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There was a huge change that took place in the life insurance industry recently. This is driven by
a new rule for calculating insurance costs that went into effect January 2009. Truth be told the
change has been a lot more gradual than that though. What has been happening is that life
insurance costs have been decreasing dramatically since about 2000. The Insurance Information
Institute says that term life insurance premiums are now 50 percent lower than they were a
decade ago. The internal cost of insurance of cash value life insurance polices, such as Whole
Life, Universal Life and Variable Universal Life, have also dropped causing a noticeable
reduction in premium rates for these policies.
The average consumer isnâ€™t even aware of this. The life insurance companies arenâ€™t coming out
and saying â€œitâ€™s cheaper to get a new policy today even if youâ€™ve had your current policy for 4,
5, 6 yearsâ€. They donâ€™t mind collecting the higher premiums. It then becomes up to the life
insurance agents to communicate this to the consumers. Did your agent tell you? Have you
heard from him/her? With such a high turnover rate in the industry as well as a pretty uniform
misunderstanding of life insurance there has been a huge disconnect between the insurance
companies and the consumers. Again, the life insurance companies donâ€™t mind. They are the
ones that are profiting off of you, the consumer, paying more than you need to for your life
The biggest driving force behind cheaper life insurance is simple; people are living longer. With
all the advancements in technology and medicine people have been experiencing longer
lifespans, thus longer life expectancy. The costs of life insurance are based on the probability of
you passing away. With longer lifespans, those probabilities are decreasing greatly. Since life
insurance is such a competitive industry, the insurance companies are passing this savings onto
the consumer. What they arenâ€™t complaining about is the old policies that many consumers
continue to keep in place and continue to pay. These are the real money makers for the life
What Happened In January 2009?
The mortality tables have changed. Effective January 2009, all life insurance companies must
use the Commissioners 2001 Standard Ordinary Mortality (CSO) table to calculate insurance
rates on new policies. This is an update to the the Commissioners 1980 Standard Ordinary
Mortality (CSO) table that was previously used. Under the new 2001 CSO, the average 65-yearold
male is expected to live to age 81, up from 78 under the previous table. Meanwhile, a 65-
year-old female is expected to live to age 85 today, compared with 81 under the old table. A lot
can happen in 21 years and a lot has changed.
As I said earlier this has been a gradual change. In fact, life insurance companies started
incorporating the 2001 CSO years before they were required to. However, as more and more life
insurance companies started to transition to these new insurance rates it caused competition in
the industry to heat up. This further drove down the price of life insurance.
There Must Be A Downsideâ€¦
With every positive there must be negative right? Well maybe not always but in this case there
is. The biggest downside to this is seen in cash value life insurance. The IRS has rules and
restrictions about how much money can go into permanent life insurance policies. With the costs
of insurance within these policies decreasing so isnâ€™t the overall amount of money that can be in
the policy. This makes the design and funding of permanent and cash value life insurance
policies all that much more critical. The typical life insurance agent doesnâ€™t fully understand
these concepts properly and could end up doing one of two things: leaving you paying more
costs and fees than necessary or leaving you with a tax nightmare that you werenâ€™t prepared for.
It is easier than ever to save money on your term life insurance policies, get your insurance
assessment today. With cash value life insurance policies it has become even more important to
work with a qualified professional that truly understands the inner workings of the type of policy
that you have and the funding that is available, to make sure you are putting yourself and your
life insurance policy in the best situation.
Hereâ€™s a shocker:Â Almost 70Â percent of single parents with children living at home donâ€™t carry life insurance, according to research from the University of Virginiaâ€™s Darden School of Business and Genworth Financial.
Iâ€™m not one toÂ echo insurance companies and agents when they foist expensive and unnecessary products on consumers, but isnâ€™t this the exact population that most needs insurance? And isnâ€™t plain-vanilla term life insurance just about as cheap as itâ€™s ever been?
â€œWe did expect to see pockets that were uninsured, but I think what came back to us was shocking,â€ says GregÂ Bucko of Genworth, which sponsored the study. He and Gregory Fairchild, the associate professor who did the survey, surmise that people arenâ€™t buying life insurance because they think life insurance is too expensive, or they fear it is too complicated to buy. â€œMany single parents are simply too busy â€” or even too scared â€” to properly evaluate their life insurance needs,â€ says Fairchild.
The survey found that 79 percent of unmarried men who donâ€™t own homes, earn less than $250,000 and have children in the household are not insured. Single mothers are less likely to be uninsured than men, but still more likely to have no insurance than to be covered. The researchers said that these low levels of uninsurance carried through most income levels. The more children there were in the household, the less likely the parent was to carry life insurance.
Perhaps single parents are holding off on the insurance buy because they arenâ€™t supporting their children; maybe thereâ€™s child support coming from another parent who doesnâ€™t live with them. Or maybe they expect that Social Security survivor benefits will tide their kids over. Neither of those are proper solutions. Even a parent who earns no money would leave a financial hole were she to die without planning for where her kids would sleep at night and who would put dinner on the table for them. And those Social Security survivor benefits for kids, equal to 75 percent of the parentâ€™s benefit, probably would not fill all of those gaps.
Maybe Iâ€™m prejudiced, but Iâ€™m personally close to two different young adults who were young children when their custodial divorced mothers died. In both cases, the mothers left coverage that enabled their children to continue solid middle class lives, staying in comfortable homes and going on to college and careers.
Hereâ€™s how to make sure you take care of your kids if the unthinkable should happen to you.
If youâ€™re depending upon a noncustodial parent to provide support for the kids, make sure that person is carrying adequate insurance, too. Find out the details of the policy, says Bucko. How much coverage is there? Where is it held? Are your children the beneficiaries?
Figure out how much you need for yourself.
A very rough rule of thumb continues to be 6 to 10 percent of your salary. But you could add more to cover college for your kids, the cost of your funeral and even the payoff of your mortgage. It is cheaper to roll those costs into oneÂ life insurance policy than it is to buy separate and specialized policies forÂ each one.
Buy a term policy.
That is the simplest and cheapest way to get coverage; you buy a benefit for an annual premium that is guaranteed for a certain term (30 years is a good number now, with kids coming back after college and still needing support). Thereâ€™s no cash built up in the policy, but costs are quite low. Comparison shop for the best rates at sites like Intelliquote.com, WholesaleInsurance.net, and Term4Sale.Â Get quotes fromÂ companies that sell direct to customers and may not be listed on those sites. A few to check are Geico, USAA and Progressive.
Donâ€™t wait for prices to fall; they probably wonâ€™t.
In 1997, a 40-year-old man seeking $500,000 in coverage for 20 years could buy a policy for about $560 a year, according to Term4Sale. By 2008, the same policyâ€™s annual premium had fallen to about $360, and itâ€™s been holding close to that level ever since. Their next move could be up, not down, suggests Robert Barney, president of Compulife, the firm which runs Term4Sale.
Quit smoking, or hurry up and buy.
Prices for term insurance have risen for smokers, even while theyâ€™ve declined and remained flat for nonsmokers, says Barney. That same policy would cost a smoker about $1,400Â a year, he said.
Pass it around.
Keep information about your policy with the rest of your estate documents, and let the people who will be in charge of your estate and your kids know how to find it. If you want to do a little bit of bragging about your new policy, go ahead. Covering your kidsâ€™ futures with a good policy on your life is just one more way to be a good parent. As a matter of fact, you couldÂ treat yourselvesÂ to pizza for dinner on premium-sending nights. You deserve it.
California regulators subpoenaed MetLife Inc and plan a hearing on the company’s practices involving the payment of benefits after learning of an insured’s death.
Insurance Commissioner Dave Jones and State Controller John Chiang on Monday said they are responding to audit findings indicating that MetLife failed to pay life insurance policy benefits even after learning that an insured had died.
The subpoena comes after Chiang announced a settlement with insurer John Hancock Life Insurance Co last week involving similar issues.
MetLife spokesman John Calagna said the company would fully cooperate with regulators.
“MetLife’s first priority is to keep its promises to its policyholders,” Calagna said, adding that the company made payments in excess of USD 11 billion to beneficiaries in 2010.
MetLife has an estimated USD 1.2 billion worth of so-called Industrial Policies, sold to working-class people in the 1940s and 1950s, the regulators said.
The audit indicates that Metlife did not take steps to determine whether policy owners of dormant accounts are still alive, and if not, pay the beneficiaries — or the state if they cannot be located, the regulators said.
“The thrust of this hearing is to determine whether MetLife, one of the largest life insurers and issuers of annuities in the United States, engaged in unfair practices regarding the payment of life insurance claims to beneficiaries,” Jones said in a statement.
Calagna said MetLife has been proactive in identifying policy owners, establishing a master database in recent years.
In its settlement, John Hancock agreed to restore the full value of more than 6,400 impacted accounts dating back to 1992, and to better identify deceased policy holders, among other provisions.
The MetLife hearing is scheduled for May 23 in Sacramento, California.
Nearly two dozen states have reached an agreement with the John Hancock Life Insurance Company to settle a dispute over how the company pays life insurance policies and annuities. John Hancockâ€™s executive vice president and general counsel, Jonathan Chiel, said Friday that the company would improve its claims practices under the agreement with 22 states and the District of Columbia. He said the settlement was reached Thursday. The move comes after an audit by 35 states and the District of Columbia alleged abuses with life insurance policies and annuity contracts. The California controllerâ€™s office revealed the settlement in a statement released on Friday.
Bailed-out insurer American International Group (AIG.N) is working hard to invest cash it set aside for a failed deal to buy back assets from the Federal Reserve, Chief Executive Bob Benmosche said on Tuesday.
But the company is still looking at taking part in the auction the Fed set up for the nearly $16 billion pool of mortgage-backed securities, Benmosche told Reuters in an interview. He was in Croatia to address a U.S.-organized conference on investing in that country.
The Fed bought the securities from AIG during the depths of the financial crisis in 2008 as part of a package to save what was then the world’s largest insurer from collapsing into bankruptcy.
AIG had offered to buy the whole of the Fed vehicle Maiden Lane II, which holds the securities, for $15.7 billion. The company had been accumulating cash for months at its insurance units in anticipation of the deal.
But the Fed rebuffed it and said it would instead hold a public auction for pieces of the portfolio, which Benmosche has called a “huge problem” for the company, given all the low-returning cash it was stuck holding.
“Because the money has been sitting in cash, we are now busy getting that invested, and that has created a headwind to say, ‘What can AIG actually earn off the cash they have and what they actually invest in during this period of time?'” Benmosche said.
“And it’s put us behind the 8-ball a bit, but we are confident we’ll start working our way out of it.”
SHARE SALE ON TRACK
The first Fed auction is now underway, and Benmosche said AIG was trying to decide whether to bid based on the securities on offer.
The other major issue AIG has looming is a stock offering. The U.S. Treasury holds 92 percent of AIG after the company’s $182 billion bailout, and it is expected to begin selling down that stake as soon as next month.
AIG has plans to sell shares in the same offering, though Benmosche said the timing of any sale was entirely up to the government.
He did say, though, that AIG remains comfortable with the goal of selling about $3 billion in stock in the offering.
“That is an estimate that we have talked about and we have not changed that estimate. I think for now we think it is reasonable,” he added.
Benmosche is expected to participate in the roadshows for the share sale despite undergoing treatment for cancer. AIG said earlier this year his prognosis was such that he should be able to stay on the job through mid-2012 as originally planned.
He said Tuesday that AIG’s board has not yet selected a successor for him. The company’s contingency plan would have Chairman Steve Miller step in as interim CEO if Benmosche were unable to keep working.
“Well, I still feel pretty good, so I am not ready to step down today. I don’t think that they have selected a CEO, but I believe that they have gone through a very thoughtful succession process,” he said. “They have a sense of the internal candidates and things they expect those people to work on, to improve this year and into next year.”
AIG shares rose 3 percent to $34.97 in mid-morning trading. The stock has lost about a quarter of its value since a recapitalization deal with the Fed and the Treasury closed in late January.
BOSTON (TheStreet) — Would you buy life insurance from a man who dresses in spandex and coughs up blood?
Gene Simmons has embraced many personas over the years: The demonic, fire-breathing bass player for legendary rockers KISS. A rabid merchandiser who oversees an empire built on his band’s merchandise, ranging from T-shirts to designer coffins. The star of a reality series, Gene Simmons Family Jewels, gearing up for its seventh season on the A&E network.
His latest venture is helping sell life insurance to high-net-worth individuals.
Simmons spoke to TheStreet recently as he packed for a trip to Israel being filmed for his TV show. It is the first time he has returned to his homeland since — as a young man named Chaim Witz, the son of an Auschwitz death camp survivor — his family migrated to Queens, N.Y., in search of a better life.
The night before the trip to Israel, KISS played their usual set of hits, Detroit Rock City, Love Gun and Stutter among them, at Reliant Stadium in Houston. Once upon a time, backstage post-concert might have been a bacchanalia; that night it was a client meeting.
Simmons was schmoozing for Cool Springs Life Equity Strategy, a Franklin, Tenn.-based firm he helped found a year ago. The firm specializes in providing life insurance for the rich in, it claims, a very financially advantaged way.
Focusing on those with assets of $20 million or more, Cool Springs facilitates loans that allow clients to procure high-value life insurance policies with little or no money upfront. The loan, which covers premiums, can be paid incrementally or settled from the ultimate payout. The firm says this approach helps minimizes estate taxes.
Some in the industry cast a skeptical, if not critical, eye on the concept of premium financing, which other firms and insurance companies have offered over the years. Cool Springs says its strategy will succeed because the cost of borrowing and commissions are low for their affluent clients. The interest rate is flat, based upon the London Interbank Offered Rate. Clients have the option to fix the interest rate for a term ranging from one to 30 years or allow it to fluctuate as frequently as every week.
Among Simmons’ partners in the venture are CEO Samuel Watson, a 29-year veteran of the life insurance industry, and David R. Carpenter, who retired in 1995 as chairman and CEO of Transamerica. Also aboard is Richard Abramson, who managed Paul Reubens’ Pee-wee Herman character, co-created and produced the acclaimed children’s show Pee-Wee’s Playhouse and previously joined forces with Simmons for several business ventures, including a marketing firm that included the Indianapolis 500 as a client.
Simmons’ involvement came after he and Abramson, having passed on a financial product they were working on, were introduced to Watson.
Simmons role is rainmaker, an evangelist for the new firm whose fame and connections can bring in clients from the world of entertainment and sports.
And Simmons has his patter down, stressing how even the most financially savvy can be either underinsured or choosing the wrong products.
“Life insurance is a must,” he says. “It’s the one thing in your life you are doing for everybody else. Once you are dead, you really don’t care, but while you are alive it is the one big, selfless thing you should be doing. And you should try to maximize the amount of money that you leave behind to your family, your loved ones and whoever else you deem.”
Simmons is blunt that, at his company, only the super-rich need apply.
“It is not for everybody,” he says. “People of a certain economic level should be buying Volkswagens, and they shouldn’t be getting a Rolls-Royce.”
In keeping with assumptions you might make based on his public persona, it doesn’t take much prompting for Simmons to veer away from the dry selling points of insurance.
The word “premium?” He hates it, considering it a “soft sell” that avoids calling it what it is — “money, writing a check.”
“I hate fine print,” he adds, building a head of steam. “I hate it. You can’t even go in and buy a car. The sticker price is $25,000. But, by the time you leave, it is $31,000. Why doesn’t it just say $31,000 as the full price? Because they lie, that’s why.”
A mention of the estate tax, zeroed out last year and back at 35% for this year and next, propels him even more into invective.
On the national debt:
“Between bailouts and schmeckle-outs and all the -outs that the government has gotten involved in, big government is now bigger than ever. You longer need mommy and daddy to wipe your butt, you’ve got the government to do that every time you do something wrong.”
On tax policy:
“They’ve got to get the money somehow, and they are going to get it, trust me. How are they going to do it? It’s Robin Hood time. Somebody’s going to take from the rich and give to the poor. The American Dream — work as hard as you can and enjoy the fruits of your labors — is not really true. Under the present administration, which I voted for, a more accurate description is, ‘Work as hard as you can and when you finally gain the rewards of your hard work, we’re going to make sure a lot of it goes back to everybody else.'”
“If we don’t leave the rich alone, and I’m talking as a poor person who worked his way up, they will move to Sweden or someplace else. Keep beating up the people who create jobs and watch them go offshore. Everybody is shocked when you pick up the phone to order a magazine subscription that the order fulfillment is in India. Everybody s shocked when that happens. well, keep beating people up who create jobs and see what happens.”
On challenges entrepreneurs and small business face:
“I want to start a business, so I go and I borrow and get myself deeply in debt. I’m going to make ‘popcorn farts’ — that’s going to be my product. I have to pay rent or buy a building. I’m on the hook for that. I have to hire people, I have to pay their salaries, worry about their retirement plans and, in case one gets pregnant, I have to worry about the pregnancy plan, I have to pay for their vacations and overtime. Then, I have to buy equipment and insure the place.
“Finally I make the first popcorn fart. It costs me a dollar to make, that’s the cost of goods, and if I’m lucky I can get $1.40 to $1.50 for it. The store, the distributor and everybody else will make much more than I do, and all they do is sell it. Everybody else gets paid first, if there’s a profit I get paid last. If the business goes under, I am fully on the hook for it. And, after I make my first dollar, I have to give 50% to the government if I’m lucky. After that, if I want to leave it to my heirs I get beaten up again. At what point do they just simply come clean and say, ‘I have a gun to your head, give me your money.’ The capitalist system is not in good shape. The American dream is not what it used to be, and that is why the people who become high-net-worth individuals have to be much more diligent that they ever have been before.”