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© Copyright 2005
US FlagJune 1, 2005 Edition
Is your life insurance business missing this important alternative?

A client is no longer satisfied with the current policy and asks the advisor to explore options. In the past, many advisors have managed their life insurance clients in this way. Few alternatives were open for life insurance policies so many producers waited for there clients to approach them and ask for alternatives and exit strategies. Proactive producers have uncovered a new strategy to benefit their senior clients and create a new revenue stream for their company.

Life insurance valuation gives you a fantastic tool to review your current senior book of business, perform a quick analysis of eligible clients and approach them with a customized life insurance valuation proposal.

Consider this, secondary insurance market growth coupled with more aggressive mortality tables, lower insurance premiums, and more competitive insurance products have opened up great opportunities for agents with senior clients to sell existing life insurance policies and purchase comparable coverage with reduced or eliminated premiums.

What if you could offer your client a 30% reduction in annual premiums on a new policy with similar coverage? Would that be interesting to them? Would writing the more beneficial coverage be interesting to you? A life settlement can liquidate your senior clients existing policy for multiples of the surrender value and the proceeds can be used for anything, including more competitively priced insurance and financial products. Don’t forget, clients considering surrender, lapse, and 1035 exchange should always have a fair market valuation performed. Call us at 800-667-0305 to review insurance liquidation alternatives available to your senior clients or follow the three easy steps below.

Step 1. Start with your 3 oldest clients first, use or online Life Settlement Qualifier at www.1stlifefinancial.com/qualifyacase.html to determine their eligibility.

Step 2. Customize an Approach Letter and Life Insurance Valuation Proposal™ at www.1stlifefinancial.com/agents/index.asp to present this option to your eligible clients. Be sure to include our quote form.

Step 3. Follow up with your clients by phone or in person to answer any further questions and ensure they complete and return the no cost, no obligation quote form.

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

AIG MESS – It looks like Hang Greenberg is out for good at AIG and the company is said to be cooperating fully with New York authorities. Spitzer has filed a civil suit against former CEO Greenberg and former CFO Howard Smith, claiming they committed fraud and manipulated the books to deceive regulators and investors. The civil complaint cites e-mails and other evidence showing that Greenberg was personally involved in negotiating fraudulent deals, and directed AIG staffers to help put together other misleading transactions. AIG, for its part, hopes to settle all the company's legal and regulatory issues as quickly as possible.  It may, however, prove easier to settle the civil suits brought by NY attorney general Eliot Spitzer than it will be to settle the slew of shareholder and employee lawsuits that are starting to pour in.  In other AIG news, the company has finally filed its long-delayed 2004 10-K financial statement with the SEC.  In addition to net income changes, the report cuts shareholder equity by more than $2 billion.  The AIG 10-K is available at http://www.sec.gov.

UNINSURED CONSENSUS? – Might the impasse on how to provide health care coverage for the growing number of uninsureds be broken soon?  There are hopeful signs.  The New York Times reports that for months a disparate group of leaders from the health care industry, corporations, unions and both liberal and conservative "public action" groups have been meeting in secret, seeking to reach a consensus on proposals that seek to extend coverage to as many uninsureds as quickly as possible.  While the group is reported to be far from final agreement, Kate Sullivan Hare, executive director of health care policy at the U.S. Chamber of Commerce, says, "This effort holds as much promise as any I've participated in over the last decade, probably more."

MARSH LOOKING FOR ALTERNATIVES – Hit hard by the settlement of bid-rigging charges in its insurance brokerage unit, Marsh & McLennan is said to be "exploring strategic alternatives," which could mean a sale of the unit.  The settlement also required Marsh to quit collecting contingent commissions, which had been a big source of revenue for the company.  In other Marsh news, CEO Michael Cherkasky has had it with apologizing..."I'm not going to apologize anymore.  We've apologized enough."

AMEX FINANCIAL ADVISORS TO BECOME AMERIPRISE - The American Express Financial Advisors unit of American Express will adopt the new name Ameriprise Financial. The company's insurance, annuity, asset management and outside distribution businesses will operate under the new brand name RiverSource. See more at their new website at www.ameriprise.com. The change may also be seen as a way to help the advisors appear more independent in product recommendations to their clients.

AXA LOOKING - According to AXA CFO Stan Tulin, the company is interested in buying a company that will enhance its U.S. retail distribution.  Leading acquisition candidates are reported to be Lincoln National, Nationwide and Prudential Financial.

OSTRICH SYNDROME - A new survey by JWT of American attitudes toward Life and Death shows a nation of citizens who are worried about illness, accidents, old age, and death, yet who are unwilling or unable to spare the money or attention required to prepare for what they fear. A substantial majority of 79% agree that Americans have become generally more anxious, yet only 16% feel up to contemplating the costs of old age and illness, 48% prefer not to think about the costs associated with illness and death, and 41% percent say that, at this point in their lives, they don't have money to spare for insurance.

AGING POPULATION TSUNAMI - "This is a crucial moment in world history for retirement security. In the United States, the baby boomers are just three years away from receiving Social Security checks and an aging-population tsunami is sweeping the rest of the world as well," said Olivia Mitchell, executive director of the Pension Research Council and director of the Boettner Center for Pensions and Retirement Research at Wharton. The problems are everywhere: Social Security, Pension Benefit Guaranty Corp., demise of private defined benefit pensions, cost of Medicare, underfunded government pensions, etc.  Maybe there is something to be said for that "ostrich syndrome."
 


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DUMPING PENSION PLANS – Can a company drop its pension plan at any time?  Theoretically, any company might decide it cannot continue its pension obligations. There are rules, of course, but "if an employer has an adequately funded plan, it can terminate it and give employees a lump sum or an annuity from an insurance company." But even if the plan isn't adequately funded, the company can qualify for a "distressed termination" and a bankruptcy will usually qualify. The PBGC then takes over and makes payments up to a max of $45,613 per year for workers who retire at 65 and less for younger retirees. On average, the folks at United Airlines will lose a quarter of their pension benefits. Further, the PBCG doesn't provide health insurance, even if the terminated pension plan did. So what do you do? You better do what few Americans have been doing. Sock a lot of money away in IRAs, 401(k)s and other saving instruments.

PENSION PLAN CHANGES IMPACT ON STOCK MARKET - Merrill Lynch predicts contemplated FASB changes to the pension plan reporting rules could force $215 billion of pension assets out of the stock market. Analysis at other firms says it could as high as $650 billion.

TAX PREPARER LICENSES - The Senate is considering a bill that could tighten requirements on paid tax preparers and create a new class of preparer subject to IRS testing and licensing. Initial interpretation of the bill's provisions made it appear that the IRS would only allow enrolled agents, certified public accountants and attorneys to become certified to commercially prepare returns for taxpayers.

SOCIAL SECURITY PRIMER – The Government Accountability Office (GAO) has released a primer on Social Security reform, intended to provide answers to questions about how Social Security works, why it needs reform, what the basic options are and how to assess their implications.  The primer is available at http://www.gao.gov.  The information is good but, as a reflection of just how complex this topic is, the primer is 77 pages long!  The GAO is also concerned about Medicare.  According to U.S. Comptroller General David Walker, head of the GAO, "If there's one thing that can bankrupt the country, it's health-care.  It's out of control," he said in issuing a warning on the escalating cost of Medicare and the federal budget deficit.  But hey, who are we to worry when the federal government can give Anchorage $1.5 million dollars for a single "new and improved bus stop"! (ABC News)

SEC PROBES CONSULTANTS – The SEC is investigating pension consultants who sell investment advice to pension plans in order to determine if the advice they give is biased, due to links with money managers and brokerages.  More info at http://www.sec.gov.

PERSONAL INFORMATION THEFT - The number of financial records stolen by former employees of up to four major banks (BOA, Wachovia, PNC and Commerce Bancorp) could reach 1 million. Police said the plot's alleged leader advertised that his firm could supply bank account, balance and employment information to collection agencies. More than 40 collection agencies and law firms bought the stolen data.

HOUSE PRICES HIGH, SALES SLOW – Indicating a concern by the regulatory body, Federal Reserve Vice-Chairman Roger Ferguson said that house prices seem high, but price growth is likely to slow. Fed Chairman Alan Greenspan cautioned that he saw "froth" in housing markets, though he said he did not believe there was a nationwide "bubble" in prices that potentially could break.

EFFECT OF A HOUSING PRICE DROP – While the Feds are saying they don't expect a reversal in housing values, if one does happen, it could have a dramatic impact on the national economy. People tend to spend less when their net worth decreases...economists say that a $1 reduction in net worth results in about a 5¢ reduction in spending. Using those numbers, a 10% decline in real estate prices would knock about half a percent off the gross domestic product, not to mention the collapse in the home equity lending industry and a significant slowdown in construction, brokerage, banking and insurance.

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Marketing/Tax Update
WORKING FOREVER – With 40% of workers not saving for retirement, 30% of baby boomers with a net worth of less than $50,000 and a national savings rate down from 10% in the 1980's to about 1% today, it sure looks like a lot of folks will be doing so. Most common excuses for not saving are "Social Security and my pension." Well, counting on either can be risky.  We know that it is easier to get folks to simply reposition their current dollars, but you really aren't being a true advisor if you are not encouraging your clients to save more. 

I'll INHERIT A LOT – This is another reason for not saving, but with the high cost of long-term care and health care (especially in the final stages of life), don't count on that either. (Further, the lottery is not a very reliable retirement planning tool!) Many people also think they can't afford to save and it may very well be tough, but the old advice is still good, "Save at least 10% of your income and pay yourself first."

LTC COSTS – Genworth Financial's 2005 Cost of Care Survey has been released and, according to the study, the average annual cost of a private room in a nursing home rose 6% from the 2004 study to $69,400.  Assisted living costs rose 5% to an annual average cost of $30,300 and home health care costs rose only marginally.  Nursing home costs in urban areas continue to be considerably more expensive than in non-urban areas.  An executive summary of the report is available at http://www.genworth.com.

KEEP THE HUMAN TOUCH - That's the advise to insurers from Best Review.  A survey of agents and brokers revealed that they like upgrades in automation that result in speedier quotes and claims service, but that they do not want to lose the ability "to speak with a real person during regular business hours," particularly their access to insurance underwriters.

ACLI RETIREMENT ISSUES – The American Council of Life Insurers has issued a report, "Retiring in the 21st Century: A National Retirement Agenda," that outlines its retirement security priorities: establishing incentives for workers to increase long-term savings, increased use of annuities to provide income in retirement, an above-the-line deduction for LTC insurance premiums and making permanent the retirement-related provisions currently scheduled to expire by 2010.  More information is available at http://www.acli.com.

EMPLOYEE'S SHARE OF MEDICAL COST RISES – According to Milliman, the average American family of four is now paying more than $2,013 per year in co-payments, deductibles, and other costs within preferred provider organizations.  Not only has that cost gone up $500 since 2001, but you can expect it to continue to rise as more employers "cost shift" to control their health care expenses. These costs do not include health insurance premiums, which in 2004 averaged $2,664 for a four-person family. The disparity could put further pressure on firms to raise employees' costs next year.

MORTGAGE RATES DOWN - Mortgage rates fell as news of waning inflation pushed long-term interest rates lower. The 30-year fixed-rate mortgage dropped to a national average 5.65%. A year ago, the 30-year loan was at 6.32%.

BANK INSURANCE UP – According to the National Underwriter, bank holding companies generated $41 billion in insurance revenue in 2004, up 22% from 2003. Additionally, the number of bank holding companies reporting revenue from insurance rose to 1,413 in 2004, from 1,257 in 2003.

EXECUTIVE PERKS - As part of its effort to boost compliance on executive pay, the IRS is setting its sights on executive perks, including expense reimbursements, use of company-owned equipment and lodging, club memberships, skyboxes, etc.  For more, read the IRS posting at http://www.irs.gov.

ANNUITY TAX AND YOUR HEIRS – Annuities may do a good job of tax-deferred accumulation and providing a guaranteed retirement income, but they do not do a good job of leaving the accumulated funds intact for heirs after the annuitant dies. If a spouse is the beneficiary, he or she can continue to defer taxes, but other beneficiaries have to pay ordinary income tax on the annuity's gain at the second death.  Annuity owners have four basic choices: 1. Do nothing and let the beneficiaries pay the tax, 2. Cash it in and pay the income tax, 3. Start the payments from the annuity and spend them or 4. Start the payments from the annuity and leverage the fund. (Pay tax on the taxable part of each payment, and put the balance of each payment into a life-insurance policy on your life that provides tax-free income to your heirs.) Another option might be a SPWL.

BOOMER SPENDING – According to a MetLife study, the estimated annual spending power of the baby boomers is more than $2 trillion. Younger boomers (born 1956-64) spend most of their money on their children and the mortgage. Older boomers (born 1946-55), many of whom are empty nesters, put their money into upgrading their homes and on clothing, spending 13% and 11% more than average on women's and men's apparel, respectively. The poverty rate for boomers was 7.3% in 2000, lower than any other segment of the population and a significant decrease from 1993 when 9.6% of boomers were below the poverty line. The average annual household after-tax income of boomers is $58,275 for those 35-44, $64,080 for those 45-54 and $55,844 for those 55-64.

REVISED MEDICARE GUIDE - Seems that Medicare is so complicated that even Medicare officials themselves don't understand it.  The 2006 Medicare handbook includes information on the new prescription drug benefit.  Problem is that, according to The New York Times, "many statements in the document were inaccurate, misleading or unclear, even to people who have worked on the program for decades."  The handbook, which will be sent to Medicare beneficiaries in the fall, is now being revised.

SELLING SINS – A four-year research study has resulted in publication of "The 7 Deadly Sins of Selling."  A free excerpt from the study is available free for a limited time at http://www.7sellingsins.com/.  A key finding is that salespeople typically spend too much time pitching their product and not enough time asking the right questions in order to uncover prospects' real needs and objections.

SHOULD YOU BUY LTC? - Here is the answer from the National Association of Insurance Commissioners. You should not buy it if: You can't afford the premiums, you have limited assets, your only source of income is a Social Security benefit or Supplemental Security Income (SSI), you often have trouble paying for basic needs, such as food, medicine, housing, or utilities.  On the other hand, you should consider buying it if: You have significant assets and income, you want to protect some of your assets and income, you want to pay for your own care, you want to stay independent of the support of others. As a rule of thumb to calculate whether you can afford long-term care insurance, the NAIC recommends that the premiums should never exceed 7% of your income.

TRUST AND CONFIDENCE TOPS INVESTMENT PERFORMANCE – According to a recent Schwab press release, affluent investors rank investment performance seventh behind advisor trustworthiness and competence. Further, 90% would refer their advisors to others (but you have to ask!).

PLANNER SANCTIONED FOR "OUT PLACEMENT" – The NASD requires that registered reps file all sources of compensation from outside business with their broker dealer. An unfortunate rep thought he was doing the best for his clients by providing them with life settlements for unwanted insurance policies. Results: he was fined and suspended. Be careful!

NEW MORTGAGE PLAN - CMG has introduced a new type of mortgage plan. Homeowners directly deposit their entire paycheck -- along with other checks they get each month -- into their mortgage instead of their checking account. These deposits reduce their principal balance. Throughout the month, they can access their money by writing checks or using an ATM card, just like they would with a checking account or a home equity line of credit. These expenditures increase their loan balance. At the end of each month, interest is assessed on the daily loan balance. The monthly interest charge is added to principal. The homeowner does not write a check to pay interest or principal. Even so, "the loan pays off faster than a traditional mortgage because with a lower average balance, there is less interest charged and therefore more of the person's income can stay in the mortgage in the form of principal."

THE RULE OF 115 – Most everyone is familiar with The "Rule of 72"...just divide the annual interest rate into 72 and the results will be the approximate number of years it will take for money to double. You can also use the reverse by dividing the number of years into 72 and the result is the interest rate required to double the money.  The "Rule of 115" works the same, but the result provides the number of years and/or interest rate required for money to triple.