Senators Decry Flipping Of Life Insurance Policies

The ad shows how a murky and potentially risky market for life insurance has been pitched to vulnerable consumers, an Illinois regulator told a Senate panel yesterday.
Members of the Senate Special Committee on Aging yesterday expressed concern about dangers for senior citizens from what the hearing agenda described as "Betting on Death in the Life Settlement Market." Panel Chairman Herb Kohl (D-Wis.) said selling a life insurance policy to investors "can be fraught with possible hidden pitfalls."
Investors have discovered that there is money to be made from buying people's life insurance policies, paying the premiums, and collecting the eventual death benefits. The investors offer policyholders more than they could collect from the insurance companies for surrendering the policy. And in the case of policies that have no surrender value, they enable consumers to liquidate policies for cash instead of simply allowing coverage to lapse.
The strategy can pay off for investors because insurers price coverage on the assumption that many policyholders will stop paying premiums before any death benefits are triggered. By targeting people who aren't expected to live long, and keeping the policies in force until the insured dies, investors can beat insurers at their own game.
Much of the criticism at yesterday's hearing focused on a variant of the strategy in which promoters offer senior citizens enticements to take out policies just to flip them to investors. Seniors who do that "may not know that they are participating in insurance fraud," Kohl said.

Prudential discovered last year that, after Ohio passed a law prohibiting so-called stranger-originated life insurance, a 74-year-old woman was driven from her home in Cleveland to Pittsburgh to sign an insurance application, Prudential executive James Avery told the committee. The woman, who lived on Social Security and had a net worth of $2,000, was shocked and frightened when she learned from Prudential investigators that the policy had a death benefit of $9 million, he said.
It isn't clear how widespread such practices are today. The Tribune ad cited by the Illinois director of insurance, Michael T. McRaith, appeared in 2007. The firm that ran the ad, Phillip Roy Financial Services, wasn't involved in stranger-originated life insurance and never completed a conventional life settlement because it was "too late to the party" when the credit markets froze, company President Phillip Wasserman said in an interview.

Life Insurance Primer for Beginners

Life insurance seems like one of those things you'll get around to when you're "older," but the right policy can be a helpful financial tool for anyone who's earning a wage.

The Simple Dollar blog invites guest poster Ray from Financial Highway to break down the basics of life insurance—the three major types, their differences and costs, and why you might need them (other than the inherent inevitability of a certain life moment).
Here's Ray's elevator pitch on why life insurance isn't just something your dad
Because of its many options and overall flexibility, life insurance can be a powerful tool in your financial planning arsenal. Consider that life insurance can be used to pay for funeral costs, college tuition, mortgage payments, debts, and more. It can also serve as income replacement - providing your spouse and family with a greater sense of financial certainty.
Once you've read up on the different kinds and benefits of life insurance, try MSN Money's life insurance calculator to get an idea of what numbers you should start talking about when it's time to buy.

A Primer on Life and Disability Insurance

Death and disability are two of the most difficult things for a family to discuss. But insuring against both is an important part of safeguarding a family’s future. While most families have some form of life insurance, usually purchased at marriage or with the birth of children, disability insurance is not a given. But if one or both spouses become disabled during their working life, not having it is a far greater risk to family solvency. This is where disability insurance is important. This primer will examine the basics of both types of insurance.


Life Insurance
Life insurance comes in a variety of forms meant to accomplish a range of objectives, from providing for survivors to moving assets out of your estate. The prices for it depend not only upon how much coverage you want but also upon what type of policy you get, either for a finite period of time or indefinitely.
The first question you need to ask, though, is how much insurance do you need? There is not a clear answer on this because it depends on your expectations. The better question is this: What am I trying to provide for with life insurance? If your concern is your spouse, a common calculation is to take out a policy that will cover all living, personal and household expenses for at least one year. This allows the surviving spouse to grieve without worrying about bills, and it also gives the spouse a period to begin making decisions for life without you.
If there are dependent children, however, the amount of insurance you need increases. Again, the dollar value depends on several factors, including the age of your children and what you want to provide for them. The person who wants to send his three children to private school and private college is going to need a lot more than the person looking to provide for the basic needs of one child in public school.
In insurance, desire is something that does not always align with reality. How much life insurance you are going to get also depends on what you can afford in terms of premiums as well as how much insurance a company will sell you. Just because you want a $5 million policy and can pay the premiums on it does not mean a company will underwrite that amount. Like a loan to a person flush with cash, insurance companies would rather sell large policies to healthy people who are going to live for decades. This gives them time to turn your premiums into more than the face value of your policy. The person who is already sick but wants to provide for his family will, in all likelihood, struggle to get an adequate amount.
Now onto types of insurance.
TERM Term life insurance is a popular and relatively inexpensive form of insurance. It covers a person for a period of time, usually 20 years. During the term, if the insured dies, his heirs receive the full value of the policy. After the term expires, they get nothing. Furthermore, the policy never has an intrinsic value — unless the person dies during the term.
Term life, then, is a contract, not an investment, to buy peace of mind. It is a good for a particular period — say the time it takes for a child to mature and leave home — and will pay the insured’s heirs the full value of the policy if he dies, regardless of how long he has been making the payments.
One variant on this, offered by a few insurers still structured as mutual companies — where their policy holders actually own the company — is convertible term life. This starts out as basic term, with its comparatively low premiums for the amount of coverage. But within a set period of time, often the first 10 years, it can be converted to whole life. The premiums will increase but the person does not have to be screened again for insurance.
WHOLE Whole life insurance plays a dual role for many people. It is both insurance in the case of an untimely death as well as an estate planning tool for when that final day comes. It is also considerably more expensive than term life. The reason is that it has an intrinsic value, from which you can draw if you need the money. And whereas term life is for a period of time, whole life lasts in perpetuity, unless you stop paying the premiums or cash in the policy.
Since whole life is also an investment for some people, some companies offer the policy holders the option of selecting the underlying securities that back the death benefit. This adds a small element of risk to the eventual payout. While the value of the portfolio can, obviously, increase or decrease, the insurer sets a floor for how low its value can fall. While investment losses are capped there are other downsides. First, there are fees associated with the trading portfolios, which can also chip away at the policy’s value. And then there are those who believe that you can get better returns by investing on your own.
This is where you have to evaluate why you want a whole life policy. If it is to move assets out of your estate tax-free, then any additional upside is good. If it is to increase the amount you leave to your heirs through the underlying portfolio, then you may not see the increase that you expect during your lifetime. Buying term life for a greater amount is an option, though those prices increase as you get older (and closer to the point where the insurer is going to have to pay out). Regardless of the type of policy you select, the payment to your beneficiaries is tax-free.

Life Insurance Companies Safe From Financial Crisis

Life insurance companies around the world are going through difficult times following the onset of the global financial crisis ― AIG, the biggest insurer, practically collapsed. Life insurers here, meanwhile, are relatively better off due to strict regulation of derivate products, according to Korea Life Insurance Association Chairman and CEO Lee Woo-cheol. ``The life insurance industry is facing difficulties as the worsening economy has begun to affect it. They are having problems managing their assets amid interest rate falls, and monthly premium payments are falling. Some subscribers are canceling insurance policies and the solvency margin ratio has fallen. However, they are in much better shape compared with insurers in other countries,'' Lee said in an interview with The Korea Times. Indeed, figures have worsened for life insurance industry. Their net income for the third quarter of 2008 stood at 761 billion won, plummeting by 948.3 billion won from a year ago. The solvency margin ratio, which represents their fiscal soundness to pay insurance money, fell by 29 percentage points.However, life insurers here, though small in global scale, have successfully survived, thanks to strict regulation on life insurers' investment in derivative products. Life Insurance Industry Needs DeregulationThough regulations on derivative investments helped them withstand the global crisis, the life insurance industry needs deregulation from a broader perspective, according to Lee. This is true when one focuses on the imbalances in the financial industry, especially between insurers and banks. ``Banks, and securities and insurance companies are the three main pillars of the financial industry. However, the system has been focused on banks, and the insurance industry has had little support while regulation was tight.'' He said it needs a more rational regulatory system to become a future growth engine for the country.``After the financial crisis, banks strengthened their grip on the financial market,'' the chairman said, pointing out that while banks now have various income source including insurance product sales, insurers have been unable to diversify customer services. He said insurers should be allowed to provide payment and settlement services ― once they are permitted to do so, as the government plans, insurance subscribers will be able to pay utilities fees, credit card bills or transfer money through their insurance accounts. ``It is a global trend to allow non-bank financial businesses to offer payment and settlement services, as it gives customers more choices and induces market players to cut costs through competition,'' Lee said. Currently, banks levy up to 3,000 won in fees for transferring money to other banks. The chairman, however, was cautious about the introduction of general agencies that sell all kinds of financial products, including insurance ― life insurance products are much more complicated. ``Insurance products are long-term ones, covering risk and managing assets based on an analysis of the individual customer's needs and financial condition. Selling insurance with other financial products could lead to a flawed sales procedure.'' He said that an analysis on effects and consumer benefits should come first before allowing insurance products on their sales list.Lee also showed concern over insurance fraud, which is growing explosively, as fraudsters become cleverer, and more systematic and massive. ``It is estimated that 2.2 trillion won in insurance money was wasted due to fraud in 2006. This means each household is paying 140,000 won more in insurance premiums than they should.''Police and insurers caught 30,922 people engaged in insurance fraud in 2007. He said insurers should have more power to investigate insurance frauds. Life Insurers Contribute to the CommunityLife insurance companies around the world are actively engaged in social contribution programs, giving back part of their earnings to the community. Lee explained that life insurers here are running social contribution programs from various spheres, running their own programs as well as participating in joint programs by the industry. In November 2007, for example, life insurance companies here announced they would set up the Life Insurance Philanthropy Foundation, promising to raise 1.5 trillion won to contribute to the community over the next 20 years. The foundation donated 1.9 billion won to patients suffering from rare diseases and 860 million won to low-income senior citizens suffering from dementia. The association also donated one billion won to a campaign to prevent suicide, and 470 million won to solving the problem of low birth rates and giving medical treatment to premature babies. It also has given 9.7 billion won so far to organizations dedicated to activities for the public good.The association is also contributing to job creation, planning to hire 20,000 more salespeople this year. Insurance Essential in Aging SocietyLee said in a country like Korea which is seeing an unprecedented pace of aging, people need insurance policies. ``The population aged 65 or older reached 7.4 percent in 2001, categorizing the country as an aging society. It is expected to become an aged society by 2020 with the ratio reaching 15.1 percent,'' the chairman said.He pointed out, however, that the state welfare system here is not good enough to guarantee a stable life after retirement. He said that the life insurance industry makes up for the loopholes, providing insurance products such as whole-life, annuity and nursing insurances.As insurance policies are safety nets for the family economy, the chairman advised people not to cancel policies if they can. ``It is better to keep insurance policies especially when the economy is bad. I think life insurance is the means of practicing love for one's family and respect for life,'' Lee added.He recommended integrated insurance products, which protect against various risks in life such as disease, injury, and death or disasters at relatively small premiums. chizpizza@koreatimes.co.kr
Who Is Lee Woo-cheol?Lee is a widely respected leader in the financial sector, especially known for his gentleness, open-mindedness and modest manner. Born in Buyeo, South Chungcheong Province in 1948, he graduated from the prestigious Gyeonggi High School and majored in law at Seoul National University. He started his career in the public sector after passing the examination for higher civil service in 1975. After serving at key posts at the finance ministry, building up expertise on macro economics and the financial industry, Lee moved to the financial regulator job in 1998, and served as deputy governor at the Financial Supervisory Service. He started his three-year term as the chairman and CEO of the Korea Life Insurance Association from last December. He got masters degree in public administration from Harvard Kennedy School, and another degree in economics at the University of New York at Albany.

Irrevocable Life Insurance Trust: 5 Ways It Can Help With Your Estate Plan

What is an irrevocable life insurance trust (“ILIT”) and why would it be useful to me? This article explores the upsides and downsides of the “ILIT.” The author concludes that an ILIT is both a cost-effective and powerful tool for providing liquidity, paying estate tax, avoiding Generation Skipping Transfer Tax (GSTT), protecting beneficiaries from creditors, and for business owners, keeping a business in the family.
An ILIT is an irrevocable trust that holds life insurance. Its primary purpose is to keep life insurance proceeds out of the estate of the settlor. But it can also have a number of other purposes. Below are five reasons why one might consider an ILIT:
First Reason: No Loss of Control over Income-Producing Assets First, an ILIT is an attractive alternative to other estate planning strategies that involve transferring substantial amounts of assets out of one’s estate. Grantor Retained Annuity Trusts (GRATs), Charitable Lead Trusts (CLTs), and other trust arrangements may involve the transfer of valuable income producing or business assets that most if not all would be hesitant to transfer out of their control (not to mention that the ILIT usually costs less). Yet, transferring a life insurance policy comes more easily: While premiums must be paid, the proceeds are only payable to beneficiaries upon death. Thus, there is not a great fear that transferring the policy would deprive the owner of its benefit.
Second Reason: Liquidity Creation Second, and most importantly, an ILIT that is structured properly provides liquidity. In an estate laden with illiquid real estate assets, an ILIT can be essential in order to pay a large estate tax bill without selling off assets. Consider the example of Robert and Sally Colmery. Over their lifetimes, Robert and Sally accumulated a small real estate empire throughout California, including a Palo Alto home ($3,000,000), a vacation home in Tahoe ($1,000,000) and three rentals in San Mateo (together worth $2,500,000). Robert’s liquid assets were mostly spent by the end of his life, amounting to $150,000. At the end of his and Sally’s life, $3,150,000 of the estate will be subject to the federal estate tax at a rate of 45%, and Robert’s and Sally’s children, Peter and Ruth, will not have sufficient cash to cover the bill unless they sell off some of the properties.
Now let’s assume that Robert establishes a qualifying ILIT with a second-to-die insurance policy naming his children, Peter and Ruth, as remainder beneficiaries, and pays the premiums by using his $13,000 annual gift tax exclusion. Robert structures the payment of premiums with the help of an attorney so that they do not trigger any gift tax by using something called a “Crummy” power. At the time of the second spouse’s death, the proceeds of the life insurance policy will pass estate tax-free. As a result, Peter and Ruth are not forced to sell off the real estate when they inherit.
Third Reason: Leveraging the Generation-Skipping Transfer Tax Exemption
Third, an ILIT can be used to leverage the insured’s GSTT exemption. Whenever we would like to give to our grandchildren or to individuals removed by 2 or more generations, the IRS imposes a second layer of tax called the GST tax. However, a $1 million exemption exists to which transfers to a trust can be allocated at the time of such transfer. If the amounts transferred to a trust appreciate, the ratio of assets exempt from GSTT to non-exempt assets will remain constant. As a result, if the entire transfer to the ILIT is allocated to the GSTT exemption (an inclusion ratio of zero), all GST tax can be eliminated at the final distribution, even if the trust enjoys considerable income over the years.
For instance, let’s say that Robert sets up a generation-skipping ILIT. The ILIT directs the proceeds from the life insurance to be invested in securities. All net income is payable to Peter and Ruth over their lifetime, with a remainder interest to Peter and Ruth’s children. Normally, Peter and Ruth’s children would be liable for GST tax at the maximum applicable federal rate when they take. However, if the ILIT is set up so that the inclusion ratio of assets subject to GSTT is zero, Peter and Ruth’s grandchildren will pay no GST tax. If ILIT assets grow at a modest rate, the grandchildren would take potentially significant amounts without incurring any additional GST or estate tax liability.
Fourth Reason: Protecting Beneficiaries from Creditors
Fourth, Robert can also protect his children and grandchildren from future creditors by including a spendthrift provision in the trust document and granting discretion to the trustee in giving distributions to the beneficiaries. If the ILIT is set up with investments or cash that Robert doesn’t need to access, the amounts can be shielded from Peter’s and Ruth’s creditors. Fifth Reason: Encouraging Responsibility
Fifth, while the ILIT is non-amendable, it can be structured so that beneficiaries are incentivized to engage in positive behavior. The trustee may be given directions to not make distributions until the beneficiaries reach a certain age, or unless they have demonstrated positive behavior. For instance, they can be directed to withhold funds that would pay for a drug addiction, gambling, or otherwise. The trustee can be directed to pay for the education, business planning, or other positive expenditures that the beneficiaries may require.
The settlor should be cautious when establishing an ILIT. Take note of the following caveats: (1) there must not be incidents of ownership by the owner / insured within 3 years of purchase of the policy; (2) The reciprocal trust doctrine may bring the proceeds of the policy back into the estate (i.e., when two spouses who set up life insurance policies on each other at the same time); (3) gift tax consequences may result with funded ILITs. Consider the use of the annual gift tax exemption with an un-funded ILIT. In conclusion, the ILIT is a powerful and cost-effective estate planning strategy. Often more attractive to individuals than strategies that require transfer of income-producing assets, the ILIT can ensure that estate taxes are paid; that beneficiaries are provided for according to the principal’s wishes; and that the GST, estate, or gift tax are reduced or eliminated.

Insurance premiums rise on sour profits, market returns

Home, car and life insurance prices are climbing as insurers grapple with lower investment returns and profits.
The cost of a typical auto insurance policy will rise 4% to $875 this year, on top of a 3% increase last year, according to the Insurance Information Institute, a trade group. Consumers also will pay more for homeowners insurance: The average policy will jump 3% to $841. And term life insurance rates are rising after several years of declines.

The price increases come as consumers struggle — the unemployment rate has reached 8.5%, and household wealth has plunged with investment portfolios and home prices.
In this economy, "Anything that costs more is difficult for consumers," says J. Robert Hunter, director of insurance for the Consumer Federation of America.

The industry's profits come from insurance policies and investment returns, says Terri Vaughan, chief executive of the National Association of Insurance Commissioners. That's why, "If your expectations for future investment income are lower, that's going to affect premiums."
Insurers collect premiums from consumers and invest the majority in bonds, the rest in stocks. Their portfolios have been under pressure amid volatile stock and bond returns.
For instance, yields on ultra-safe Treasury securities — in high demand amid the economic turmoil — plunged in 2008. Meanwhile, the Dow Jones industrial average is down 43% from its all-time high of 14,165 on Oct. 9, 2007. Treasury securities and stocks have regained some ground recently, however.
As the economy weakens, insurance rates could climb further. Insurers "cannot assume that interest rates will be much higher and stock returns much better in the foreseeable future," says Robert Hartwig, president of the Insurance Information Institute.
In the life insurance industry, weak profits, higher reserve requirements and increased capital costs are reversing a more than decade-long trend of falling term life prices, says Byron Udell, chief executive of AccuQuote, an online insurance broker.
Udell predicts average term life rates will be 5% to 10% higher at this time next year. Banner Life Insurance raised rates this year, he says. Prudential and ING have notified AccuQuote they'll raise rates in coming weeks.
The rate increases — typically 2% to 6% — are significant because these three insurers are major players that frequently offer lower premiums than their competitors, Udell says

Simple, Affordable Life Insurance for Adults

Life's adult life insurance is called ExtraLife, which is available in a variety of valuable plans that are simple and affordable.
$1 pays the premium for the first month for $5,000, $10,000, $20,000 or $30,000 coverage. After that, your rates are calculated according to your age. *Click the RATE QUOTE button to determine your premium after the introductory period.
Take a look at some of ExtraLife's features...
Valuable Coverage. Globe's ExtraLife coverage provides valuable protection. It will never be reduced or canceled throughout the policy period because of health or occupation.
No Medical Exams. Applying for coverage is easy. No medical exams are required to qualify and the application is easy to complete. All you have to do is answer a few short health questions.
The $30,000 Benefit Is Level. During your policy coverage period, the full $5,000, $10,000, $20,000 or $30,000 will always remain the same.
30-Day Money-Back Guarantee. If you are unsatisfied with ExtraLife for any reason, simply return it within 30 days and Globe will fully refund your money, no questions asked.

Five things to know about life insurance

ife insurance is similar in some ways to auto insurance; you pay premiums on a policy designed to protect you from something you hope never happens. In the case of life insurance, it's unfortunately not a matter of "if" your policy pays off, but when. When you pay a car insurance premium you are protecting yourself against the expenses related to an accident; with life insurance you protect your family from the expenses connected with your death—loss of income, funeral costs, and more.

There are five basic things everyone should know about life insurance. Before you sign on the dotted line for a new policy, you should feel comfortable with your understanding of these five things and how they affect your investment.

New Policies

Are you starting your very first life insurance policy or transferring to a new one? If you have never used life insurance before, it's important to evaluate the financial implications of your new plan. What are your premiums? Will they stay the same as your current life insurance quotes over the lifetime of your policy or are they subject to change? Can you afford to pay for life insurance if the premiums go up later on? These are all questions you should ask your insurance agent, and yourself.

If you are transferring to a new life insurance policy, many insurance experts advise against cancelling your old policy—at least until you are certain you are covered by the new policy. Cancelling the old policy too early leaves you without coverage until the official start date of your new plan. If anything happens to you in the meantime, your family won't be paid unless your death occurs on or after the date listed on the new life insurance plan.

Whole Life Insurance

There are two kinds of life insurance, term life and "whole life", also known as "cash value" life insurance. Whole life insurance is advertised as having investment value, with possible dividends and an accrual of cash value. The dividends on a whole life policy are paid only when the insurance company finds the actual costs of the life insurance policy are less than the cost of the premiums. Payments of dividends are at the company's discretion and are not guaranteed.

The cash value of whole life insurance builds up over time, and the terms of whole life insurance allow you to take out a loan against that value (at the interest rate specified by your policy). Under whole life, you aren't simply entitled to the cash value, you must borrow against it. Any borrowed amount counts against the amount of any final settlement in the event of your death.

Under the conditions of your whole life insurance you may be able to cash out your policy at some point to collect the accrued value, but this requires you to cancel the policy. Payments for whole life are stable and won't change over time, which is one reason some people are attracted to whole life insurance.

Term life insurance

The other type of life insurance plan is called term life, which offers death benefits and no investment options such as offered by whole life. Term life insurance policies are attractive to some because they usually feature lower premiums, but those premiums are subject to increases over the life of the policy.

Your insurance agent may recommend using term insurance if you plan on keeping the policy for ten years or less, but other life insurance experts say whole life is a better investment if you need the insurance for 20 years or more (because you may have the option to cash out after the plan expires).

Whether you choose term life or whole life is strictly a matter of choice, but once you decide you may feel committed for the duration of the policy so it's important to consider your needs and ability to pay before signing up.

Renewal Policies

Your life insurance policy may have specific requirements for renewal for a second or third term. Is a health exam required? Will your premiums increase after renewal? How long is your original life insurance policy and how often will you be required to renew? Make sure you understand what conditions may disqualify you from renewing and evaluate your comfort level with those conditions.

Your Health Affects Your Premiums

Many life insurance plans charge more for those signing up with pre-existing health conditions. It's best to invest in life insurance when you are in good health, but this isn't always possible. If you have the ability to invest before health problems are officially diagnosed, you could save yourself a lot of money on life insurance premiums. Know what medical conditions could affect your ability to sign up for a lower rate or renew.

Life Insurance

You need to insure the financial security of you and your loved ones, regardless of what life throws your way. AIG American General insurers offer insurance protection through a range of life and health insurance products to suit each stage of your life.


Term Life Insurance
Term Life insurance offers financial protection for a specified period of time, known as the term. Term policies typically provide coverage for 10, 15, 20 or 30 years, or until a specific age (for example, 65).

Universal Life Insurance
Universal Life insurance is a flexible policy that combines a death benefit with a cash value accumulation component.

Variable Life Insurance
Variable Life insurance combines a death benefit with cash value accumulation that can be allocated to a wide variety of investment options.


Whole Life Insurance
Whole Life insurance remains in force during the entire lifetime of the policyholder and offers a guaranteed death benefit as well as a guaranteed cash value.

Cancer Care Insurance
Cancer Care insurance helps to offset some of the costs associated with cancer treatment and recovery. These include hospital confinement, an ambulance to and from the hospital, Intensive Care Unit confinement, radiation and chemotherapy, surgery, a second surgical opinion and disability income. Some policies also include a death benefit.