Recently, a retired company executive came to me for a review. He had
planned and invested very well over his career. He had done so well, in
fact, that he no longer felt the need to continue his life insurance
coverage. We discussed his options. His coverage consisted of three
permanent policies; all three had built up a significant cash value, and
all three had a dividend that exceeded the premium.

So, he had no premium payment obligation because the dividend paid the
premium. In other words, the insurance policies paid for themselves.
And, if he surrendered the policies, he would incur a significant
taxable gain at ordinary income rates.

We talked more about his plans in retirement, family, grandchildren,
travel, etc. He shared the news that his son and daughter-in-law just
had a new baby, born last month with Down Syndrome. After some
discussion, I suggested he consider a Special Needs Trust for the
benefit of his new grandson. Furthermore, he could fund it with the life
insurance that he no longer wanted.

I could see the “light bulb” go on in his mind. His fist hit the table
and he said, “That’s exactly what I should do.”

The trust is being drafted by a local attorney and when completed, we
will change the beneficiary designation on two life insurance policies
to the trust. And what about the third policy? The retiree will transfer
it to The Down Syndrome Foundation for research, with a tax advantage to him.

Someday, that young grandson will appreciate the planning his
grandfather did. The parents already do and have gained added peace of
mind for meeting the needs their son will have in the future.

The flaws of rating agencies are a mélange of conflicts of interest, systems that classified systems that classified complex securities as if they were much like simple corporate bonds, and a backward-looking approach that proved particularly useless.
—David Wessel, Wall Street Journal, May 2008.

A.M. Best, Fitch, Moody’s, Standard & Poor’s and Weiss Research are private rating services that conduct financial analyses and grade insurance companies. These ratings provide information about how private analysts view the financial condition of particular insurance companies, and can therefore be used to help a consumer in the insurance-buying process. But ratings services came under fire for not anticipating the train wreck that would be the worst recession in our lifetime.

While there is no absolute rating system with 100% accuracy, the current system is still our best yardstick for determining the financial stability and claims-paying ability of insurance companies. Read the rest of this entry »

Tom Korb, VP of public policy affairs at the Association for Advanced Life Underwriting (AALU), recently published an article in the InsuranceNewsNet magazine. While the article was on political involvement, a number of the points he listed are of interest to consumers. Read the rest of this entry »

During an annual review with a successful client of mine, we discussed the recent changes in his net worth. Like so many people, the recession has hit him hard. He had been investing contributions to his 401(k) plan entirely in the stock of his Fortune 500 employer. That stock value declined by 40% over the past 12 months.

He realized the impact this would have on his family in the event of his premature death. This is not what he had planned for, and it kept him up at night. Read the rest of this entry »

These have been difficult times for many people trying to cope in this historic recession. Nearly six million have lost jobs in the last 18 months. The unemployment rate is expected to reach 10 percent by the end of the year—a 25-year high. Americans have lost a staggering $7.5 trillion in personal retirement and investment savings, according to LIMRA International, a life insurance industry research firm.

To go with these troubling numbers came another last week: LIMRA announced that for the first quarter of 2009, individual life insurance sales dropped 26 percent in a year-to-year comparison—the biggest quarterly drop in individual premium sales in 66 years. Read the rest of this entry »