policy as well.  They can help you save thousands of dollars in premiums or increase your death benefit.   If your agent is not contacting you, for whatever reason, establish a new agent of record.   This is especially crucial if you have a cash value life insurance policy, and you receive an annual statement.

You should have a  life insurance agent contact you annually to review your coverage.

  • Trade up.  You can potentially save thousands of dollars or increase your benefit by replacing your coverage.  If your in your 60’s or 70’s and still fairly healthly, might be time to trade in the old UL for a better performer.  Cash value can be transfered from you old policy into a new one and dramatically improve your situation.

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