Insurance?

Told you so.

I don't know if it is "the center of a persons financial life", but it is very important.  When this subject doesn't get its proper due, clients get hurt.

For someone young and healthy, life insurance can be so inexpensive.  It doesn't make much sense not to get as much coverage as possible.  This is especially true if their wants will increase in the future. 

Clients should have the proper amount of life insurance before they do any investing.  Your clients just need to be able to sign a check if they want to invest.  On the other hand, once a client's health changes, that's it for their insurance...at least at reasonable rates.

Clients also shouldn't invest before they have adequate health insurance and disability insurance.

I recently joined a firm that practices LEAP.  I can tell you I was skeptical at first, but it really does a great job of coordinating all of a clients assets, regardless whether you manage them or not. 

Yes, one of the tennants is maximum coverage (not just life) with minimal cost.  IMO, this makes alot of sense.  You insure your house and car for the full replacement.  Well, why don't you insure your life and income for full replacement as well?  Seems to me that you and your client are ALOT more valuable than a car or home from a pure economic perspective.  Don't worry though - LEAP supports investing as well.  However, don't expect it to help you get millions of AUM with it. LEAP shows why a client's "invest first, insure later" position does not make sense financially.

I'm curious though, you state you have never liked the 'stigma' associated with life insurance and you really don't know if you feel 'comfy' selling it.  If you felt that way, why did you join an insurance firm?  Also, what are these stigmas you speak of? 

WTF is LEAP…well other than an option lol

[quote=Closer]

I recently started with an insurance company  under the premise I will be able to do mainly investment side work. As expected they began encouraging me to dabble in life insurance. I never have liked the stigma associated with life insurance and really don't know If I feel comfy selling it. 

  [/quote]

Yep that makes sense.  I know that if I didn't feel "comfy" selling life insurance I'd be sure to hire on at a life insurance company.

Beam me up, Scotty.

[quote=joedabrkr] [quote=Closer]I recently started with an insurance
company  under the premise I will be able to do mainly investment
side work. As expected they began encouraging me to dabble in life
insurance. I never have liked the stigma associated with life insurance
and really don’t know If I feel comfy selling it. According to this
company’s “LEAP” financial planning model, it is best to sell somebody
the maximum amount of life insurance. This is because of the protection
offered as well as being able to spend the death benefit while still alive.
This is possible because “noone understands life insurance”. I have been
very skeptical, and feel as if the management team usually snakes
around my direct questions. I am green in the business, so please
answer me this. Should life insurance be the center of a persons
financial life. I know it should be a part of it, but the maximum
amount? Any praise or criticism of life insurance will be
helpful.  [/quote]


How does one “spend the death benefit while still alive”?

Borrowing out one’s own money from cash value?  That’s an expensive way to accumulate wealth.
Viatical
settlement? Accelerated Death Benefit?  Generally you have to be
of declining health or terminally ill to make that work.
[/quote]



Joe, Don’t say that in range of the client!!!
If they knew that only way to benefit from Life insurance was to die
sooner than expected, there would be only a small market for it. That
market would be mostly straight protection as found in level premium
term life.



Insurance companies have been trying to promote life insurance as an
"asset accumulation" vehicle forever. But it just doesn’t work. The
costs of insurance and internal expenses cause life insurance (and
VA’s) to be dominated by straight investments for the purpose of wealth
accumulation.



It’s always possible to come up with great projections, but if life insurance was such a great investment you wouldn’t have to go through such antics. It would be immediately obvious.



You would see many life insurance millionaires left and right, and they would be alive to tell about it.







Life insurance == Very profitable for insurco, and do you really need extra quaters when the game is over?

[quote=Closer]I recently started with an insurance company  under the premise I will be able to do mainly investment side work. As expected they began encouraging me to dabble in life insurance. I never have liked the stigma associated with life insurance and really don't know If I feel comfy selling it. According to this company's "LEAP" financial planning model, it is best to sell somebody the maximum amount of life insurance. This is because of the protection offered as well as being able to spend the death benefit while still alive. This is possible because "noone understands life insurance". I have been very skeptical, and feel as if the management team usually snakes around my direct questions. I am green in the business, so please answer me this. Should life insurance be the center of a persons financial life. I know it should be a part of it, but the maximum amount? Any praise or criticism of life insurance will be helpful.  [/quote]

You joined a life insurance company to do investments????  And now you wonder why they are asking you to sell life insurance????

LEAP = Lifetime Economic Acceleration Process.

www.leapsystems.com

Closer,

Ignore Allreit on this subject.  A little bit of knowledge is very dangerous.

Allreit, you are the only one talking about life insurance being an investment.  You don't have to die sooner than expected to benefit from life insurance.  The only one's who don't benefit from life insurance are those who cancel their policies.

Whole life insurance is a phenomenal asset that most people who are not financially struggling should own.  It is not an investment.

Borrowing money from the policy is a great way to get to cash when cash is needed.  Ex. Client has $500,000 of cash in their policy and $2,000,000 of mutual funds.  The market takes a hit and now the client only has $1,500,000 in mutual funds.  Client needs $50,000.  The life insurance allows the client to not touch their investments when the market is down.

[quote=anonymous]

Closer,

Ignore Allreit on this subject.  A little bit of knowledge is very dangerous.

Allreit, you are the only one talking about life insurance being an investment.  You don't have to die sooner than expected to benefit from life insurance.  The only one's who don't benefit from life insurance are those who cancel their policies.

Whole life insurance is a phenomenal asset that most people who are not financially struggling should own.  It is not an investment.

Borrowing money from the policy is a great way to get to cash when cash is needed.  Ex. Client has $500,000 of cash in their policy and $2,000,000 of mutual funds.  The market takes a hit and now the client only has $1,500,000 in mutual funds.  Client needs $50,000.  The life insurance allows the client to not touch their investments when the market is down.

But any time life insurance gets confused with investments, there alot of room for damage.

That said, pretty much everyone with a family needs life insurance, and a combo stack of whole + term is usually the best way to go about it.

We're in complete agreement. 

[/quote]

You joined a life insurance company to do investments????  And now you wonder why they are asking you to sell life insurance????

[/quote]

[quote=AllREIT] [quote=anonymous]

Closer,

Ignore Allreit on this subject.  A little bit of knowledge is very dangerous.

Allreit, you are the only one talking about life insurance being an investment.  You don't have to die sooner than expected to benefit from life insurance.  The only one's who don't benefit from life insurance are those who cancel their policies.

Whole life insurance is a phenomenal asset that most people who are not financially struggling should own.  It is not an investment.

Borrowing money from the policy is a great way to get to cash when cash is needed.  Ex. Client has $500,000 of cash in their policy and $2,000,000 of mutual funds.  The market takes a hit and now the client only has $1,500,000 in mutual funds.  Client needs $50,000.  The life insurance allows the client to not touch their investments when the market is down.

[/quote]

With a margin account/secured line, they can tap that same $50,000 off of the securities portfolio. Upon death, the securities get stepped up in tax basis, *and* the tax-free value of the DB is preserved.

Hmmm....ok, put more risk on something they're already taking a risk on.  And, make it more esoteric.  Super.  I don't disagree with your logic, I disagree with the method.  Little known fact - do you know the story of how Walt Disney created Disney Land?  When all the banks in the area wouldn't give him a loan, he took the money from his WL portfolio.  Care to calculate his ROR on that one, AllReit?

As insurance against premature death, I think there is nothing quite like life insurance. But any time life insurance gets confused with investments, there alot of room for damage.

I couldn't agree more.  Investments are poor insurance.  Insurance is a poor investment.  However, coordinated properly, they work significantly better than they do individually.  And I'm talking WL - term insurance is the biggest moneymaker for insurance companies (i.e. bad for holders).

That said, pretty much everyone with a family needs life insurance, and a combo stack of whole + term is usually the best way to go about it.

Well, technically nobody NEEDS life insurance.  Families WANT to buy life insurance to protect their human economic value.  It is a great estate planning tool, along with trusts and the like.  It is the only savings vehicle that will self-complete in case of disability.  It can provide a competitive savings rate that's tax-free, creditor-protected, and free of market risk, among other benefits.  Can you see why I think WL is a great tool as part of a financial plan? 

There's a "hump" period between 35-65 when its most needed, and a good term policy is usually the best cover.

Again, I agree with you.  However, I've encountered alot of 65+ people who would buy life insurance today if they could, for various reasons (new house, estate planning issues, etc.).  Unfortunately, insurability is a very fragile thing.  Maintaining WL as part of your plan, even at a young age, can do wonders for your future (and I'm not talking about rates of return).  Of course, affordability becomes an issue, and that's where term can make up the difference.
[/quote]

[quote=AllREIT][quote=joedabrkr] [quote=Closer]I recently started with an insurance company  under the premise I will be able to do mainly investment side work. As expected they began encouraging me to dabble in life insurance. I never have liked the stigma associated with life insurance and really don't know If I feel comfy selling it. According to this company's "LEAP" financial planning model, it is best to sell somebody the maximum amount of life insurance. This is because of the protection offered as well as being able to spend the death benefit while still alive. This is possible because "noone understands life insurance". I have been very skeptical, and feel as if the management team usually snakes around my direct questions. I am green in the business, so please answer me this. Should life insurance be the center of a persons financial life. I know it should be a part of it, but the maximum amount? Any praise or criticism of life insurance will be helpful.  [/quote]


How does one "spend the death benefit while still alive"?

Borrowing out one's own money from cash value?  That's an expensive way to accumulate wealth.
Viatical settlement? Accelerated Death Benefit?  Generally you have to be of declining health or terminally ill to make that work.
[/quote]

Joe, Don't say that in range of the client!!!!! If they knew that only way to benefit from Life insurance was to die sooner than expected, there would be only a small market for it. That market would be mostly straight protection as found in level premium term life.

Insurance companies have been trying to promote life insurance as an "asset accumulation" vehicle forever. But it just doesn't work. The costs of insurance and internal expenses cause life insurance (and VA's) to be dominated by straight investments for the purpose of wealth accumulation.

It's always possible to come up with great projections, but if life insurance was such a great investment you wouldn't have to go through such antics. It would be immediately obvious.

You would see many life insurance millionaires left and right, and they would be alive to tell about it.



Life insurance == Very profitable for insurco, and do you really need extra quaters when the game is over?
[/quote]

So where is it written that the only thing you will ever need is  some mutual funds or stocks ect.  I seriously hope you are being tongue and cheek here and I am missing it.. becaue to me this whole statemnet plus the others, gives us advisors a bad name..

[quote=anonymous]

Closer,

Ignore Allreit on this subject.  A little bit of knowledge is very dangerous.

Allreit, you are the only one talking about life insurance being an investment.  You don't have to die sooner than expected to benefit from life insurance.  The only one's who don't benefit from life insurance are those who cancel their policies.

Whole life insurance is a phenomenal asset that most people who are not financially struggling should own.  It is not an investment.

Borrowing money from the policy is a great way to get to cash when cash is needed.  Ex. Client has $500,000 of cash in their policy and $2,000,000 of mutual funds.  The market takes a hit and now the client only has $1,500,000 in mutual funds.  Client needs $50,000.  The life insurance allows the client to not touch their investments when the market is down.

[/quote]

AMEN!

[quote=whitewlfz]

So where is it
written that the only thing you will ever need is  some mutual
funds or stocks ect.  I seriously hope you are being tongue and
cheek here and I am missing it… becaue to me this whole statemnet plus
the others, gives us advisors a bad name…

However insurance is in general oversold owing to the hefty comissions that it pays.

You have to be able to back up these types of statements.  Most people have dreams and goals for their families.  One of the goals that most people have is for their dreams and goals for their families to still happen if they die prematurely.  Most people don't have enough life insurance to allow this to happen. 

Most people need nothing more than 30y level premium term life and maybe a small whole life policy. Of course that  is not what most people are sold...  

I'm sure that you agree that life insurance for someone with a family is critical.  Almost every week, I talk to someone who needs life insurance and can't get it at affordable rates.  The one thing that almost all of these people have in common is that they could have bought insurance when they just started their working lives.  Therefore, I am a very strong advocate of life insurance for single people who expect to have a family later in life.  If they buy a 30 year policy, most of them would still need coverage when they are in their fifties.  Many of these would be uninsurable at that time.  My point is that it is easy to get screwed with level term products. 

As a savings/investment vehicle, insurance policies are hopelessly dominated by straight investments 

This is an unfair comparison.  All savings vehicles are dominated by straight investments.  Compare it to long term savings vehicles if you want a fair comparison.

[quote=AllREIT] [quote=whitewlfz]

So where is it written that the only thing you will ever need is  some mutual funds or stocks ect.  I seriously hope you are being tongue and cheek here and I am missing it.. becaue to me this whole statemnet plus the others, gives us advisors a bad name..

[/quote]

Nowhere, However insurance is in general oversold owing to the hefty comissions that it pays.

Most people need nothing more than 30y level premium term life and maybe a small whole life policy. Of course that  is not what most people are sold...

As a savings/investment vehicle, insurance policies are hopelessly dominated by straight investments, owning the built in costs of insurance, the kick back to the agent, and insurco profit margins.
[/quote]

Cocksucker, did you know that everything costs money? Do you realize that commissions are legal? That's right. I said it. THey're legal.

What world are you living in? Why do you assume that people are so gullible that they will lose their impulse control, go mad, and buy something they don't want?  People are free to self-insure all they want. Why do you suppose they don't do it? Do you know that people know that we get paid commissions? Do you think that they are too stupid to figure out that we're in business to make money?

Just because YOU can't thrive in the marketplace with your bullsh*t, perpetual fees, doen't mean that your competition is doing something wrong.

[quote]Most people need nothing more than 30y level premium term life and maybe a small whole life policy. Of course that  is not what most people are sold...  

I am a very strong advocate of life insurance for single people who expect to have a family later in life.  If they buy a 30 year policy, most of them would still need coverage when they are in their fifties.  Many of these would be uninsurable at that time.  My point is that it is easy to get screwed with level term products. [/quote]

I wont say anyone got screwed, but they didn't choose the insurance that best fit their situation. N.B I'm going to say that VUL doesn't fit anyones personal sitation.

IMHO long duration term policies or convertable term or WL with buy options is often the most flexiable and cheapest per $ of death benefit. And the death benefit is what insurance is about.

Again it comes down to making up a chart of liabilites, and then chosing assets/insurance that best matches them. In general liabilities like mortgages, educations etc tend to roll off within 30 years or so.

[quote=AllREIT] [quote=whitewlfz]

So where is it written that the only thing you will ever need is  some mutual funds or stocks ect.  I seriously hope you are being tongue and cheek here and I am missing it.. becaue to me this whole statemnet plus the others, gives us advisors a bad name..

[/quote]

Nowhere, However insurance is in general oversold owing to the hefty comissions that it pays.

So, because insurance companies pay agents a commission, people shouldn't by through an advisor?  Huh, that's interesting logic.

Most people need nothing more than 30y level premium term life and maybe a small whole life policy. Of course that  is not what most people are sold...

Please explain your logic behind your insurance strategy.  I ask because term insurance is the biggest ripoff out there.  About 1% of term policies ever pay a death claim.  So, all the premium you paid is lost.  For all the opinions you've given, this makes the least sense.  You're always up in arms about insurance companies making huge profits yet you recommend the policy that will make the insurance company the MOST profit.

I'd debate life insurance more with you, but I'm afraid it wouldn't be a fair fight.  When you get some additional knowledge, I'd be happy to discuss it with you.  Right now, you look foolish.

As a savings/investment vehicle, insurance policies are hopelessly dominated by straight investments, owning the built in costs of insurance, the kick back to the agent, and insurco profit margins.

Like anon said, comparing insurance policies to investing is not an apples to apples comparision.  Comparing insurance to savings vehicles makes more sense.  When you look at all the facts, insurance products fair quite well vs. savings vehicles. 
[/quote]

[quote=AllREIT]

[quote]Most people need nothing more than 30y level premium term life and maybe a small whole life policy. Of course that  is not what most people are sold...  

I am a very strong advocate of life insurance for single people who expect to have a family later in life.  If they buy a 30 year policy, most of them would still need coverage when they are in their fifties.  Many of these would be uninsurable at that time.  My point is that it is easy to get screwed with level term products. [/quote]

I wont say anyone got screwed, but they didn't choose the insurance that best fit their situation. N.B I'm going to say that VUL doesn't fit anyones personal sitation.

I think we're in agreement.  VUL is not appropriate in almost all situations. 

IMHO long duration term policies or convertable term or WL with buy options is often the most flexiable and cheapest per $ of death benefit. And the death benefit is what insurance is about.

I'm glad you finally got around to reading our comments.  Actually, level term is not always the least expensive option.  If you have a client who intends on converting coverage within 5-10 years to WL but cannot afford it, annual renewable term is a less expensive option.

Again it comes down to making up a chart of liabilites, and then chosing assets/insurance that best matches them. In general liabilities like mortgages, educations etc tend to roll off within 30 years or so.

You look at insurance from a needs standpoint.  Which is fine, but IMO is incorrect.  Like I mentioned earlier in this thread, we do not know where the client is going to be 30 years from now. 

I can't tell you how many 60-somethings I've met who all wish they still had life insurance.  Why?  They bought a new house and need to protect the mortgage.  But they're uninsurable.  They start a new family with a new spouse.  They would like to pay off estate taxes so they're not a burden on their family.  But they cannot afford it.  They decide that instead of letting life pass them by, they are going to keep working for as long as they can.  They still need to protect their income but their term policy lapsed and they've got little options.

Do you see why having a one-size fits-all approach to life insurance design is flawed?  Can you see why a need-based approach is flawed?

[quote=deekay][quote=AllREIT] [quote=whitewlfz]

So where is it written that the only thing you will ever need is  some mutual funds or stocks ect.  I seriously hope you are being tongue and cheek here and I am missing it.. becaue to me this whole statemnet plus the others, gives us advisors a bad name..

[/quote]

Nowhere, However insurance is in general oversold owing to the hefty comissions that it pays.

So, because insurance companies pay agents a commission, people shouldn't by through an advisor?  Huh, that's interesting logic.

Now if you just stick to what I say, you'll have plenty of grist for the mill. I said insurance is oversold owning to the heavy incentive to sell it. Maybe I should be more specific and say that VUL/WL is oversold.

Most people need nothing more than 30y level premium term life and maybe a small whole life policy. Of course that  is not what most people are sold...

Please explain your logic behind your insurance strategy.  I ask because term insurance is the biggest ripoff out there.  About 1% of term policies ever pay a death claim.

So what, the purpose of insurance is risk transfer. What percentage of homeowners policies pay out thier full value? Are the premiums lost? They are an expense, just like everything else

With term you are buying as much life protection as you need, for only as long as you need it, and nothing extra.

So, all the premium you paid is lost.  For all the opinions you've given, this makes the least sense.

Buy a term policy with a return of premium rider.

Term is ment to do one thing (cover mortality risk for a set period) and it does it cheaper and better than any other product.

You're always up in arms about insurance companies making huge profits yet you recommend the policy that will make the insurance company the MOST profit.

No the most profit comes from things like VUL that are hard to price and thus not in a competative market. If term was the most profitable, it would have the highest commissions .

I'd debate life insurance more with you, but I'm afraid it wouldn't be a fair fight.  When you get some additional knowledge, I'd be happy to discuss it with you.  Right now, you look foolish.

As a savings/investment vehicle, insurance policies are hopelessly dominated by straight investments, owning the built in costs of insurance, the kick back to the agent, and insurco profit margins.

Like anon said, comparing insurance policies to investing is not an apples to apples comparision.  Comparing insurance to savings vehicles makes more sense.  When you look at all the facts, insurance products fair quite well vs. savings vehicles. 

Not really. Insurance is often sold as an alternative to investments (via things like a VUL and VA's)

[/quote]

[quote]Most people need nothing more than 30y level premium term life and maybe a small whole life policy. Of course that  is not what most people are sold...  

I am a very strong advocate of life insurance for single people who expect to have a family later in life.  If they buy a 30 year policy, most of them would still need coverage when they are in their fifties.  Many of these would be uninsurable at that time.  My point is that it is easy to get screwed with level term products. [/quote]

I wont say anyone got screwed, but they didn't choose the insurance that best fit their situation. N.B I'm going to say that VUL doesn't fit anyones personal sitation.

I think we're in agreement.  VUL is not appropriate in almost all situations.

Good . The sale of VUL is my biggest issue with how life insurance is sold.

IMHO long duration term policies or convertable term or WL with buy options is often the most flexiable and cheapest per $ of death benefit. And the death benefit is what insurance is about.

I'm glad you finally got around to reading our comments.  Actually, level term is not always the least expensive option.  If you have a client who intends on converting coverage within 5-10 years to WL but cannot afford it, annual renewable term is a less expensive option.

Ok, you come up with a cheaper situation, since annually renewable term is the pureest form of life insurance. My core point still holds that for the purposes of risk transfer over long set periods of time level premium term is the cheapest.

Again it comes down to making up a chart of liabilites, and then chosing assets/insurance that best matches them. In general liabilities like mortgages, educations etc tend to roll off within 30 years or so.

You look at insurance from a needs standpoint.  Which is fine, but IMO is incorrect.  Like I mentioned earlier in this thread, we do not know where the client is going to be 30 years from now. 

Do you see why having a one-size fits-all approach to life insurance design is flawed?  Can you see why a need-based approach is flawed?

You're making a bit of a straw man here. People whose lives are in flux are going to have dynamic insurance needs. But thats one of those things that comes out in the needs based planning process.

As best I can tell, (and I could be wrong, and am very open to hearing about it ) there isn't a better way to figure out peoples insurance needs than via a needs based planning process.

(I guess with some kind of fancy UL/Adjustable Life policy you could fit these issues in, but UL is going to be more expensive than LPT. So you need to be really sure than UL is needed over the standard WL/Term stack. I'm not denying that tricky life underwriting cases exist. Just that I think most cases are simpler than commonly thought. )

[quote=AllREIT] [quote=deekay]

[quote]Most people need nothing more than 30y level premium term life and maybe a small whole life policy. Of course that  is not what most people are sold...  

I am a very strong advocate of life insurance for single people who expect to have a family later in life.  If they buy a 30 year policy, most of them would still need coverage when they are in their fifties.  Many of these would be uninsurable at that time.  My point is that it is easy to get screwed with level term products. [/quote]

I wont say anyone got screwed, but they didn't choose the insurance that best fit their situation. N.B I'm going to say that VUL doesn't fit anyones personal sitation.

I think we're in agreement.  VUL is not appropriate in almost all situations.

Good . The sale of VUL is my biggest issue with how life insurance is sold.

IMHO long duration term policies or convertable term or WL with buy options is often the most flexiable and cheapest per $ of death benefit. And the death benefit is what insurance is about.

I'm glad you finally got around to reading our comments.  Actually, level term is not always the least expensive option.  If you have a client who intends on converting coverage within 5-10 years to WL but cannot afford it, annual renewable term is a less expensive option.

Ok, you come up with a cheaper situation, since annually renewable term is the pureest form of life insurance. My core point still holds that for the purposes of risk transfer over long set periods of time level premium term is the cheapest.

AllReit, is cheapest always the best?  If it were, we'd all drive Yugos, only rent apartments vs. owning, and when we take our families out to eat, we'd only go to McDonalds.

Again it comes down to making up a chart of liabilites, and then chosing assets/insurance that best matches them. In general liabilities like mortgages, educations etc tend to roll off within 30 years or so.

You look at insurance from a needs standpoint.  Which is fine, but IMO is incorrect.  Like I mentioned earlier in this thread, we do not know where the client is going to be 30 years from now. 

Do you see why having a one-size fits-all approach to life insurance design is flawed?  Can you see why a need-based approach is flawed?

You're making a bit of a straw man here. People whose lives are in flux are going to have dynamic insurance needs. But thats one of those things that comes out in the needs based planning process.

I disagree.  The needs-based planning process focuses on how much is left on the mortgage, how much college will cost (estimated) and any other bills that need to get paid off.  These are calculated in terms of what those bills are TODAY.  We do not know what those bills will be in the future.  They could be more, they could be less.  To make sure we take the guesswork out of the equation, ensure for the full human economic value.  That is, how much will your insurance company give you in coverage.  That is the only way to make sure you don't attempt to guess what someone's insurance need will be in the future.

As best I can tell, (and I could be wrong, and am very open to hearing about it ) there isn't a better way to figure out peoples insurance needs than via a needs based planning process.

Again, I point you to the concept of replacing one's full economic value.  When you purchase car insurance, do you get enough to replace the full cost of the car or just enough to buy a car you 'need'?  When you purchase homeowner's insurance, do you get full coverage or just enough to fulfill your needs? 

If you said less then the full amount for replacement, we don't need to continue further.  If you did say you want to have your car and house replaced fully, why wouldn't you want to insure yourself for the full replacement value? 

(I guess with some kind of fancy UL/Adjustable Life policy you could fit these issues in, but UL is going to be more expensive than LPT. So you need to be really sure than UL is needed over the standard WL/Term stack. I'm not denying that tricky life underwriting cases exist. Just that I think most cases are simpler than commonly thought. )

With every one of my clients, we focus on getting maximum coverage first.  We do not discuss product before we are on the same page with the amount of coverage we want.  And you're right, 99% of my cases are term/WL combos.  I like to keep it simple.  Although when I show them the benefits of WL, they want to find out more (or how they can convert their term insurance in the future).  To summarize, we focus on the coverage FIRST then discuss how to fit it in their budget.

[quote=deekay]

IMHO long duration term policies or convertable term
or WL with buy options is often the most flexiable and cheapest per $
of death benefit. And the death benefit is what insurance is about.

I'm glad you finally got around to reading our comments.  Actually, level term is not always the least expensive option.  If you have a client who intends on converting coverage within 5-10 years to WL but cannot afford it, annual renewable term is a less expensive option.

Ok, you come up with a cheaper situation, since annually renewable term is the pureest form of life insurance. My core point still holds that for the purposes of risk transfer over long set periods of time level premium term is the cheapest.

AllReit, is cheapest always the best?  If it were, we'd all drive Yugos, only rent apartments vs. owning, and when we take our families out to eat, we'd only go to McDonalds.

When it comes to insurnace, paying more for the same amount of risk transfer is foolishness.

Again it comes down to making up a chart of liabilites, and then chosing assets/insurance that best matches them. In general liabilities like mortgages, educations etc tend to roll off within 30 years or so.

You look at insurance from a needs standpoint.  Which is fine, but IMO is incorrect.  Like I mentioned earlier in this thread, we do not know where the client is going to be 30 years from now. 

Do you see why having a one-size fits-all approach to life insurance design is flawed?  Can you see why a need-based approach is flawed?

You're making a bit of a straw man here. People whose lives are in flux are going to have dynamic insurance needs. But thats one of those things that comes out in the needs based planning process.

I disagree.  The needs-based planning process focuses on how much is left on the mortgage, how much college will cost (estimated) and any other bills that need to get paid off.  These are calculated in terms of what those bills are TODAY.  We do not know what those bills will be in the future.  They could be more, they could be less.  To make sure we take the guesswork out of the equation, ensure for the full human economic value.  That is, how much will your insurance company give you in coverage.  That is the only way to make sure you don't attempt to guess what someone's insurance need will be in the future.

Most insurance companies will max you at $5 million. Most people do not need anywhere near as much, nor is likely that would ever need so much in the future.

I can see the theoretical elegance of doing PV(Income stream) and saying that is as much insurance as you need. But in many cases that could exceed/fall short all of the persons identified insurance needs.

Over insurance has a heavy opportunity cost from all the money that went into insurance payments that could have been spent on something else while you were alive .

As best I can tell, (and I could be wrong, and am very open to hearing about it ) there isn't a better way to figure out peoples insurance needs than via a needs based planning process.

Again, I point you to the concept of replacing one's full economic value.  When you purchase car insurance, do you get enough to replace the full cost of the car or just enough to buy a car you 'need'?  When you purchase homeowner's insurance, do you get full coverage or just enough to fulfill your needs?

P&C insurance is different than life insurance because of the graduated payouts, most claims will be less than for the full balance of the policy. The full cost of the house/car is as much insurance as I need. (excepting auto liability)

If you said less then the full amount for replacement, we don't need to continue further.  If you did say you want to have your car and house replaced fully, why wouldn't you want to insure yourself for the full replacement value? 

Because humans don't have a quantifiable replacement value. They have liabilities that need to be defeased. And to offset those liabilites you can buy life insurance.

(I guess with some kind of fancy UL/Adjustable Life policy you could fit these issues in, but UL is going to be more expensive than LPT. So you need to be really sure than UL is needed over the standard WL/Term stack. I'm not denying that tricky life underwriting cases exist. Just that I think most cases are simpler than commonly thought. )

With every one of my clients, we focus on getting maximum coverage first.  We do not discuss product before we are on the same page with the amount of coverage we want.  And you're right, 99% of my cases are term/WL combos.  I like to keep it simple.  Although when I show them the benefits of WL, they want to find out more (or how they can convert their term insurance in the future).  To summarize, we focus on the coverage FIRST then discuss how to fit it in their budget.

[quote=joedabrkr]This is a good discussion, but I have to say that the colors are killing me and it's getting hard to follow.

There must be a better way to structure it.

Either way-thanks for taking the time to offer useful thoughts on both sides.
[/quote]

Haha - I was thinking the same thing.  I'll summarize:

I feel it is worthwhile to own insurance past 65 or when the mortgage gets paid/kids off at school/retirement, etc.  I disagree with the methodology behind "needs-based" insurance planning.  It leaves too many holes and doesn't properly address the future unknown insurance needs.  There is an added benefit of holding life insurance in retirement - estate and income planning.  The best plan to address these two issues is MONEY.  Therefore, life insurance provides the needs to simplify the estate planning and enhance income planning.

AllReit feels all insurance agents and insurance companies are evil because they make profits.  He feels that one should only buy life insurance to protect known liabilities.  However, he fully insures his house and car.  He constantly compares insurance to investments.  Which, any sane financial advisor knows is not a fair comparison. 

Did I leave anything out?

[quote=AllREIT] [quote=deekay]

When it comes to insurnace, paying more for the same amount of risk transfer is foolishness.

I couldn't agree with you more.  However, there is a side to this I think you are missing.  It is a very important one.  To illustrate - let's say you and Mrs. AllReit are heading out to dinner in downtown San Francisco.  You encounter two parking garages equidistant from your restaurant.  One costs $10 to park and the other is $20 to park but will refund your $20 when you leave.  Which garage do you pick?  Why? 

Most insurance companies will max you at $5 million. Most people do not need anywhere near as much, nor is likely that would ever need so much in the future.

That is very incorrect.  Insurance companies vary in terms of how much they will cover you for.  Generally, it is based on your age and your current income or one times your net worth.  For example, a 30 year old making $200k per year can get insured for up to $6mm.

How do you know how much they need in the future?  Do you know where estate tax rates will be?  How about income taxes?  You are assuming alot about the future and what people will 'need'.  That is very dangerous.

I can see the theoretical elegance of doing PV(Income stream) and saying that is as much insurance as you need. But in many cases that could exceed/fall short all of the persons identified insurance needs.

Exactly.  Which is why I discuss maximum coverage with all my clients.  That is the only way I know of how to protect against future life insurance needs.

Over insurance has a heavy opportunity cost from all the money that went into insurance payments that could have been spent on something else while you were alive .

This statement, coming from you, is very puzzling.  On the one hand, you state there is a lost opportunity cost with purchasing life insurance.  On the other hand, you advise buying term insurance and invest the difference.  Is there not a lost opportunity cost with loading up on so much term insurance? 

Again, I point you to the concept of replacing one's full economic value.  When you purchase car insurance, do you get enough to replace the full cost of the car or just enough to buy a car you 'need'?  When you purchase homeowner's insurance, do you get full coverage or just enough to fulfill your needs?

P&C insurance is different than life insurance because of the graduated payouts, most claims will be less than for the full balance of the policy. The full cost of the house/car is as much insurance as I need. (excepting auto liability)

Let's focus on replacement for now instead of getting into auto liability.  You stated the full cost of the house/car is as much insurance as I need.  I interpret this as "full replacement".  Correct me if I am wrong.

You see, we as human beings have a full replacement value.  Disagree?  Well, if someone were to be negligent and either permanently disable you or kill you in, say, a car accident, how much do you think you or your family would sue for?  If you said anything less than the maximum, you're either lying or you're a fool.  The courts use a table to determine the maximum amount you could sue for (not including punitative damages).  The table is based on your age and income!  Sound familiar?  That's the exact formula most insurance companies use.

Because humans don't have a quantifiable replacement value. They have liabilities that need to be defeased. And to offset those liabilites you can buy life insurance.

Please read my above comments.

With every one of my clients, we focus on getting maximum coverage first.  We do not discuss product before we are on the same page with the amount of coverage we want.  And you're right, 99% of my cases are term/WL combos.  I like to keep it simple.  Although when I show them the benefits of WL, they want to find out more (or how they can convert their term insurance in the future).  To summarize, we focus on the coverage FIRST then discuss how to fit it in their budget.

The main benefit of WL is that it doesn't go away. The downside is that it's over-costed unless you break to about 75 or so.

Define 'over-costed'.  Compared to what?  You mean to tell me it is less expensive for someone to buy term until age 65 and then try to buy another 10YT until age 75?  I'll give you a hint - it's not.

The life companies make alot of money from lapsed WL policies. Which is why they are crying bloody murder over life settlement investors, who are keeping WL policies in force to the bitter end.

It is an absolute shame when a WL policy is lapsed.  Part of those lapses can be uncontrollable (i.e. client lost income, can't afford it).  However, the main reason WL policies lapse is they are sold incorrectly.  If they were sold properly and the client fully understood the benefits AND as long as the client maintained the means to pay for the policy, they would NEVER get rid of it.  Unfortunately, we both know this isn't always the case. 

Life settlement advisors are the scum of the earth and serve no purpose other than to suck blood from the insurance industry, clients, advisors, and humanity.  It won't be too soon that they are shut down like the viaticles were.

[/quote][/quote]

ALLREIT, I agree that VUL is oversold.  WL on the other hand is way undersold.  VUL/UL is actually the most overpriced insurance that exists.  UL couples overpriced annually renewable term insurance with a poor savings vehicle.  VUL couples overpriced annually renewable term insurance with an overpriced investment vehicle. 

Participating WL policies from mutual companies are actually the cheapest way to buy life insurance.  You need to look at total cost and not initial cost.  The reason for this is that other forms of life insurance charge a predetermined "Cost of Insurance".  This COI must be high enough to cover the worst case scenario.  WL policyholders, on the other hand, ultimately pay for actual mortality.  Actual mortality has always been lower than the predetermined COI.

As for "needs analysis", it leads to people being underinsured.  People have goals and dreams.  They want their family's to still achieve these goals and dreams if they die.  It's not about having their needs covered.  It's about having their wants covered.  It's the difference between having their having survive or having them thrive.

Term insurance is so damn cheap now, especially ART policies that are sold as riders on WL policies.  It simply doesn't make any financial sense for someone young and healthy to not get as much coverage as the insurance company will give to them.  The premium is too low for the opportunity cost to have any relevance. 

Well said, anonymous.  I forgot to mention the COI vs. mortality calculation.  That’s a huge determining factor when looking at WL vs. term.

[quote=anonymous]

WL is actually the cheapest way to buy life insurance.  You need to look at total cost and not initial cost.  The reason for this is that other forms of life insurance charge a predetermined "Cost of Insurance".  This COI must be high enough to cover the worst case scenario.  WL policyholders, on the other hand, ultimately pay for actual mortality.  Actual mortality has always been lower than the predetermined COI.[/quote]

Keep in mind that "dividends" are really RETURN OF PREMIUM, NOT dividends.  Look at NML, they tend to rate everyone for something and get an overpriced policy started up, making it pretty easy to give 8-9% back a year........

Keep in mind that "dividends" are really RETURN OF PREMIUM, NOT dividends.  Look at NML, they tend to rate everyone for something and get an overpriced policy started up, making it pretty easy to give 8-9% back a year........

Wrong.  What's wrong?  Just about every word of your post. 

Just because they are treated as a return of premium from a tax standpoint does not make them an actual return of premium.  Treating them as "return of premium" simply gives the internal buildup of cash favorable tax treatment.  This is not the same as actually being a return of premium.

NML rates a small percentage of people.  Don't confuse not giving super preferred rates with being rated.   If a policy does get rated, the dividend paid gets smaller.  Even if the dividend is 8%, they are not giving 8% a year back.

I have yet to meet someone (including NML agents-I was one myself) who could explain just how the dividend % is calculated and what SPECIFICALLY it is.  All they tell people is 8.8% return, as their marketing pieces show.  Anyone care to explain how the 8-9% is calculated?  It is not simply a % of returned premium.

[quote=anonymous]

As for
"needs analysis", it leads to people being underinsured.  People
have goals and dreams.  They want their family’s to still achieve
these goals and dreams if they die.  It’s not about having
their needs covered.  It’s about having their wants covered. 
It’s the difference between having their having survive or having
them thrive.

[quote=theironhorse]I have yet to meet someone (including NML agents-I
was one myself) who could explain just how the dividend % is calculated
and what SPECIFICALLY it is.  All they tell people is 8.8% return,
as their marketing pieces show.  Anyone care to explain how the
8-9% is calculated?  It is not simply a % of returned premium.
[/quote]



No one can explain it. Please sign on the dotted line.

I've never seen a marketing piece from any insurance company call a dividend of x% a rate of x%.  There are certainly plenty of unscrupulous or unknowledgeable agents confusing the two of them.

Dividends are a participating policyowner's share of any distribution of surplus.  There are 3 parts to dividends.

1) Investment returns that are better than assumed
2) Mortality that is better than assumed
3) Expenses that are less than assumed

The % that people talk about is calculated based upon what the insurance company is earning from their general account.  It is not what a policy is earning.  The company still has to pay their expenses before they can pay the dividend.  If the insurance company is crediting 8.5% and the guarantees are based upon 4%, and the mortality and expenses are the same as is assumed or less, it will create a dividend.  How do they credit this amongst various policies?  I don't know.

[quote=anonymous]NML rates a small percentage of people.  Don't confuse not giving super preferred rates with being rated.   [/quote]

I beg to differ, having worked there as an agent.........we had 26 different rating classes.......

I decided to leave when I heard a senior agent say to a client to "think of the yearly dividend rate as the FIXED INCOME portion of your porftolio"..............

[quote=AllREIT] [quote=anonymous]

As for "needs analysis", it leads to people being underinsured.  People have goals and dreams.  They want their family's to still achieve these goals and dreams if they die.  It's not about having their needs covered.  It's about having their wants covered.  It's the difference between having their having survive or having them thrive.

[/quote]

Anon, this is going to come down to a matter of perspective.

My take is that there are better uses of cash than spending it on life insurance. Going for maximum DB is going to lead to higher monthly premiums which make the policy more likely to lapse, should the assured become unemployed disabled etc.

Far better IMHO to spend that money on top notch DI/LTC, which benefits the living, vs excess LI which benefits the survivors at the expense of the deceased.

What I've found is that life agents sometimes propose life insurance far in excess of the assured's identifiable needs for life insurance (educations, mortgages, burial expenses, + Income annuity). Those identifiable needs,  will usually present a  compelling solid case for buying life insurance.

[/quote]

Let me ask all of you these questions.  This could help one of your clients someday.  It may help yourselves too. 

If you were blindsided by a runaway truck, woke up in a hospital, and were told you were never able to work again, would you sue?  How much would you sue for?  How did you come up with this number?

If you were then told you have 5 days to live, how much would you counsel your spouse to sue for?  How did you come up with this number? 

I ask these questions because it gets to the heart of ALL insurance planning.  I truly believe this will get a good dialogue going and will help us all as advisors.  I thank you in advance and I look forward to reading the responses.

Bluestar, I know this is going to sound like semantics, but any rating standard or above is not a rated policy.

ALLREIT, Let me agree with your post, but give it a slightly different perspective.

Going for maximum DB is going to lead to higher monthly premiums which make the policy more likely to lapse, should the assured become unemployed disabled etc.

The premium difference, as you will see in a minute, is too small to make a difference.  My experience has actually shown the opposite.  The more someone believes in insurance, the more that they will buy and the less likely that the policy will lapse.

Far better IMHO to spend that money on top notch DI/LTC, which benefits the living, vs excess LI which benefits the survivors at the expense of the deceased.

Again, the premium difference is too small to make a difference.   It won't even pay for one month of DI coverage.  I do believe that DI is imperative.

What I've found is that life agents sometimes propose life insurance far in excess of the assured's identifiable needs for life insurance (educations, mortgages, burial expenses, + Income annuity). Those identifiable needs,  will usually present a  compelling solid case for buying life insurance.

That's fine.  We can just look at identifiable needs.  It is really that "income annuity" that drives everything.  Unfortunately, when I read "rules of thumb" for insurance needs, it is usually in the range of 7-10 x income.  This is just way too low in most cases.  It replaces a $100,000 income with a lump sum of $1,000,000.  Using Monte Carlo analysis, this $1,000,000 will safely generate $40,000 of income before tax.  This does not allow the family to maintain the same standard of living.  What is really needed is $2,500,000 which is 25x income which, not coincidentally, is in the neighborhood of how much coverage the insurance company will issue.

(Yes, I know, that some expenses will disappear.  On the other hand, other expenses will increase.)

As for cost, a 29 year old healthy female can get $1,000,000 of term for $215.  She can get $2,000,000 for $355.  That extra $140 that she is spending is irrelevant.  It's one very fancy dinner.

For the vast majority of my clients, it does not matter if they buy $500,000, $1,000,000, $2,000,000 of coverage.  The premium is identical.  All that changes is the mix between term insurance and WL insurance.

[quote=deekay][quote=AllREIT] [quote=anonymous]

As for "needs analysis", it leads to people being underinsured.  People have goals and dreams.  They want their family's to still achieve these goals and dreams if they die.  It's not about having their needs covered.  It's about having their wants covered.  It's the difference between having their having survive or having them thrive.

[/quote]

Anon, this is going to come down to a matter of perspective.

My take is that there are better uses of cash than spending it on life insurance. Going for maximum DB is going to lead to higher monthly premiums which make the policy more likely to lapse, should the assured become unemployed disabled etc.

Far better IMHO to spend that money on top notch DI/LTC, which benefits the living, vs excess LI which benefits the survivors at the expense of the deceased.

What I've found is that life agents sometimes propose life insurance far in excess of the assured's identifiable needs for life insurance (educations, mortgages, burial expenses, + Income annuity). Those identifiable needs,  will usually present a  compelling solid case for buying life insurance.

[/quote]

Let me ask all of you these questions.  This could help one of your clients someday.  It may help yourselves too. 

If you were blindsided by a runaway truck, woke up in a hospital, and were told you were never able to work again, would you sue?  How much would you sue for?  How did you come up with this number?

I'd let the lawyer handle it. And this question isn't a good fit since being alive I now have lots of LTC/medical costs issues ( and should have bought LTC/DI/AD&D over life insurance ).

Life insurance is about clean deaths only. In general the amount to sue for (compensatory damages only) would be for LTC plus lost income. You can figure out that amount with any lifetime annuity calculator.

If you were then told you have 5 days to live, how much would you counsel your spouse to sue for?  How did you come up with this number?

Same thing, let the lawyer handle it. Again sue for Medical costs/burial costs, 5 cases of champagne and a lifetime annuity for the net Disposable income (E.g gross income gets marked down due to food expenses etc) I would generate.

Use the nifty BRKdirect Spia calculator .

http://www.brkdirect.com/spia/EZQUOTE.ASP

I ask these questions because it gets to the heart of ALL insurance planning.  I truly believe this will get a good dialogue going and will help us all as advisors.  I thank you in advance and I look forward to reading the responses.

The SPIA calculator won’t do it unless it is a SPIA that increases the payout with inflation.

[quote=anonymous]

Bluestar, I know this is going to sound like semantics, but any rating standard or above is not a rated policy.

ALLREIT, Let me agree with your post, but give it a slightly different perspective.

[quote=anonymous]The SPIA calculator won’t do it unless it is a SPIA that increases the payout with inflation.[/quote]



http://www.aigretirementgold.com/vlip/VLIPController?page=Re questaQuote

What I do not go for is folks saying; Well the insurance companies max policy is $5 million, and surely your life is worth at least that much , so thats how much you should buy .

Agreed. 

One thing that I don't like about your model is that it assumes that debts decrease over time.  In reality, debts tend to increase over time.  Go talk to a 55 year old.  Ask him how much debt he had when he was 30.  I'd bet that over 90% of 55 year olds have more debt than when they were 30.  (When they were 30, they had a $20,000 mortgage on a $40,000 house.  At 55, they have a $300,0000 mortgage on a $600,000 house.

I try to get my clients, in most cases, to buy as much WL as they can easily afford.  We never sacrifice type of coverage for amount of coverage.

back to the dividend.  you think only a small % of agents clarify dividend % vs. rate of return?  hardly.  i have sat in training sessions as mentioned earlier in this thread where NML 65 life is praised as the greatest thing since sliced bread and how it should be the main floor of every financial pyramid.  8.8% was the number when I was there, and it was positioned as the “guaranteed” portion of the clients portfolio, as it was compared to the S&P return in NML marketing pieces.

 

And there is a reason NML’s last question in their confidential questionnaire asks what the monthly $ commitment is.  It will determine the blend of an ACL or a Perm/Term.  Max out the WL portion, which just coincidentally maxes commission.  I don’t have a problem with insurance, I sell alot of it, but it is so abused it is comical.

[quote=AllREIT] [quote=deekay][quote=AllREIT] [quote=anonymous]

As for "needs analysis", it leads to people being underinsured.  People have goals and dreams.  They want their family's to still achieve these goals and dreams if they die.  It's not about having their needs covered.  It's about having their wants covered.  It's the difference between having their having survive or having them thrive.

[/quote]

Anon, this is going to come down to a matter of perspective.

My take is that there are better uses of cash than spending it on life insurance. Going for maximum DB is going to lead to higher monthly premiums which make the policy more likely to lapse, should the assured become unemployed disabled etc.

Far better IMHO to spend that money on top notch DI/LTC, which benefits the living, vs excess LI which benefits the survivors at the expense of the deceased.

What I've found is that life agents sometimes propose life insurance far in excess of the assured's identifiable needs for life insurance (educations, mortgages, burial expenses, + Income annuity). Those identifiable needs,  will usually present a  compelling solid case for buying life insurance.

[/quote]

Let me ask all of you these questions.  This could help one of your clients someday.  It may help yourselves too. 

If you were blindsided by a runaway truck, woke up in a hospital, and were told you were never able to work again, would you sue?  How much would you sue for?  How did you come up with this number?

I'd let the lawyer handle it. And this question isn't a good fit since being alive I now have lots of LTC/medical costs issues ( and should have bought LTC/DI/AD&D over life insurance ).

Life insurance is about clean deaths only. In general the amount to sue for (compensatory damages only) would be for LTC plus lost income. You can figure out that amount with any lifetime annuity calculator.

If you were then told you have 5 days to live, how much would you counsel your spouse to sue for?  How did you come up with this number?

Same thing, let the lawyer handle it. Again sue for Medical costs/burial costs, 5 cases of champagne and a lifetime annuity for the net Disposable income (E.g gross income gets marked down due to food expenses etc) I would generate.

Use the nifty BRKdirect Spia calculator .

http://www.brkdirect.com/spia/EZQUOTE.ASP

I ask these questions because it gets to the heart of ALL insurance planning.  I truly believe this will get a good dialogue going and will help us all as advisors.  I thank you in advance and I look forward to reading the responses.

[/quote][/quote]

OK, so you let the lawyer determine the amount he/she will sue for in the event you are permanently disabled.  How much do you think the lawyer will sue for?  They're going to recommend you sue for the MAXIMUM.  Why?  Lost wages PLUS COLA PLUS medical expenses PLUS inflation (personal inflation, not CPI).  This is why I also discuss DI/LTC planning with my clients.  I never just have my clients purchase life insurance.

When I ask my clients these questions, they all say the same thing - as much as I could sue for.  This is what they WANT.

Likewise, when the situation is worsened and you are about to die, my clients say they would sue for as much as they could.  Natural death, death by accident, what does it matter?  It represents a loss, both personal and economic (by the way, what the hell does "clean death" mean?)  Let's say you're an up-and-coming legal mind.  You make $200k per year.  Is it safe to say that your lost pay increases would be greater than a 3% COLA?  I, and my clients would argue, they would be.  Ergo, a SPIA with a COLA rider would not completely replace the income lost either by death or disability.  My clients WANT income replaced COMPLETELY or as close to completely as possible.

AllReit, I get the sense you have never, nor ever will, sell life insurance.  And that's ok, your expertise lies elsewhere.  I like dealing with clients on a human level; no talk about beta or correlation coefficients or yield curves.  I get to the heart of the matter, and what matters to my clients is an unwavering passion to take care of themselves and their families as best they can.  Because they or I do not know what the future holds, what interest rates will be, what their personal inflation rate will be, what college costs will be, where the market will be, or where in general they will be in life, I make sure we take as much as the guess work out of the equation.  In a nutshell, MAXIMUM COVERAGE. 

I have yet to hear of a single widow or widower remark that they received too large a death settlement.  However, I have seen countless situations where a death benefit was too small.  And I'll be damned if I EVER have to have the conversation with a family as they ask me, "Why didn't you sell my mom/dad/sister/brother/child more life insurance?"

DK, I don’t whip clients into an emotional state for the purpose of selling life insurance.



I don’t think I’ve ever sold life insurance, but I have helped alot of people buy life insurance.



I think financial decisions need to be made in an objective
dispassionate framework. Where you look at needs and then match
insurance coverage to those needs to get a tight fit.

But thats not the way to do things if your goal is to sell and close on lots of life insurance/annuity premium .
In that case you want to create lots of percieved need for life
insurance/annuities, and get ink on paper before the smoke clears.



And a good lawyer will not sue for “the maximum” but for what is
feasable and can be settled quickly. The only people who win in a
lawsuit are the lawyers.



Very similar to how the only people who win in an insurance contract are the insurco and the broker.



-------



What happens if you get disabled is a toatally different framework from what happens if you die.



Death means no income, disability means no income and lots of expenses.

[quote=AllREIT]DK, I don't whip clients into an emotional state for the purpose of selling life insurance.

I don't think I've ever sold life insurance, but I have helped alot of people buy life insurance.

I think financial decisions need to be made in an objective dispassionate framework. Where you look at needs and then match insurance coverage to those needs to get a tight fit.

There are two sides to the equation - the rational side and the emotional side.  They usually don't match.  However, when I show them how permanent life insurance enhances all their other assets, they want to purchase more.  And I've got no reservations about it.  I'm proud to say I sell life insurance.  My clients love me for what I do and how I go through their entire financial picture.

But thats not the way to do things if your goal is to sell and close on lots of life insurance/annuity premium . In that case you want to create lots of percieved need for life insurance/annuities, and get ink on paper before the smoke clears.

And here I was thinking you'd actually attempt a civil dialogue.  I should've known better.

And a good lawyer will not sue for "the maximum" but for what is feasable and can be settled quickly. The only people who win in a lawsuit are the lawyers.

I will give you that settlements are the end result most of the time.  They will ALWAYS start with the larger number first, though.  It's what's good for them AND the client.

Very similar to how the only people who win in an insurance contract are the insurco and the broker.

Again, I appreciate you attempting to drag this discussion into the gutter.  It only makes me look better and you,.....well, you kinda look like a jerk.

-------

What happens if you get disabled is a toatally different framework from what happens if you die.

Death means no income, disability means no income and lots of expenses.

No question.  Did I ever say I neglect DI?  In fact, we have that discussion before we even discuss life insurance.





[/quote]

Overall, I think we're going to have to agree to disagree.  But if you ever insinuate again that I am doing something dishonorable by showing my clients that they can buy maximum coverage if they wanted, our pleasant discussion will cease. 

I feel you do bring alot to this forum.  There is no need to resort to back-handed comments and accusations of dishonesty or doing less than what is in my clients very best interest.

back to the dividend.  you think only a small % of agents clarify dividend % vs. rate of return? 

I don't think that.  I think many agents confuse this and pathetically, it is often because they don't know the difference.  Agents of your former company seem to be especially guilty of this.  I said that I haven't seen company produced marketing material that makes this mistake.

I think financial decisions need to be made in an objective dispassionate framework.

This simply doesn't work for insurance.  People don't want to deal with death and disability.  Insurance gets ignored in a dispassionate framework.  It shouldn't, but it does.  

But thats not the way to do things if your goal is to sell and close on lots of life insurance/annuity premium . In that case you want to create lots of percieved need for life insurance/annuities, and get ink on paper before the smoke clears.

No widows will call it a "perceived" need. 

anonymous-I don’t think insurance is inherently bad.  I think many many agents abuse vul/va/wl contracts to fatten their wallet.  I have 60+ year olds all the time looking for insurance which will last their entire lifetime, so I know what you mean.  I have done and still do a considerable amount of life/di/ltc, so I believe in the product.

But I also think an agent can use the worst case scenario as a scare tactic and gloss over the pitfalls of a VUL/WL plan to make it an easier sale.  Plus I truly believe many agents can  “justify” a sale down the road in millions of ways, which may or may not be relevant to anything the client wanted.

There at just too many insurance guys out there who do not do enough business the “right way” to make a respectable income, so it is easier to take the quick payday and rationalize it later.  Not saying you do this at all. 

And on a somewhat related note there are guys in my urban area making $500K on 10-12% EIA’s, preying on the uninformed/uneducated.  Those people are WAY more dangerous than misguided insurance guys generally.

There are certainly dishonest sales people selling everything.

VUL and WL should not be used in the same sentence.  It makes them appear to be similar products.   They are not.   

[quote=deekay]

Overall, I think we're going to have to agree to disagree.  But if you ever insinuate again that I am doing something dishonorable by showing my clients that they can buy maximum coverage if they wanted, our pleasant discussion will cease. 

[/quote]

Are you a nineteenth-century British author?

[quote=farotech][quote=deekay]

Overall, I think we're going to have to agree to disagree.  But if you ever insinuate again that I am doing something dishonorable by showing my clients that they can buy maximum coverage if they wanted, our pleasant discussion will cease. 

[/quote]

Are you a nineteenth-century British author?

[/quote]

Who are you again and why should I listen to you?

Do you have anything relevent to add?  If so, I'd like to hear what you think.  If not, why are you bothering to post at all?

[quote=anonymous]

I think financial decisions need to be made in an objective dispassionate framework.

This simply doesn't work for insurance.  People don't want to deal with death and disability.  Insurance gets ignored in a dispassionate framework.  It shouldn't, but it does.  

But thats not the way to do things if your goal is to sell and close on lots of life insurance/annuity premium . In that case you want to create lots of percieved need for life insurance/annuities, and get ink on paper before the smoke clears.

No widows will call it a "perceived" need. 

1) If you don't sell insurance, how can you be sure that your way works?

2) Using emotions is not using scare tactics.   Scare tactics is not the way to sell.

3) Insurability is fragile.  It should never wait until after something else is squared away.  One can invest if they can write a check.  Once someone's health changes, that's it for insurance.   We must get someone covered asap. 

4) Unless the investments are occurring in a vacuum, we need to look at someone's complete financial picture to make investment recommendations.  Therefore, insurance can't be brought up after the fact.

[quote=AllREIT] [quote=anonymous]

I think financial decisions need to be made in an objective dispassionate framework.

This simply doesn't work for insurance.  People don't want to deal with death and disability.  Insurance gets ignored in a dispassionate framework.  It shouldn't, but it does.  

But thats not the way to do things if your goal is to sell and close on lots of life insurance/annuity premium . In that case you want to create lots of percieved need for life insurance/annuities, and get ink on paper before the smoke clears.

No widows will call it a "perceived" need. 

[/quote]

It's been my experience that I bring up insurance *after* people get all their investments squared away. You set up a bond of trust, and can sell plenty of insurance in a rational way.

You said yourself you've never sold insurance but you've helped people buy insurance.  Which one is it?  Are we dealing in semantics?  Do you farm it out? 

Any CFP will tell you insurance is the building block of financial planning.  So what are you doing setting up their investments first?

You don't have to use scare tactics to sell a product that would sell itself if only you let it shine. But maybe I just deal with a different clientele than most folks here. I think people will deal with death and disability if you bring it up in a low pressure, non-threatening, non-confrontational way.

Neither do I.  I tell them the truth.  I've seen what premature death and total disability can do to a family.  If you ever did, you'd NEVER set someone's investments before insurance.  Please tell me, what kind of clientele do you deal with?  Aliens?  Immortals?  I deal with real people.  And I motivate them to deal with what needs to be dealt with first.  That is, get all your insurance straight.  PERIOD.  That goes from car insurance all the way to life insurance and everything in between.

The same rational framework that works with matching investments to long term continious liabilities (e.g retirement) works with matching life insurance to point liabilities (Educations, Mortgage, Burial Expenses, Income Annuity)

Again, you've said yourself you have never sold insurance.  People are not rational.  They purchase based on emotion.  Frankly, I question whether or not you even have clients.  Just my two cents.

[/quote]

Ok ..Guys ..

So I can summarize that one side here thinks buy the minimum you need for insurance and make it term or whole life..right.. and base it on the percieved economic needs only of today looking into tomorrow..

Secondly.. the other side thinks that life insurance is a funding vehicle to mitigate risk of premature death..and that you can use anything but a vul then applied to each individual case based on both the funding goals of the client and the needs..

Now I would then propose to you some questions.. I don't know who they would belong to as I have lost the perspective of each camp. if you will

VUL -- in short all feel sucks.. I have to disagree here .. there are some circumstances where this applies .. what do you do with the business owner that has $100k (His AGI is $550k a year) or better in excess cashflow.. We have done a 412i and we have funded all his qualified plans.. he has more $ and is looking for growth on it ...not necessarily the muni return.. He is under 50 so he has a ways to go ..before any qualified plan can be liquid enough so that it is an option ...(annuities included).. He has a documentable insurance need of $3 million (mort, college goals for 3 kids and replacement value of his economic output based on todays dollars) what would you recommend ..

Life Settlements.. lets be clear on this .. life settlements suck when there is no full disclosure .. when have a client walks in and sell a policy then walks out ..never knowing the gross up and never replaces it (unless it is truly not needed) for a lower premium/db policy .. then yes that is a problem..

Otherwise it does serve a purpose .. let me describe another scenario.. client is 74 yro male ..he had a (I didn't put him in this) VUL from another company ..that his CPA recommended he get involved in.. his premiums to keep it in force were $32k a year ..it had a cash value of $65 k .. but a surrender value of $3k  .. (nice huh) ..anyway he no longer needed $3 million in coverage as he sold his business and and all the girls are gone through school...

So we were able to sell the policy ..and put $80k in his pocket.. He still has an estate liquidity need ..and wanted to see that the girls got some $ to help settle the estate.. so we took the $80k and put it into a WL survivorship policy that in turn will provide him $1 million in coverage under the assumption he can pay $3k per year.. this is a real case for a client with a net worth over $6 million..

So I am not sure that you can accurately make any absolute statement about what is or is not correct in the fniancial industry in regard to never using this product or that one..

(those emoticons can be really annoying if over done .. )

The problem with VUL is that it combines overpriced ART with overpriced investments.   ART, especially overpriced ART is a horrendous product to have to own forever.  What is your client's insurance cost at age 70?  Age 75?  80?  81? 82? etc?

The client has to keep paying these insurance costs or make the life insurance taxable as income.  He'd be better off buying term insurance and investing the difference.  After all, this is all that VUL is.  The difference with BTID is that the term insurance will be less expensive.  The investments will be less expensive.  The insurance component can be dropped without causing the investments to be taxed as income.

What typically happens in VUL is that the policies will lapse in the future, thus bringing us to your point about life settlements.  Nobody is arguing that life settlements are bad in all cases for the client.   You clearly have a case in which a life settlement helps a specific client.  The problem is that the life settlement hurts every single person not involved.  One factor built into insurance pricing is lapse expectations.  Screw with this, and this is exactly what life settlements do, and ultimately life insurance companies and all policyholders will pay the price.

Someone involved with selling life insurance should never be involved with life settlements.    They have the capability of severely crippling the industry.  Not only does this add a huge expense to the insurance company, they jeopardize the tax treatment of life insurance.

So.........you can justify having someone other than a family/charities/business relationships having a vested interest in seeing your client die early?

Interesting..........

Deekay, excellent point.  The client did get $80,000.  However, he gave someone  who doesn't care about the insured, 3,000,000 reasons to "encourage" an early death.

Life settlement people are awesome. They convert something that not useful to the client, (a promise of cash after they die) into something that is useful (cash while they are still alive).



All the money in the world is useless to you after you’re dead, because you can’t take it with you.



The insurance companies could cut the life settlement people off if
they offered the option to annuitise (With guarantee’d full payment of
the benefit) life insurace policies upon age 85 or serious disability.



But the insurance companies preferred not to offer that option, so a third party does.

A promise of cash at death is very useful to a client who cares about his family.

How would your solution help since is a very minor % of life settlements that occur after age 85? 

Life settlements can help certain people, but it comes at the expense of everyone who owns life insurance.

[quote=anonymous]

1) If you don’t sell insurance, how can you be sure that your way works?

2) Using emotions is not using scare tactics.   Scare tactics is not the way to sell.

3) Insurability is fragile.  It should never wait until after something else is squared away.  One can invest if they can write a check.  Once someone's health changes, that's it for insurance.   We must get someone covered asap. 

4) Unless the investments are occurring in a vacuum, we need to look at someone's complete financial picture to make investment recommendations.  Therefore, insurance can't be brought up after the fact.

[quote=anonymous]

A promise of cash at death is very useful to a client who cares about his family.

How would your solution help since is a very minor % of life settlements that occur after age 85? 

Life settlements can help certain people, but it comes at the expense of everyone who owns life insurance.

Yes people should move quickly on insurance matters, but there is no need to create false urgency.

There is nothing false about the urgency.   People are insurable until the instant that they are not.   I'll give you my latest example.  I met with a guy to discuss long term care insurance.  He wanted to wait a week to think it over.  In the mean time, he had a routine physical.  He was completely healthy except for the fact that he along with the doctor decided to operate on a umbilical hernia that had given him virtually no problems for over 15 years.  This made him uninsurable until after the surgery.  His surgery got postponed 3 different times for minor issues.  He had the surgery and then was diagnosed with cancer on his first follow up appointment.

We need to create this urgency to get people to APPLY for coverage.  When they apply, all that is being done is asking the insurance company to make an offer.  By including a check with the application, it is putting the insurance company on the hook without forcing the client to make any quick decision.

"Mr. Client, let's let the insurance company approve you and tell us what the rates will be.  Once we get the approval, we can then decide on the amount and type of coverage."

If we delay in taking an application, we will have clients suffer the consequences.

[quote=deekay][quote=AllREIT] [quote=anonymous]

I think financial decisions need to be made in an objective dispassionate framework.

This simply doesn't work for insurance.  People don't want to deal with death and disability.  Insurance gets ignored in a dispassionate framework.  It shouldn't, but it does.  

But thats not the way to do things if your goal is to sell and close on lots of life insurance/annuity premium . In that case you want to create lots of percieved need for life insurance/annuities, and get ink on paper before the smoke clears.

No widows will call it a "perceived" need. 

[/quote]

It's been my experience that I bring up insurance *after* people get all their investments squared away. You set up a bond of trust, and can sell plenty of insurance in a rational way.

You said yourself you've never sold insurance but you've helped people buy insurance.  Which one is it?  Are we dealing in semantics?  Do you farm it out?
Yes, I refer people to an agent who helps shop around the case and get the cheapest cover.

Any CFP will tell you insurance is the building block of financial planning.  So what are you doing setting up their investments first?

Because I don't do "financial planning", and without geting paid for selling insurance, I can be more objective about it.  It's something clients need to think about but in a cool and dispassionate manner.

You don't have to use scare tactics to sell a product that would sell itself if only you let it shine. But maybe I just deal with a different clientele than most folks here. I think people will deal with death and disability if you bring it up in a low pressure, non-threatening, non-confrontational way.

Neither do I.  I tell them the truth.  I've seen what premature death and total disability can do to a family.  If you ever did, you'd NEVER set someone's investments before insurance.  Please tell me, what kind of clientele do you deal with?  Aliens?  Immortals?  I deal with real people.

A split book. Lots of young professionals and a few crazier older folks. Very educated crowd for the most part.

 And I motivate them to deal with what needs to be dealt with first.  That is, get all your insurance straight.  PERIOD.  That goes from car insurance all the way to life insurance and everything in between.

Clients need to deal first with what they want to deal first. The tendancy of insurance salesmen and others to bring up insurance sales early and often dooms them.

There is also an element of surviviorship bias, in that people look at what works in the sales they made, vs what didn't work in the sales they didn't make. '

That would reveal that most people do not want to talk about insurance first thing and are very skeptical about the subject in general. It's better to build up credibility first.

The same rational framework that works with matching investments to long term continious liabilities (e.g retirement) works with matching life insurance to point liabilities (Educations, Mortgage, Burial Expenses, Income Annuity)

Again, you've said yourself you have never sold insurance.  People are not rational.  They purchase based on emotion.  Frankly, I question whether or not you even have clients.  Just my two cents.

That's ok DK. You can believe in an invisible pink unicorn for all I care.

[/quote]

I don't argue the "old" part, but it's not people over 85.

Old people who can't afford their WL policies are not a dime a dozen.  Old people tend to have old WL policies.  Old WL policies have dividends that are higher than the premium.  Old people don't have to pay a dime out of pocket to keep these policies in force.

Old WL policies are terrible candidates for life settlements.  Unless someone is very sick, the life settlement is a lose-lose situation.  The settlement company can't offer more than the cash value of the policy because it would turn it into a bad investment.  The insured would make more money simply by taking a policy loan and they would still have the death benefit for their family.

On the other hand, if we talking about UL/VUL, it would frequently make sense for the policy holder.

[quote=AllREIT]Life settlement people are awesome. They convert something that not useful to the client, (a promise of cash after they die) into something that is useful (cash while they are still alive).

All the money in the world is useless to you after you're dead, because you can't take it with you.

The insurance companies could cut the life settlement people off if they offered the option to annuitise (With guarantee'd full payment of the benefit) life insurace policies upon age 85 or serious disability.

But the insurance companies preferred not to offer that option, so a third party does.
[/quote]

So, tell me.  When you bring up LI Settlements and tell them that a third party wants them to die early to collect, how do they respond?

Do you understand that LI settlements run counter to what insurance is all about?  Do you even know what the pure definition of insurance is?  If you did, you would never consider a settlement for any client.  Period.

All the money in the world is useless to you after you're dead, because you can't take it with you.

That is NOT the purpose of insurance.  In some rare instances** I can see a life settlement being useful but in the majority of the cases it negates all of the insurance planning and intentions of the insured and the beneficaries.

** One of my best friends had terminal pancreatic and liver cancer at a fairly young age of 45.  Her children were set for income and didn't especially need the death benefit and she had no estate tax issues.  She took the life settlement option written in the contract (not selling to an outside agent as an investment for somebody else) and made her remaining months more pleasant for herself and her family until she was too ill and went into hospice to die. 

[quote=deekay]

[quote=AllREIT]Life settlement people are awesome. They convert something that not useful to the client, (a promise of cash after they die) into something that is useful (cash while they are still alive).

All the money in the world is useless to you after you’re dead, because you can’t take it with you.

The
insurance companies could cut the life settlement people off if they
offered the option to annuitise (With guarantee’d full payment of the
benefit) life insurace policies upon age 85 or serious disability.

But the insurance companies preferred not to offer that option, so a third party does.
[/quote]

So, tell me.  When you bring up LI Settlements and tell them that a third party wants them to die early to collect, how do they respond?

Do you understand that LI settlements run counter to what insurance is all about?  Do you even know what the pure definition of insurance is?  If you did, you would never consider a settlement for any client.  Period.

[quote=Dust Bunny]

All the money in the world is useless to you after you’re dead, because you can’t take it with you.

That is NOT the purpose of insurance.  In some rare instances** I can see a life settlement being useful but in the majority of the cases it negates all of the insurance planning and intentions of the insured and the beneficaries.

ALLREIT, It's not like the insurance company has a rooting interest in what happens.  It's based upon the law of large numbers so they don't care what happens with any individual.  They know to a great degree what their mortality will be.

Life Ins: Live long and let the policy lapse.  More accurately, they would want everyone to live long, keep the policy long, and then lapse it.  This does happen with some people.  It hurts those people (if we ignore the fact that they did have necessary insurance coverage).  However, it helps everyone else.  Insurance companies count on these lapses.  If these lapses stop, it will have a negative impact on everybody else.   Early lapses also hurt the company.

Annuity: Die quickly.  More accurately, this is only true for immediate annuities.  With deferred annuities, the quicker the death, the more likely that a death claim will be paid, and of course, they don't have the money to manage.

Insurance only works because it is spreading the risk.  If everybody is going to collect, it becomes unaffordable.  Life settlements help everybody collect and it blows up the concept of insurable interest.

AllReit,

You have not defined what life insurance is.  You have not answered my question about how your clients react when you tell them the truth about settlements.

I've basically figured it out.  And I cannot believe it took me so long.

AllReit bashes anything insurance based because he is not licensed to sell insurance.  Anything other than el cheap-o 30 year term is going to be scorned because it takes away from his AUM.  Without his AUM, AllReit would go out of business (assuming he even manages money).

Therefore, anything that works to the detriment of his "I'll Give You The Privlege Of Paying 1% In Finitum For Underperformance and Biased Information" system is wrong, evil, and should be made illegal.  Unless, of course, you're talking about life settlements, which obviously is the only sane result of owning a WL policy

where did the “underperformance” and “biased information” come from?  Allreit has his own funds?

[quote=anonymous]

ALLREIT, It’s not like the insurance company has a
rooting interest in what happens.  It’s based upon the law of
large numbers so they don’t care what happens with any
individual.  They know to a great degree what their mortality will
be.

Sure they do. The insurance company has huge interests in realised mortality and policy lapses.

In order for life insurance to be profitable in the aggregate, its important that each contract be economically profitable at the time of underwriting.

The complaints about life settlement people is that they prevent reserve releases (thus tying up capital used to back the in force policies) and they increase mortality expense (since the life insurance gets used)

In force policies on old people require huge reserves and will lead mortality losses.

Life Ins: Live long and let the policy lapse.  More accurately, they would want everyone to live long, keep the policy long, and then lapse it.  This does happen with some people.  It hurts those people (if we ignore the fact that they did have necessary insurance coverage).  However, it helps everyone else.  Insurance companies count on these lapses.  If these lapses stop, it will have a negative impact on everybody else.   Early lapses also hurt the company.

If everyone kept all WL in force, it would become a vast time/distance problem. The insurance companies would drop the excess risk onto the bond market via life insurance securitisations.

Otherwise what happens is that insurco's use the fact that the policy mortality does not match customer mortality (since many policies lapse sooner than death), to charge less. All this on the knowledge that  lots of people paid for a period of coverage (when they will be very old/uninsurable) that they will never used.

However, you can use that insight, buy realising that a WL policy that is not held to maturity , is just like a term policy.

Annuity: Die quickly.  More accurately, this is only true for immediate annuities.  With deferred annuities, the quicker the death, the more likely that a death claim will be paid, and of course, they don't have the money to manage.

Right, With VA's and deferred annuities, the insurco would prefer longer lifetimes. After annuitisation, they prefer rapid death.

Insurance only works because it is spreading the risk.  If everybody is going to collect, it becomes unaffordable.  Life settlements help everybody collect and it blows up the concept of insurable interest.

Even if everyone collects life insurance still works, but it becomes a different sort of underwriting problem.

The life settlement people would vanish if insurco's offered more compelling accelerated death benefits and/or benefit annuitisation options.

[quote=deekay]

AllReit,

You have not defined what life insurance is.  You have not answered my question about how your clients react when you tell them the truth about settlements.

[quote=AllREIT] [quote=deekay]

AllReit,

You have not defined what life insurance is.  You have not answered my question about how your clients react when you tell them the truth about settlements.

[/quote]

Life insurance is contract between you and an insurance company for payment upon a specified event. It's basicly a fancy put option. And like any put option it has value.

Whats scary is that some of my clients want to invest in life settlements.


[/quote]

You forgot one key element in your definition.  It is guaranteed payment on death that will not result in a profit to the beneficiary.  In other words, life insurance settlements provide a profit to the third party that buys a CV policy.  A previous poster mentioned a case where his client sold a $3mm DB policy for $80k.  A profit of $2.4mm results for the new owner/benficiary.  By definition, this is not life insurance.

The fact your clients are asking about it and you are not warning them of the pitfalls is disturbing.  By selling a policy to a settlement broker, you and your client are putting a big fooking target on your backs.  I mean, an individual has a VESTED INTEREST in seeing your client die sooner!!!  Not to mention the ramifications these transactions can have on the insurance industry (higher premiums/tougher underwriting, etc).  They go against everything life insurance needs to do and should be made illegal for the good of insurance companies, clients, and financial advisors/agents.

Did I mention how sickening it is to hear your clients wanting to get involved in this?  I know we've had our differences, AllReit, but I sincerely hope you do not encourage this kind of stuff. 

[quote=theironhorse]where did the "underperformance" and "biased information" come from?  Allreit has his own funds? [/quote]

I can neither confirm nor deny this, but AllReit holds himself out as an RIA.  He invests his clients' money in Vanguard ETFs and charges a 1% wrap fee.

He is biased because any strategy that doesn't allow him to cram all investable assets into his wrap program is wrong in his opinion.  His bias is towards fee-based planning.  Thankfully, he only does investments and doesn't (hopefully) convey his utter lack of knowledge of financial planning concepts to his clients.

[quote=deekay][quote=AllREIT] [quote=deekay]

AllReit,

You have not defined what life insurance is.  You have not answered my question about how your clients react when you tell them the truth about settlements.

[/quote]

Life insurance is contract between you and an insurance company for payment upon a specified event. It's basicly a fancy put option. And like any put option it has value.

Whats scary is that some of my clients want to invest in life settlements.


[/quote]

You forgot one key element in your definition.  It is guaranteed payment on death that will not result in a profit to the beneficiary.  In other words, life insurance settlements provide a profit to the third party that buys a CV policy.  A previous poster mentioned a case where his client sold a $3mm DB policy for $80k.  A profit of $2.4mm results for the new owner/benficiary.  By definition, this is not life insurance.

The fact your clients are asking about it and you are not warning them of the pitfalls is disturbing.  By selling a policy to a settlement broker, you and your client are putting a big fooking target on your backs.  I mean, an individual has a VESTED INTEREST in seeing your client die sooner!!!  Not to mention the ramifications these transactions can have on the insurance industry (higher premiums/tougher underwriting, etc).  They go against everything life insurance needs to do and should be made illegal for the good of insurance companies, clients, and financial advisors/agents.

Did I mention how sickening it is to hear your clients wanting to get involved in this?  I know we've had our differences, AllReit, but I sincerely hope you do not encourage this kind of stuff. 

ok.  I just don’t see why anyone would farm this out to someone else.  ALLREIT-I may differ with you on a few things, but can understand differences  of opinion on the life insurance front.  Why do you let someone else handle such an important part of a clients financial picture?  Just curious.

I refuse to believe that Allreit is an actual advisor that deals with real live people with real life issues.   All theory with no practical applications.

[quote=theironhorse]ok.  I just don't see why anyone would farm this out to someone else.  ALLREIT-I may differ with you on a few things, but can understand differences  of opinion on the life insurance front.  Why do you let someone else handle such an important part of a clients financial picture?  Just curious. [/quote]

He farms the insurance work out.  Isn't it obvious by his utter lack of understanding of life insurance from a practical standpoint? 

[quote=AllREIT] [quote=deekay][quote=AllREIT] [quote=deekay]

AllReit,

You have not defined what life insurance is.  You have not answered my question about how your clients react when you tell them the truth about settlements.

[/quote]

Life insurance is contract between you and an insurance company for payment upon a specified event. It's basicly a fancy put option. And like any put option it has value.

Whats scary is that some of my clients want to invest in life settlements.


[/quote]

You forgot one key element in your definition.  It is guaranteed payment on death that will not result in a profit to the beneficiary.  In other words, life insurance settlements provide a profit to the third party that buys a CV policy.  A previous poster mentioned a case where his client sold a $3mm DB policy for $80k.  A profit of $2.4mm results for the new owner/benficiary.  By definition, this is not life insurance.

The fact your clients are asking about it and you are not warning them of the pitfalls is disturbing.  By selling a policy to a settlement broker, you and your client are putting a big fooking target on your backs.  I mean, an individual has a VESTED INTEREST in seeing your client die sooner!!!  Not to mention the ramifications these transactions can have on the insurance industry (higher premiums/tougher underwriting, etc).  They go against everything life insurance needs to do and should be made illegal for the good of insurance companies, clients, and financial advisors/agents.

Did I mention how sickening it is to hear your clients wanting to get involved in this?  I know we've had our differences, AllReit, but I sincerely hope you do not encourage this kind of stuff. 

[/quote]

Who says I've ever proposed a life settlement to anyone? I think these people are clever, and doing alot of good by giving liquidity to people who's main asset is useless to them while alive.

Why is the CV worthless when someone is alive?  You call them clever, I call them parasites. 

I believe in free markets, and a life policy is like any other asset. It's your life, and you should be able to profit from it.

I believe in free markets and free will as well.  Do what you want.  You however do not understand the ramifications if these settlements continue to exist.  It is no different than a mob hit for profit.  I couldn't sleep at night knowing someone has a contract on my life.

As for big target's, how many people are killed by relatives over life insurance vs killed by life settlement investors seeking a higher IRR. I think anyone with excess coverage (e.g your proposed $5million maximum coverage) is at risk.

You're sick.  The difference is one is illegal and the other should be illegal.  Either way, someone is PROFITING off someone's death.  That, by nature, goes against what life insurance is defined as.  Not to mention the moral and societal dilemas it causes. 

How do you know how much life insurance my clients need or want?  Have you ever told your clients they can purchase far more insurance than you think they 'need'?  Oh, you don't give a crap, you're only looking for their AUM.  And you hold no accountability as a result.  Yet you hold yourself out as an expert.   

Life insurance is just a parametric put option. Nothing less, and certainly not anything more.

No wonder you'd suck as an agent.  You treat people as numbers, an algorithim.  If insurance is only a series of financial transactions, why refer the business and create your own risk management system.  You'd make a killing

[/quote]

[quote=Dust Bunny]I refuse to believe that Allreit is an actual advisor that deals with real live people with real life issues.   All theory with no practical applications.[/quote]

Well said, babs.

[quote=deekay]

Who says I've ever proosed a life settlement to anyone? I think these people are clever, and doing alot of good by giving liquidity to people who's main asset is useless to them while alive.

Why is the CV worthless when someone is alive?  You call them clever, I call them parasites.

How much CV is in the policy vs how much can you get from the life settlement folks? No one would be doing life settlements if they didn't think it was a better deal than keeping the policy in force.

As Ronnie James Dio said: "Holy Father, Holy Ghost, who's the one that pays the most?"

I believe in free markets, and a life policy is like any other asset. It's your life, and you should be able to profit from it.

I believe in free markets and free will as well.  Do what you want.  You however do not understand the ramifications if these settlements continue to exist.  It is no different than a mob hit for profit.  I couldn't sleep at night knowing someone has a contract on my life.

Boo hoo for poor AIG as their whole life policy have suddenly become whole life policies. Bad underwriting on the part of insurco's is no-one elses fault and no ones elses problem except themselves.

Frankly if I had a $5m bounty on my head as you suggest, I wouldn't be sleeping at night. 

As for big target's, how many people are killed by relatives over life insurance vs killed by life settlement investors seeking a higher IRR. I think anyone with excess coverage (e.g your proposed $5million maximum coverage) is at risk.

You're sick.  The difference is one is illegal and the other should be illegal.  Either way, someone is PROFITING off someone's death.  That, by nature, goes against what life insurance is defined as.  Not to mention the moral and societal dilemas it causes.

Life insurance is profiting from the time, distance and fear of death. The lifeco hopes that premiums paid, (and investment returns on its reserves) will exceed the future value of the death benefit.

The life settlement folks hope that the future value of the death benefit will exceed the purchase cost and ongoing premiums for the policy. Two sides of the same coin (policy).

The excess cost of the premiums over the death benefit is economic profit, and part of a vast transfer of wealth from policyholders to lifeco's and their shareholders. It's your choice on how much empire tax you want to pay.

Deep down, life insurance is very simple parametric put option. And it is priced as a very simple peice of math, using mortality and ammortisation tables.

http://en.wikipedia.org/wiki/Actuarial_science
http://en.wikipedia.org/wiki/Survival_analysis

and my favorite

http://en.wikipedia.org/wiki/Gompertz-Makeham_law_of_mortali ty

Two numbers (background death rate and age) is all you need to predict lifespan. Insurance Rating classes correspond to different assumptions about the background death rate and age factor.

Now some people, (often sellers of life insurance) like to pretend that life insurance something more than a put option.

How do you know how much life insurance my clients need or want?  Have you ever told your clients they can purchase far more insurance than you think they 'need'?

Yes, I've told people that if they want to they can buy about $5m in life insurance before the lifeco's will start getting suspicious. Cases over $1m may take longer to close due to the involvement of reinsureres.

I tell clients that the insurance agent will sell them any amount of life insurance they could possibly need, and alot more if you let him.

Oh, you don't give a crap, you're only looking for their AUM.  And you hold no accountability as a result.  Yet you hold yourself out as an expert.  

No, the difference is that my compensation isn't linked to how much life insurance I sell. I have no incentive to recomend buying more life insurance than can be justified by a needs analysis.

Life insurance is just a parametric put option. Nothing less, and certainly not anything more.

No wonder you'd suck as an agent.  You treat people as numbers, an algorithim.  If insurance is only a series of financial transactions, why refer the business and create your own risk management system.  You'd make a killing

Because doing investment management is much less capital intensive than starting up a life insurance company.

 Anyways, I view my purpose in life as something other than selling lots of life insurance on behalf shareholders of MET etc.

[/quote]

[quote=theironhorse]ok.  I just don’t see why anyone would farm
this out to someone else.  ALLREIT-I may differ with you on a few
things, but can understand differences  of opinion on the life
insurance front.  Why do you let someone else handle such an
important part of a clients financial picture?  Just curious.
[/quote]



Two reasons.

[quote=AllREIT][quote=theironhorse]ok.  I just don't see why anyone would farm this out to someone else.  ALLREIT-I may differ with you on a few things, but can understand differences  of opinion on the life insurance front.  Why do you let someone else handle such an important part of a clients financial picture?  Just curious. [/quote]

Two reasons.

1) Not currently licensed for life insurance sales

1.5) The insurance agents I use for life insurance do a good job of it, including complex cases, and they take good care of the clients.

2) Part of the business model is explicitly doing investments/financial advice only without any external relationships clouding that.

I've thought about hiring someone who is licensed and setting up some kind of arrangement, but as is I like (and clients like) the 100% independant model.




[/quote]

Oh, my God! You're one of those Garrett Planning Network robots!!!! That explains everything. No wonder you're such an idiot.

[quote=deekay][quote=AllREIT] [quote=deekay]

AllReit,

You have not defined what life insurance is.  You have not answered my question about how your clients react when you tell them the truth about settlements.

[/quote]

Life insurance is contract between you and an insurance company for payment upon a specified event. It's basicly a fancy put option. And like any put option it has value.

Whats scary is that some of my clients want to invest in life settlements.


[/quote]

You forgot one key element in your definition.  It is guaranteed payment on death that will not result in a profit to the beneficiary.  In other words, life insurance settlements provide a profit to the third party that buys a CV policy.  A previous poster mentioned a case where his client sold a $3mm DB policy for $80k.  A profit of $2.4mm results for the new owner/benficiary.  By definition, this is not life insurance.

The fact your clients are asking about it and you are not warning them of the pitfalls is disturbing.  By selling a policy to a settlement broker, you and your client are putting a big fooking target on your backs.  I mean, an individual has a VESTED INTEREST in seeing your client die sooner!!!  Not to mention the ramifications these transactions can have on the insurance industry (higher premiums/tougher underwriting, etc).  They go against everything life insurance needs to do and should be made illegal for the good of insurance companies, clients, and financial advisors/agents.

Did I mention how sickening it is to hear your clients wanting to get involved in this?  I know we've had our differences, AllReit, but I sincerely hope you do not encourage this kind of stuff. 

[/quote]

Lets be clear on somethings again ..

LI settlements are viable if and only if you have idetified the needs of the client ..not because you re selling it to raise money ect.. so for example in the case I quoted .. The client made 80k which he used to buy himself other insurance so he would not have to pay out $32k a year for coverage on one policy ..

Seconly your conspiracy theory is faulted .. just because he sold his policy to another company  .. doesn't make him marked for death.. Please learn about insuarnce trauches ..thanks..

And lastly the insurance companies don't care who pays the premium and then who gets the benefit.. don't you understand that 7 out 10 times it is another insurance company doing the buying.  

How do your client's heirs feel about this?  I'm curious - they wouldn't be interested in getting a tax-free $3mm DB?  They'd rather get $160k or whatever the UL is going to pay out?

[quote=deekay]

How do your client's heirs feel about this?  I'm curious - they wouldn't be interested in getting a tax-free $3mm DB?  They'd rather get $160k or whatever the UL is going to pay out?

[/quote]

Ok ..did you not notice that I said they were in their 70's ...one and two .did also not notice that I said they were paying $32k per year..

Now would you like to repeat your question or make another ?

[quote=deekay]

How do your client’s heirs feel about this?  I’m
curious - they wouldn’t be interested in getting a tax-free $3mm
DB?  They’d rather get $160k or whatever the UL is going to pay
out?

[quote=AllREIT] [quote=deekay]

How do your client's heirs feel about this?  I'm curious - they wouldn't be interested in getting a tax-free $3mm DB?  They'd rather get $160k or whatever the UL is going to pay out?

[/quote]

Who cares about the heirs, let them solve their own problems.

The living, and soon to be dead, want to stop paying WL premiums and to get cash payments now while they are still useful.

WL premiums are a nusiance for people living on fixed income, who have other expenses to deal with. That's why so many policies lapse at the very moment of greatest value.
[/quote]

Allreit, it almost sounds like your clients are one step away from the poor house.  Every once in a while I'll come across a couple that I know probably won't make it through retirement, but if they NEED that WL premium currently, they must be in terrible financial positions.  I would rather work with, and yes, it is MY choice, with people who can afford life insurance because they HAVE money.

You can keep working with the broke or near-broke.  I want wealthier clients so I too can be wealthier.

[quote=snaggletooth][quote=AllREIT] [quote=deekay]

How do your client's heirs feel about this?  I'm curious - they wouldn't be interested in getting a tax-free $3mm DB?  They'd rather get $160k or whatever the UL is going to pay out?

[/quote]

Who cares about the heirs, let them solve their own problems.

The living, and soon to be dead, want to stop paying WL premiums and to get cash payments now while they are still useful.

WL premiums are a nusiance for people living on fixed income, who have other expenses to deal with. That's why so many policies lapse at the very moment of greatest value.
[/quote]

Allreit, it almost sounds like your clients are one step away from the poor house.  Every once in a while I'll come across a couple that I know probably won't make it through retirement, but if they NEED that WL premium currently, they must be in terrible financial positions.  I would rather work with, and yes, it is MY choice, with people who can afford life insurance because they HAVE money.

You can keep working with the broke or near-broke.  I want wealthier clients so I too can be wealthier.

[/quote]

Holy sh*t, I just figured it out...and sorry for replying to my own post but........

Allreit, It makes sense that your clients can't afford their WL premiums.  It's because they aren't making any money having a core position of TIPS.  Hell, they can barely afford to buy milk and eggs at the grocery store, so they stand no chance of keeping their WL policies.

And lastly the insurance companies don't care who pays the premium and then who gets the benefit.. don't you understand that 7 out 10 times it is another insurance company doing the buying.  

Care to back up that 7 out of 10 times statement.  It is complete BS that insurance companies don't care who pays and who gets the benefit.  They hate life settlements and this is why companies ban their agents from being involved with them.  Life settlements are terrible for the industry and for consumers.  They can help an individual consumer, but on the whole, they are a nightmare.

Life settlements cause insurance companies to have lower than expected lapse rates which can drastically increase expenses which raise the cost of insurance for everybody.  Additionally, life settlements destroy the concept of insurable interest which in turn changes life insurance to an investment and could encourage Congress to kill the favorable tax treatment.  The end result is consumers paying more to get less.

As for WL premiums not being affordable for old people, it sure appears as if Allreit doesn't understand the difference between WL and UL.  Participating WL policies are very easy to afford to keep in old age.   This is because the client is paying rates based upon the age of purchase and dividends can be used to pay the premiums.  I have never seen a client over the age of 70 who had a participating WL contract older than 20 years where the dividend was not higher than the premium.

[quote=whitewlfz][quote=deekay]

How do your client's heirs feel about this?  I'm curious - they wouldn't be interested in getting a tax-free $3mm DB?  They'd rather get $160k or whatever the UL is going to pay out?

[/quote]

Ok ..did you not notice that I said they were in their 70's ...one and two .did also not notice that I said they were paying $32k per year..

Now would you like to repeat your question or make another ?

[/quote]

Yep.  I understood both major points of your case.  I'll ask again - when you mentioned the concept of a life settlement to your client's heirs, how did they react?  Were they concerned they'd receive a much lower benefit?  How did they react when you informed them your client will have a target painted on his/her back? 

And don't give me the "oh, it was sold to an institution" line.  Corporations want to be compensated for their investment.  If you think corporations live in this idyllic world where they've got NO incentive to off your client early, you're more gullible than your posts let on.

[quote=AllREIT] [quote=deekay]

How do your client's heirs feel about this?  I'm curious - they wouldn't be interested in getting a tax-free $3mm DB?  They'd rather get $160k or whatever the UL is going to pay out?

[/quote]

Who cares about the heirs, let them solve their own problems.

The living, and soon to be dead, want to stop paying WL premiums and to get cash payments now while they are still useful.

WL premiums are a nusiance for people living on fixed income, who have other expenses to deal with. That's why so many policies lapse at the very moment of greatest value.
[/quote]

Who cares about their heirs?  Wow, you must work with a real humane bunch of hypothetical clients.

For someone who, up until recently, was paying $32k/year for life insurance, I hardly think this case is an instance of someone living on a fixed income.

Deekay, based upon the numbers, I would think that this is someone who never paid anywhere close to 32K for life insurance.  It is very likely a UL policy that has been underfunded and now a huge premium is needed to stop it from blowing up.  If that is the case, they have to pay 32K this year and more next year and more the following year, etc.  The typical owner of a UL policy has the dilemma that they better hurry up and die or else the policy will implode.

[quote=deekay][quote=whitewlfz][quote=deekay]

How do your client's heirs feel about this?  I'm curious - they wouldn't be interested in getting a tax-free $3mm DB?  They'd rather get $160k or whatever the UL is going to pay out?

[/quote]

Ok ..did you not notice that I said they were in their 70's ...one and two .did also not notice that I said they were paying $32k per year..

Now would you like to repeat your question or make another ?

[/quote]

Yep.  I understood both major points of your case.  I'll ask again - when you mentioned the concept of a life settlement to your client's heirs, how did they react?  Were they concerned they'd receive a much lower benefit?  How did they react when you informed them your client will have a target painted on his/her back? 

And don't give me the "oh, it was sold to an institution" line.  Corporations want to be compensated for their investment.  If you think corporations live in this idyllic world where they've got NO incentive to off your client early, you're more gullible than your posts let on.

[/quote]

The heirs ..were fine with whatever the parents left them ..and perferred nothing in return ..as they have been compensated by the ri folks while they were living.. so with that being said it is a nonissue in this case.. and don't get me wrong.. I suggested to them that they could make the parents payments if they would like.... which they of course declined to do .. so that leaves the opportunity for the product to either be funded by premiums by the client or run its course and exprie in about 18 months when the cash value ran out.. So the easier move was to get the new one funded.. one with a premium they could afford.. not to mention in the process of doing this we wound them out of other policies as well

Secondly .. I just have to ask ..if what you say is true and people become marked for death right .. beacuse they are worth X Y Z .. do you also believe that government planned 9-11 .. I mean really .. These concepts have exsisted for about 40 years now ..in europe they have been using traunches to do this.. You or someone not sure which said it...does have some merrit on the comment about the lower lapse rates on policies ..because the corporation doesn't miss a payment ..so that part might have soem merit.. but in the end I believe the market is effiecient..and will serve the people..

[quote=anonymous]Deekay, based upon the numbers, I would think that this is someone who never paid anywhere close to 32K for life insurance.  It is very likely a UL policy that has been underfunded and now a huge premium is needed to stop it from blowing up.  If that is the case, they have to pay 32K this year and more next year and more the following year, etc.  The typical owner of a UL policy has the dilemma that they better hurry up and die or else the policy will implode.[/quote]

If you read above it was a VUL actually ..and the agent that sold it to him from the "quiet" company.   Never once adjusted the subaccounts since the first day it was sold to him .. the policy was funded no less with $150k initially .. how about that eh.. so yea the premium payments have increased and increased over time and he had to make a choice .. pay up ..or move on.. and the payup option when you have another 12-18 years ahead of you started to look quite bleak ..

The heirs ..were fine with whatever the parents left them ..and perferred nothing in return

The heirs always want as much as possible.  It's just that the one's who care don't want their parents to have to compromise on themselves to leave an inheritance.

Secondly .. I just have to ask ..if what you say is true and people become marked for death right .. beacuse they are worth X Y Z ..

They aren't marked for death because they are worth XYZ.   A stranger doesn't benefit by having you killed simply because you are worth $50,000,000.   They benefit by having you killed because  they are the beneficiary on your life insurance policy. 

Nobody should benefit when a life insurance policy is paid.  This is why insurance companies limit the death benefit and why insurable interest must exist.   Having people benefit from the death of a stranger completely blows up the concept of life insurance. 

A typical beneficiary doesn't benefit from her husband's death.  The $1,000,000 is helping to replace his lost income, etc.  A stranger on the other hand, has a profit of $1,000,000 if he is the beneficiary.  There is an absolute risk to being killed for profit if one has sold their life insurance policy. 

Life settlements can bring the industry to its knees.  If left unchecked, they will cause insurance rates to skyrocket and cause life insurance proceeds to be taxed as income.  Life settlements will serve the few people who need life settlements at the expense of everybody else.  Rates will skyrocket because mortality expenses will skyrocket since lapses will plummet.  Congress will start treating life insurance as an investment which means that 40% will disappear from the typical death benefit.

If you read above it was a VUL actually

UL/VUL/EIUL it all has the same chasis.  It's all UL which means overpriced annually renewable term insurance that can never be dropped without paying a big tax bill.   Term insurance is for temporary needs.  The insurance companies make out like bandits with UL products because they are selling term insurance for permanent needs.  

Everybody's life insurance should be term insurance or whole life insurance or a combination of the two.  The only exception is that GUL can be the best choice for people who are already old.

[quote=anonymous]

Secondly … I just
have to ask …if what you say is true and people become marked for
death right … beacuse they are worth X Y Z …

They aren't marked for death because they are worth XYZ.   A stranger doesn't benefit by having you killed simply because you are worth $50,000,000.   They benefit by having you killed because  they are the beneficiary on your life insurance policy.

I'd rather

Nobody should benefit when a life insurance policy is paid. (Why not, who's listed that beneficiary on the policy?) This is why insurance companies limit the death benefit and why insurable interest must exist.   Having people benefit from the death of a stranger completely blows up the concept of life insurance.

Not really, it depends on how you conceptualise it. Either its some type of financial derivative based on the mortality experience of the underlying person, or its something else.

I can tell you how the insurance companies think about it.

A typical beneficiary doesn't benefit from her husband's death.  The $1,000,000 is helping to replace his lost income, etc.  A stranger on the other hand, has a profit of $1,000,000 if he is the beneficiary.  There is an absolute risk to being killed for profit if one has sold their life insurance policy.

No worse than getting killed by family members. How many people have been killed by life settlement investors vs family members over life insurance payouts.

The main reason that insurco's dont write big policies, is that it adds volatility to their underwriting model, therefore big cases have to be individually underwritten and passed by the reinsurers. One $5m policy is alot more volatile than 50 100K policies.

There is also the issue of  people with lots of life insurance having a slightly shorter lifespan (on a case by case basis).

Life settlements can bring the industry to its knees.  If left unchecked, they will cause insurance rates to skyrocket and cause life insurance proceeds to be taxed as income.

No, because the payout is AFAIK ordinary income to the settlement investor and the cash payment for the policy is likewise.

The main complaint is that life settlement investors are screwing up the insurco's projections about mortality expenses.  Mostly they re doing so by bringing up realised expense much closer to the theoretical expense.

Life settlements will serve the few people who need life settlements at the expense of everybody else.  Rates will skyrocket because mortality expenses will skyrocket since lapses will plummet.  Congress will start treating life insurance as an investment which means that 40% will disappear from the typical death benefit.

I really doubt it. Life insurance will keep its priviliged conditions, although the insurco's will try to have laws passed that will limit the transferability/assignability of life policies. They will also get smarter about rates on older people who are just starting WL policies as well as starting to offer life settlements inhouse via policy buyouts.

Allreit,

The more that you write, the less that show us that you know.

Nobody should benefit when a life insurance policy is paid. (Why not, who's listed that beneficiary on the policy?)

The beneficiary is not supposed to benefit.  This is why insurance companies have caps on the amount of coverage they will issue on an individual.  This is why they won't write more coverage than the human life value of an individual.  A 30 year old making $30,000/year won't be able to buy $2,000,000 of coverage.  They can buy $600,000 of coverage without an issue and maybe as much as $900,000 depending on the company.  35 years of income is being replaced with a lump sum.  The beneficiary isn't benefitting.  The beneficiary is  just having that income replaced.  If the beneficiary were to benefit, insurance companies would worry about incentive to kill.  In other words, insurance companies fear that writing too much coverage on someone would change the mortality #'s. 

No worse than getting killed by family members. How many people have been killed by life settlement investors vs family members over life insurance payouts.

I'm not saying that it doesn't happen, but I've been in business for a long time, and other than on Law and Order, I've never heard of it happening.  I have heard of insureds being killed when the beneficiary was not a family member.  Just use common sense.  The beneficiaries on your life insurance policy are there because you love them and you help to support them in some manner.  Why would these people want to kill you? 

The main reason that insurco's dont write big policies, is that it adds volatility to their underwriting model, therefore big cases have to be individually underwritten and passed by the reinsurers. One $5m policy is alot more volatile than 50 100K policies.

What are you talking about?  $5,000,000 policies are a dime a dozen.  Large companies will write polices for as much as $100,000,000.

There is also the issue of  people with lots of life insurance having a slightly shorter lifespan (on a case by case basis).

Care to speak English?

No, because the payout is AFAIK ordinary income to the settlement investor and the cash payment for the policy is likewise.

What is AFAIK?  The payout is not ordinary income.  It's tax-free.  The cash payment may or may not be taxable and in most case some will be taxed and some won't be.

The main complaint is that life settlement investors are screwing up the insurco's projections about mortality expenses.  Mostly they re doing so by bringing up realised expense much closer to the theoretical expense.

Absolutely correct.  You make it sound like it is no big deal.  It's freakin' huge.  This screws everybody who buys insurance.  If you look at an illustration for many term policies, for example, you'll see a current premium column and a guaranteed premium column for all years.  No U.S. insurance company has ever charged more than the current premium.  If mortality expenses go way up, insurance companies may be forced to raise rates.  The difference in rates between current and guaranteed can easily be 5x different.  It would cause UL policies which already typically suck to blow up much sooner and WL policies would still be guaranteed but a $1,000,000 death benefit wouldn't grow instead of being worth multiples of that in the future. (don't know why this won't write in black)

They will also get smarter about rates on older people who are just starting WL policies

The problem with life settlements really isn't a problem with WL policies. Old people with the intention of selling their policies buy GUL policies.   Old people who have had existing WL policies for a long period of time can walk away with more money by borrowing the CV than they can get from a settlement company.  They may very well increase the premium on GUL policies at older ages which hurts every older person who needs insurance.  Anyway that you slice it, life settlements hurt both the industry and most insureds. 

[quote=anonymous]

Allreit,

The more that you write, the less that show us that you know.

Nobody should benefit when a life insurance policy is paid. (Why not, who's listed that beneficiary on the policy?)

The beneficiary is not supposed to benefit.  This is why insurance companies have caps on the amount of coverage they will issue on an individual.  This is why they won't write more coverage than the human life value of an individual.  A 30 year old making $30,000/year won't be able to buy $2,000,000 of coverage.  They can buy $600,000 of coverage without an issue and maybe as much as $900,000 depending on the company.  35 years of income is being replaced with a lump sum.  The beneficiary isn't benefitting.  The beneficiary is  just having that income replaced.  If the beneficiary were to benefit, insurance companies would worry about incentive to kill.  In other words, insurance companies fear that writing too much coverage on someone would change the mortality #'s. 

No worse than getting killed by family members. How many people have been killed by life settlement investors vs family members over life insurance payouts.

I'm not saying that it doesn't happen, but I've been in business for a long time, and other than on Law and Order, I've never heard of it happening.  I have heard of insureds being killed when the beneficiary was not a family member.  Just use common sense.  The beneficiaries on your life insurance policy are there because you love them and you help to support them in some manner.  Why would these people want to kill you? 

The main reason that insurco's dont write big policies, is that it adds volatility to their underwriting model, therefore big cases have to be individually underwritten and passed by the reinsurers. One $5m policy is alot more volatile than 50 100K policies.

What are you talking about?  $5,000,000 policies are a dime a dozen.  Large companies will write polices for as much as $100,000,000.

There is also the issue of  people with lots of life insurance having a slightly shorter lifespan (on a case by case basis).

Care to speak English?

No, because the payout is AFAIK ordinary income to the settlement investor and the cash payment for the policy is likewise.

What is AFAIK?  The payout is not ordinary income.  It's tax-free.  The cash payment may or may not be taxable and in most case some will be taxed and some won't be.

The main complaint is that life settlement investors are screwing up the insurco's projections about mortality expenses.  Mostly they re doing so by bringing up realised expense much closer to the theoretical expense.

Absolutely correct.  You make it sound like it is no big deal.  It's freakin' huge.  This screws everybody who buys insurance.  If you look at an illustration for many term policies, for example, you'll see a current premium column and a guaranteed premium column for all years.  No U.S. insurance company has ever charged more than the current premium.  If mortality expenses go way up, insurance companies may be forced to raise rates.  The difference in rates between current and guaranteed can easily be 5x different.  It would cause UL policies which already typically suck to blow up much sooner and WL policies would still be guaranteed but a $1,000,000 death benefit wouldn't grow instead of being worth multiples of that in the future. (don't know why this won't write in black)

They will also get smarter about rates on older people who are just starting WL policies

The problem with life settlements really isn't a problem with WL policies. Old people with the intention of selling their policies buy GUL policies.   Old people who have had existing WL policies for a long period of time can walk away with more money by borrowing the CV than they can get from a settlement company.  They may very well increase the premium on GUL policies at older ages which hurts every older person who needs insurance.  Anyway that you slice it, life settlements hurt both the industry and most insureds. 

[/quote]

allreit is hooked up with the garret planning network. arguably the biggest bunch of homos in the world.

Allreit,

The more that you write, the less that show us that you know.

Nobody should benefit when a life insurance policy is paid. (Why not, who's listed that beneficiary on the policy?)

The beneficiary is not supposed to benefit.  This is why insurance companies have caps on the amount of coverage they will issue on an individual. (No they have caps to protect their profits.) This is why they won't write more coverage than the human life value of an individual.  A 30 year old making $30,000/year won't be able to buy $2,000,000 of coverage.  They can buy $600,000 of coverage without an issue and maybe as much as $900,000 depending on the company.  35 years of income is being replaced with a lump sum.  The beneficiary isn't benefitting.  The beneficiary is  just having that income replaced.  If the beneficiary were to benefit, insurance companies would worry about incentive to kill.  In other words, insurance companies fear that writing too much coverage on someone would change the mortality #'s.

Which it does, and is one reason among others that they try to avoid implausible amounts of life insurance. However if the life insurance is properly underwritten so that the insurco makes an actuarial (underwriting) profit on it, they are indifferent. One $5m profitable policy is the same as 50 100K profitably underwritten policies.

No worse than getting killed by family members. How many people have been killed by life settlement investors vs family members over life insurance payouts.

 Just use common sense.  The beneficiaries on your life insurance policy are there because you love them and you help to support them in some manner.  Why would these people want to kill you?

Because they want money.

The main reason that insurco's dont write big policies, is that it adds volatility to their underwriting model, therefore big cases have to be individually underwritten and passed by the reinsurers. One $5m policy is alot more volatile than 50 100K policies.

What are you talking about?  $5,000,000 policies are a dime a dozen.  Large companies will write polices for as much as $100,000,000.

The distribution of mortality on 50 policies is going to be closer the the theoretical model than the outcome of any one policy. That's the whole trick of life insurance. In the aggregate, mortality is very easy to model, on a case by case basis its not.

So if you have a  $100M book of policies, the results on a few $5m policies are going to have a disproportionate impact on your mortality expense. Life insurance is a game of harvesting actuarial profit, not taking risks.

This is why life reinsurance companies come into play. As they get paid to take off excess mortality risk on a pool or case basis.

http://www.rgare.com/

There is also the issue of  people with lots of life insurance having a slightly shorter lifespan (on a case by case basis).

Care to speak English?

People with lots of life insurance tend to have an incentive to get killed or apply with the knowledge that they have latent medical problems or other mortality risks.

No, because the payout is AFAIK ordinary income to the settlement investor and the cash payment for the policy is likewise.

What is AFAIK?  The payout is not ordinary income.  It's tax-free.  The cash payment may or may not be taxable and in most case some will be taxed and some won't be.

I said I'm not sure how the tax treatment is to third party investors.

The main complaint is that life settlement investors are screwing up the insurco's projections about mortality expenses.  Mostly they re doing so by bringing up realised expense much closer to the theoretical expense.

Absolutely correct.  You make it sound like it is no big deal.  It's freakin' huge.  This screws everybody who buys insurance.  If you look at an illustration for many term policies, for example, you'll see a current premium column and a guaranteed premium column for all years.  No U.S. insurance company has ever charged more than the current premium.  If mortality expenses go way up, insurance companies may be forced to raise rates.

But not on term insurance. The issue is the extended life on various WL/UL policies.

What life companies are really scared about is real "mass mortality" event like a cat 5 hurricane that hits florida/NYC a massive earthquake, terrorist attack, SARS etc.

Ultimately this is an issue of bad underwriting and poor customer service on the part of life companies. Alot of people want liquidity now, vs death benefit later.

One $5m profitable policy is the same as 50 100K profitably underwritten policies.

Care to back this up?  You can't because it is not true.   This is why there are less and less companies willing to write small policies.  Many costs are the same regardless of the size of the policy.   50 100K policies have 50x the cost of getting medical records, for example.  They also have to pay for 50x as much for paramedical exams.  They also take about 50x longer to underwrite.

But not on term insurance. The issue is the extended life on various WL/UL policies.

Wrong again.  Life settlements are also offered on term insurance.  Again, for about the 10th time, it is not a very big issue with WL.

What life companies are really scared about is real "mass mortality" event like a cat 5 hurricane that hits florida/NYC a massive earthquake, terrorist attack, SARS etc.

Sure, this worries them, but these things are actually a much smaller threat than life settlements.   

Ultimately this is an issue of bad underwriting and poor customer service on the part of life companies. Alot of people want liquidity now, vs death benefit later.

This has absolutely nothing to do with bad underwriting and poor customer service.  Where do you come up with this stuff.   I will say that much of this was brought on by the insurance companies selling a shoddy product--UL.  With many of these UL products, it's not a choice between liquidity now vs. death benefit later.  It is a choice between cash now and policy imploding in the future.  Since there won't be a death benefit in the future, the client is left with the choice of cash surrender value, life settlement, or 1035 exchange into a policy that won't require ever increasing premiums.

ALLREIT,

It appears to me that you will never understand life insurance because you can't understand the emotions behind it.  You yourself said that one should take the emotion out of it when it is purchased.  Clients  have dreams for their families.  They want these dreams to happen whether or not they are alive.  Nobody really wants for their family to just get what they need.

It's become pretty clear that nobody cares (financially) what happens to you when you die.  Maybe, it's the other way.  You don't really care what happens when you die.  Either way, without caring, it is impossible to understand life insurance as anything more than a theory.  By the way, I say this based upon your life insurance posts combined with the fact that you said that you spend 2 nights a month as a seminar plate licker.  It's out of my realm of comprehension that anybody would do this instead of spending time with loved ones.  Your pedophile defense also makes one think that you have never had children.

[quote=anonymous]

ALLREIT,

It appears to me that you will never understand life insurance because you can't understand the emotions behind it.  You yourself said that one should take the emotion out of it when it is purchased.  Clients  have dreams for their families.  They want these dreams to happen whether or not they are alive.  Nobody really wants for their family to just get what they need.

It's become pretty clear that nobody cares (financially) what happens to you when you die.  Maybe, it's the other way.  You don't really care what happens when you die.  Either way, without caring, it is impossible to understand life insurance as anything more than a theory.  By the way, I say this based upon your life insurance posts combined with the fact that you said that you spend 2 nights a month as a seminar plate licker.  It's out of my realm of comprehension that anybody would do this instead of spending time with loved ones.  Your pedophile defense also makes one think that you have never had children.

Anon, I'm bored with arguing technical points with you about how life insurco's make their money.

We haven't argued any technical points.

If you and others want to think they are in business for purposes other than making a profit, thats fine.

Nobody disagrees with you on this.  It is the reason why many of us have a strong preference towards WL with mutual companies.

I look at LI as the insurance companies do.

That's why you can't understand the product.  The technical aspects have no meaning to the client.  LI is about caring about what dreams and responsibilities that don't go away at death.  You care about how the clock works.  The consumers care about the time.

For myself, I don't see any reason to buy lots of life insurance, since I don't have much mortality risk to transfer

I'm sorry to hear that you haven't been that successful and nobody is counting on you.

And that's the last of my input on this thread.

Let's hope that this is your last input on any thread involving insurance or variable annuities.

I find it interesting AllReit willfully protects himself with DI/LTC/Health insurance, which all certainly have a lost opportunity cost attached to them, while abandoning WL, which can help him recoup those lost opportunity costs.  Yet he only concerns himself with the amount of profits that come from issuing life insurance policies.

Deekay, I think that he simply can't relate to caring about what happens when he dies.  I buy whole life insurance because I want to leave as much money behind as possible when I die while spending as much as possible while I'm alive.  The money that goes into WL is money that otherwise would be invested conservatively.  I also own term insurance because I may die today and I want my family to live out our dreams and I can't afford to have them do it based what I can afford to put into WL.

Besides having a death benefit that doesn't go away, I don't think that people realize the benefit of having long term conservative investments.  Life insurance is not an investment, yet it gives a better after tax rate of return than any conservative investment plus it saves the person term premiums.

if only there were no emotions tied to investment/insurance.  too bad they drive every decision our clients ever make.

[quote=theironhorse]if only there were no emotions tied to
investment/insurance.  too bad they drive every decision our
clients ever make. [/quote]



Emotions don’t have to influence your decisions, if you are aware of
them and how they are moving away from rational decision making.



Ya’ll might want to take a look at this book,IMHO one of the few books on financial advising worth the price.



Behavioral Finance and Wealth Management: How to Build Optimal Portfolios That Account for Investor Biases

And that's the last of my input on this thread.

Stay strong, Allreit.  You can do it!

Do you not understand that emotions matter and that they should help to influence our decisions?  If I die today, I don't have to leave my wife in a position where she never has to work.  I want to do so.  I want her to live in a big house, send our children to the best schools, and never have to have to worry about money.  There is no rational need for this.  It's called love. 

I don't want my wife at a job when she can be watching our little girl's ballet recital or my son's first t-ball game.   I have huge dreams for my family and they will come true whether I'm here or not. 

There's nothing rational here.  It's all emotional.

The basic difference between an advisor like myself who deals with emotions and an advisor like Allreit who deals with rational thought is that advisors who focus on emotions help their clients with their wants while advisor focusing on rational thought help their clients with their needs.

It's the difference between helping clients thrive vs helping them survive.

[quote=AllREIT][quote=theironhorse]if only there were no emotions tied to investment/insurance.  too bad they drive every decision our clients ever make. [/quote]

Emotions don't have to influence your decisions, if you are aware of them and how they are moving away from rational decision making.

Ya'll might want to take a look at this book,IMHO one of the few books on financial advising worth the price.

Behavioral Finance and Wealth Management: How to Build Optimal Portfolios That Account for Investor Biases
[/quote]

WTF does this have to do with anything in this thread?  Not once did we discuss asset management.  Ironically enough, I am a firm believer in this kind of study.  It shouldn't be "investment behavior" but rather "investor behavior".  I agree with you 100% - as Nick Murray once said, "Investor behavior is to investment selection as 19 is to one."  However, the fear of loss is as great, if not greater, than the promise of gain.  And unfortunately, you won't open your way of thinking beyond how insurance companies calculate mortality risk. 

I will not try to improve on what anonymous has written; he/she has pretty much said it all.  For the record, anon has NEVER tried to debate you on the technical aspects of LI, yet that is all you have to fall back on.  For that matter, nobody has, but you insist that insurance companies only benefit.  I truly believe that if you wanted to learn about LI, you would be an enormous resource to your clients.  There IS a benfit to owning LI when you retire.  There IS a benefit to owning it while you work.  There IS a benefit to own it as a single professional.  I can prove it. 

I don't know why I continue to pound my head against a brick wall.  However, if you would like to know more about LI, I'd be willing to help. 

We all have different ways of analyzing and synthesizing information.  It seems to me that AllReit is the engineer type of personality.  As we all know, one of the more difficult to deal with because they are all excruciating detail, beat it to death, analyze it to death types.   Nothing wrong with that.  I'm kind of that way myself. 

Asperger personalities (which are endemic to the engineer) are not conducive to one on one personal relationships and have little internalizing of emotion or projection of other's feelings.  Very smart.  No doubt.  Unfortunately most people operate on emotion and not the rarified intellectual plane. 

You know the thing that most people forget in this business is that there are a million CPA's and Financial Analysts .. and if you look at what they earn relative to what the leadership/relationship persona's ..Wealth Advisors and Financial Advisors ect.. you would see that the human emotion and its interpertation is paramount. It is what creates the real value in our careers.   

Basically put people feel and if you can feel what they are feeling you can connect. 

Yes there is the occasional engineer/asperger type ..but even they have emotional connections to something and it is in that something you can help them build a bridge to understanding...

People make LI too complex, it ain't rocket science. 

Of course, many agents make it so complex they scare their prospects into buying stuff they don't need, but I digress........

[quote=bluestars80]

People make LI too complex, it ain't rocket science. 

Of course, many agents make it so complex they scare their prospects into buying stuff they don't need, but I digress........

[/quote]

FACT - LI is not rocket science.  However, simply focusing on current 'needs' ain't gonna get it done.  Get a whole lotta cheap ART, convert it over time as the budget permits to WL so the client has 20x income.  That way, at a 4% w/d rate, income can be replaced without the worry of it running out for the survivors.

This thread got awesome

[quote=chaimlonnie]

Disadvantages:

The most significant disadvantage of cash value life insurance is the often inconsistency in premiums. Most cash value policies contain required premiums that can increase over time.

[/quote]

Is this meant to be a joke?