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© Copyright 2005
US FlagMay 15, 2005 Edition
The Life Insurance Valuation Proposal is fast becoming a key component of financial planning. 

Do you know the fair market value of your client’s Life Insurance policy? Whether you are an insurance agent, financial advisor, CPA, trust officer, or lawyer, you may find yourself dealing with a life insurance policy owned by a client, trust, or business, and this question will arise. Can you provide the answer? You know the fair market value of your client’s largest assets and financial holdings. Asset valuation is a key component of financial planning and vital to making informed decisions. If you don’t know the fair market value of your client’s life insurance policy, you should, and it may not be the cash surrender value dictated by the insurance carrier.

Professionals are increasing value in the client relationship by using the Life Insurance Valuation Proposal© from 1st Life Settlements. The Life Insurance Valuation Proposal© is a general principle client introduction tool that simply and logically introduces your clients to life settlements and the concept of Fair Market Value for their life insurance policy. 

In the past, advisors had only one way to measure policy value, the surrender value dictated by the policy carrier. All this has changed; in the recent past, a secondary insurance market has evolved because banks, hedge funds, and institutional funding companies have seen the value and stability of purchasing life insurance policies. As a result, advisors can access the secondary insurance market using an established system to perform insurance valuations. In many cases, insurance valuations result in a fair market value 3 to 4 times the (cash) surrender value of the policy. 

“Many professionals are incorporating Life Settlements into their practice to add value to their client relationship and fulfill their fiduciary duty to explore all viable life insurance options,” says M. Shane McGonnell, Senior Partner of 1st Life Settlements. “The Life Insurance Valuation Proposal© has proven to be the best solution when introducing Life Settlements to their clients.”

The Life Insurance Valuation Proposal© is an important part of The Life Settlement Selling System™ available exclusively to affiliates of 1st Life Settlements. 

To learn more about 1st Life Settlements and the Life Insurance Valuation Proposal©, call 800-667-0305 or visit www.1stLifeFinancial.com/freekit.html
Industry News

AMEX PRESIDENT RESIGNS - Peter Quick (one of the founders of discount brokerage firm Quick & Reilly) has resigned as president of The American Stock Exchange after five years in the position and only weeks after Neal Wolkoff was named CEO. The departure is described as "mutual agreement," but insiders say it is the beginning of Wolkoff's rebuilding efforts.

WADDELL AND TORCHMARK - Waddell and Reed will pay $14.5 million to Torchmark to settle certain litigation stemming from Waddell becoming an independent company in 1998 through a public offering.

SOCIAL SECURITY: FOR THE POOR OR FOR EVERYONE? - In attempting to fix Social Security's long-term problems without raising taxes, President Bush has chosen to recast the program as one that would keep the lowest-income workers out of poverty, but become increasingly irrelevant to the middle class and above. The typical low-income worker who earns about $16,000 a year today would be entitled to retirement benefits equal to about 49% of his or her wages, the same amount that is promised today. But those earning an average income of about $36,500, who receive about 36% under today's system, would see benefits drop to only 26%. And people who earn $90,000 would continue to pay as much as ever in taxes, but would receive benefits equal to only 12% of their pay. Don't fret too much...if enacted, it will take 70 years for all of this to take place!

NEW BANKRUPTCY LAW - The new bankruptcy law was signed by President Bush on April 21. The date's important because most of the provisions in the bill don't take effect until 180 days after that...Oct. 21, 2005. History: Many felt that people making decent salaries were using bankruptcy "as a form of financial planning." They simply filed Chapter 7, had their debts erased, and started fresh. The biggest change is that you will no longer be free to choose which type of bankruptcy procedure you wish. Under Chapter 7, certain assets (such as investments) are seized and liquidated, but all your debts are erased. Under Chapter 13, your debts are reduced, but you still have to pay some of them back. Once the new bankruptcy law takes effect, there will be a "means test" to determine which form of bankruptcy you qualify for. If your income falls below the median income for your state, you qualify for Chapter 7. Based on historical data, the American Bankers Association estimates this includes about 80% of everyone who files for bankruptcy. In other words, most folks will not be affected by the change. (FYI: The most common reasons to file for bankruptcy are #1 catastrophic medical expenses, #2 job loss and divorce is #3.)

HOMESTEAD LOOPHOLE - The new bankruptcy law partially closes a loophole popular with some wealthy debtors. It used to work like this: when you know you're going to file for bankruptcy, move to Florida, Texas, Kansas, Iowa, or South Dakota — all states that have an unlimited "homestead" protection. This means that no matter how much your house is worth, it can't be touched by creditors. When the new law takes effect, you have to live in it for at least two years before you file for bankruptcy for the home to be "exempt."

SOME ADDITIONAL BANKRUPTCY PROTECTION - Under existing law, money in most company retirement plans is exempt in a bankruptcy proceeding. This protection is being extended to SIMPLE and SEP plans. Up to $1 million in IRA funds will be exempt (an unlimited amount of money rolled into an IRA from another retirement plan is exempt). Funds contributed to a 529 college saving plan one year prior to filing will also be exempt.

FPA PETITIONS BROKER EXEMPTION RULE - The Financial Planning Association doesn't like the so-called Merrill Lynch rule that allows brokers to charge fees for financial advice without adhering to the Investment Advisers Act of 1940 as registered investment advisers. So much so, they have filed a petition in federal court challenging the substance of the rule.  "FPA finds the rule provides inadequate protection to consumers, and is harmful to the continued development of the financial planning profession."
 
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AIG TO RESTATE FINANCIAL REPORTS - AIG has admitted to misleading accounting and will restate more than four years of financial reports, slashing $2.7 billion from its net worth.

GREENBURG WANTS HIS STUFF – Amid all the all the troubles at AIG, Hank Greenberg, the ousted CEO is threatening to sue the company for not releasing files, mementos, antiques and art (including a $6 million Van Gogh) that he maintains belong to him. Greenburg headed the insurer for nearly 40 years.  The Wall Street Journal is reporting that Greenberg has been allowed to retrieve personal correspondence and mementos, but that AIG has not handed over any antiques, art or documents related to private companies with ties to AIG that Greenberg still heads.  Mr. Greenberg, however, may have bigger concerns...The New York Times is reporting that a senior AIG executive has struck a deal to cooperate with NY attorney general Spitzer in exchange for immunity.

FBI AND INSURERS – Some news services were reporting that the FBI was giving "insurers a 'hard look'" and didn't "want to be 'caught napping' in case the insurance industry becomes the next big crisis." But now the National Underwriter is reporting that the FBI involvement may be less intense than previous stated.

THE TERRORS – According to a Kaiser Health Plan survey, the rising costs of health care are more terrifying to Americans than are concerns about inability to pay rent or mortgage or being the victim of a terrorist attack or violent crime.

HEALTH CARE AGENDA – The Washington Post reports that House Democrats plan to unveil a health care agenda that would bring millions of low-income working parents under the government health care program that now covers their children, permit the importation of prescription drugs from Canada and else, authorize Medicare to negotiate for lower prescription drug prices, allow people between the ages of 55 and 65 to buy into Medicare and offer a 50% health care premium tax credit to small businesses and the self-employed.

QUESTION: HOW DO YOU KNOW WHEN YOU'RE MAKING TOO MUCH MONEY? - Answer:  When you "forget" to report a $25 million bonus on your income tax return.  Currently on trial on grand-larceny charges, former Tyco CEO Dennis Kozlowski testified that he was "not thinking" when he left a $25 million bonus off of his 1999 income tax return.

UNDERFUNDED PENSION PROBLEM - Chicago Federal Reserve Bank President Michael Moskow has warned lawmakers and regulators about the potential crisis with the Pension Benefit Guarantee Corp by saying that the current environment "brought back memories" of the now-defunct of the Federal Savings & Loan Insurance Corp. "The parallels included criticism of accounting procedures and a seeming lack of concern by those in Washington to recognize and act on the problems."  The problem only got worse when a bankruptcy judge approved a plan for United Airlines to terminate its pension plans in potentially the largest corporate pension default in U.S. history (about $6.6 billion in PBGC liability).  And, if the experts are right, the problem might worsen further under a Bush administration proposal to change the PBGC premium structure from flat-rate premiums to variable premiums.  According to a Watson Wyatt analysis the proposal could end up punishing well-run plans and, as a result, encouraging employers to shut down health plans, leaving the PBGC to deal with the "sick" plans.

JOB CREATION UP – While Wall Street had predicted 170,000, government data showed U.S. employers created a surprisingly large 274,000 new jobs in April and added more workers in each of the two preceding months than first thought.

PUBLIC VERSUS PRIVATE SECTOR RETIREMENT – For 25 years, Martin worked at a Cherry Hill, NJ plant, confident a good pension waited him. He planned on retiring at age 62, but the plant closed when Martin was 54.  Now, at age 59, he is eligible for a $460-per-month pension, or about $5,520 a year. Unlike government retirees, who can count on cost-of-living adjustments, he will never see a raise in his checks and has no health coverage. By contrast, George, 58, a 31-year veteran fireman in Camden, NJ gets health benefits that accompanied the $4,460-a-month pension ($53,520 a year) he started receiving when he retired at age 54. Oh, did we mention that New Jersey taxpayers have recently had to pump a few billion into their state retirement system?

CHINA RETIREMENT PROBLEMS – USAToday reports that China is hurtling toward a retirement crisis that makes financial problems with Social Security in America look tame. A quarter-century ago, when the country began abandoning central planning, it did more than free its economy. It also shattered the country's traditional cradle-to-grave social welfare system. Unlike the United States and Europe, which prospered before their elderly expanded, China is in danger of growing old before it gets rich. By 2040, there will be just two workers per retiree – fewer even than in the far more prosperous U.S., where the ratio is projected to be 2.3 to 1.
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Marketing/Tax Update
ANNUITY SWITCHING, WADDELL REED AND YOU - Waddell & Reed will pay at least $18 million in fines and restitution to settle charges that it improperly pressured customers to exchange variable annuities. This should serve as a reminder to not violate the NASD suitability rule by failing to ensure that any exchange is in the best interests of the client. Since most variable contracts have an option to change supporting funds, it is tough to justify replacement of variable life and variable annuities with a similar product. FYI, the president of Waddell & Reed's broker-dealer was suspended for 6 months and given a personal fine of $150,000.

TAX MATTERS - According to The Kiplinger Tax Letter, "a big tax bill is cleared for takeoff" in Congress, with taxwriters having as much as $106 billion to reduce taxes over 10 years.  Don't ask us to explain how this works...what with the huge federal budget deficits, we don't understand where the $106 billion comes from.  Regardless, predictions are not for new tax breaks, but extensions for expiring tax breaks, such as the 15% top rate on dividends and capital gains, the state and local sales tax itemized deduction, higher minimum AMT exemptions and a tax credit for low-income savers. 

GRAYING NATION MEANS HEALTH-CARE SQUEEZE - Children of the post-war population explosion known as the baby boom (lasting from 1946 to 1964) are entering their golden years, and it will have enormous ramifications on health care and most other aspects of American society. How to proceed remains an open question, although hospital officials acknowledge they'll need to accommodate the demographic shift and find the funds to do so. Over the next 20 years, people older than 65 will swell from 14% of the population to 18%.

DEBATE OVER EIA - Every investment has a downside of some sort. So it is with EIAs. They are not an overall bad investment, as some suggest, rather they sometimes may not be as good as some alternatives. "It is a matter of ethics. The specific relationship to ethics is a matter called full disclosure. Let's start with the fact that there is no one investment that is right for everyone, nor is there one single investment that is wrong for everyone. Furthermore, all investments have a downside, and it is the responsibility of the person presenting the investment to fully disclose what the downside is."

CHARITABLE GIFT ANNUITIES: GIVING AND KEEPING - Once you give something away, you're not supposed to ask for it back. At least that's a lesson most of us learned as children. Then there's that other lesson about an exception to every rule. A charitable gift annuity is a contract you enter into with a favorite charity or school. It enables you to make a donation and enjoy a guaranteed stream of income from that gift for the rest of your life. This presupposes philanthropic intent. If you look at it from a purely financial standpoint, you're probably better off with an insurance company annuity.

CHARITY-OWNED LIFE INSURANCE – The Senate Finance Committee has announced legislation to crack down on abuses in certain life insurance contracts involving tax-exempt organizations ("life insurance and life annuities-based certificates" or LILACs). The bill deals with life insurance contracts that inappropriately afford benefits to private investors that would not otherwise be available without the charity's involvement ("stranger-owned life insurance").  The legislation is also intended to discourage states from broadening the definition of insurable interest.

COLI BILL REVIVED – H.R. 2251, which would introduce limitations on corporate-owned life insurance (COLI), has been introduced in the House.  The bill would limit the amount of coverage for directors and highly compensated employees, require that employees consent before being covered by COLI and require that COLI plan information be reported to the IRS. 

SIGNIFICANT DISTIBUTION CHANGES EXPECTED - The vast majority of North American life insurance company CFOs polled by Tillinghast's latest CFO survey agree that significant changes in insurance distribution are likely as a result of recent regulatory inquiries and the effects of the NAIC broker disclosure model amendment. Most survey respondents expect tightening of regulations regarding the provision of "advice" and the role of distributors (97%), mandated disclosure to the consumer of the relationship between producer and provider (94%), an increase in insurance carrier accountability and liability for the behavior of producers (93%), and mandated disclosure to the consumer of commissions and other material support provided to producers by insurance carriers (81%). According to Rick Berry, Principal, "Mandated disclosure to consumers of producer compensation and carrier relationships could well revolutionize the life distribution business. It would prompt producers and insurers to rethink their marketing approaches and reevaluate their remuneration and support relationships."

RETIREMENT CRISIS NOT LIMITED TO SOCIAL SECURITY - Ben Stein (lawyer, actor, economist, journalist, author, comedian, and game show host) is on a mission to warn Americans about the coming retirement crisis. Social Security is a problem, but the decline in U.S. savings and the absence of individual retirement planning may dwarf that problem. "This is the greatest crisis facing the country that people can do something about," said Stein, now a paid spokesman for the National Retirement Planning Coalition, a group that includes nursing homes, insurers and other companies offering retirement products.

MAKE BEN HAPPY, INVEST YOUR TAX REFUND – Here is a quick sales idea. Suggest that your clients invest their tax refund or use it to pay off taxes instead of blowing it.

FDIC INCREASE – The House of Representatives passed legislation to increase the maximum government insurance on bank accounts from $100,000 to $130,000.  Prospects for passage in the Senate, however, remain unclear.

BOOMERS AS SENIORS – The effect of the Baby Boomers moving to Senior status will have a profound effect on our industry and society.  More people are likely to work well beyond age 65, either by choice or necessity. More seniors are likely to enjoy good health in the early years of retirement, but will need more services than exist today as they age into their 80s and 90s. As baby boomers become seniors, they will have a potentially powerful influence in politics and, since most taxpayers will be younger, the stage is being set for what can be described as "generational warfare."

REVERSE MORTAGES GAIN IN POPULARITY - The number of seniors nationwide who took reverse mortgages in 2004 doubled from the previous year to more than 40,000, according to the US Department of Housing and Urban Development, which insures the loans. About 28 million homeowners who are 62 and older are eligible for the loans. The money can be taken as a lump sum, a line of credit or monthly payments but, as with everything, there are downsides. Some experts claim the start-up costs are too high and the interest rates can exceed those of conventional mortgages. Reports also indicate that children of seniors are beginning to recommend reverse mortgages for their aging parents.

MORE HSA GROWTH – A survey conducted by America's Health Insurance Plans reveals that the number of Americans enrolling in health savings accounts has more than doubled in the past six months...now 1.03 million people have HSA plans. Unlike other health insurance accounts that employers offer in flexible packages, known as "cafeteria" plans, the money invested in the permanent savings accounts rolls over each year for future use and earns tax-exempt interest, giving participants greater control over their medical costs and payments.

PHISHING FOR MONEY – Phishing is the practice of sending bogus but official looking e-mails requesting personal account information in hopes someone will "take the bait" and provide the information. Please tell your clients, especially seniors who may be new to the Internet, that no financial institution or any other reputable company will ask you for personal financial information via the Net. Believe it or not, some experts claim that phishing attacks cost banks and credit card companies about $1.2 billion in 2003.