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© Copyright 2005
US FlagJune 15, 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

CITIGROUP PAYS $2 BILLION ENRON SETTLEMENT – In the largest settlement so far, Citigroup will pay $2 billion to Enron investors. The agreement should help induce others, including JPMorgan Chase and Merrill Lynch, to follow suit. Citigroup was accused of letting Enron hide billions of dollars in debt in off-the-books partnerships. Citigroup has now spent more than $5 billion in two years to resolve allegations that it aided in corporate fraud and money laundering and published biased research.  Citigroup has also agreed to pay $208 million to the SEC to settle mutual fund-related fraud charges.  To borrow from the late Senator Everett Dirkson, "a million here, a million there and pretty soon you're talking about real money" (of course, in the good Senator's day, it was a dollar here, a dollar there).

MYSTERY FIRING – Earlier this month, MassMutual abruptly fired its chairman and chief executive since 1998, Robert O'Connell.  The only information the company would release is that the termination was a "non-financial event" and would "not affect the company's financial strength or its operations going forward."  Two other senior executives were also fired.

NOT-SO-MYSTERIOUS RESIGNATION - Bowing to the pressure of unrelenting internal dissent, legal troubles and executive departures, Morgan Stanley chief Philip J. Purcell announced that he would resign as soon as a successor is named.

GENEROUS MOTORS CHANGING – Faced with rising medical costs, higher pension costs, slower sales, increasing foreign competition and rising gas prices, GM will lay off about 25,000 workers.  In case you haven't heard these stunning statistics: It will cost $1,500 per vehicle to pay the $5.2 billion health bill for 1.1 million people this year and that will increase nearly 10% next year. On the good news side for GM, apparently the UAW is now willing to negotiate on benefits. The news of the agreement between GM and the UAW bumped GM stock about $7 and raised the entire market.

SPITZER LOSES – Few people in the last several years have stood up to charges brought against them by NY State and Eliot Spitzer, but Theodore C. Sihpol III, a former broker at Bank of America, did. He was accused him of making improper trades in mutual funds and the stakes were big. If convicted, he could have faced up to 30 years in prison. However, the jury voted 11-1 for acquittal. The one holdout was reported to have said she thought he was guilty because she just could not believe that "the government would bring a case if there wasn't something to it."

UPON FUTHER REVIEW...MARSH TO KEEP PUTNAM – After completing a "strategic review," Marsh & McLennan has decided not to sell Putnam mutual funds. The review followed scandals at both firms and a sale could have meant about $5 billion to Marsh.

GREENBURG QUITS BOARD – After nearly 40 years at the helm of AIG, 80-year-old "Hank" Greenberg has resigned from the company's board.  Here is what he said: "My decision to resign now results from my inability to receive information regarding the company and its operations necessary to fulfill my fiduciary duties. I wish the employees of AIG every future success." Of course, he still has over $2 billion in AIG stock...actually his wife has it. He gave it to her several months ago.

EXECUTIVE PERKS PLUS – If the current level of CEO pay isn't enough, some have stepped up the use of "perquisites." Most of the benefits are for life insurance premiums, automobiles, personal financial planning fees, and personal travel aboard the company jet. Maybe perks haven't increased but the public is just getting a better look at executive privileges this year. Regulators are requiring public companies to be more forthcoming. The New York Times reports that CEO pay for the top 179 companies reached an average of $9.84 million, up 12% from 2003 while average worker pay rose 4.5%.
 


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CONVICTION OVERTURNED - The Supreme Court has overturned the conviction of onetime accounting giant Arthur Andersen for destroying Enron Corp.-related documents because of flawed jury instructions.  Small consolation though...Andersen's conviction resulted in the downfall of the company, which had been one of the "Big Five" accounting firms. More than 28,000 U.S. employees lost their jobs.

PBGC UPSIDE DOWN BY $71 BILLION? – The head of the Congressional Budget Office testified that the Pension Benefit Guaranty Corp. could face a $71 billion gap between its assets and promised payments by 2015. Currently, the gap is "only" $23.3 billion. The PBGC is financed by premiums paid by companies with defined-benefit plans, but deficits like this scream "taxpayer bailout."

STANDARD LIFE SELLS FOR $80 MILLION - Capital Assurance Corp. has acquired Standard Life of Indiana for $53 million in cash, $5 million in preferred stock, and the assumption of $22 million of Standard Life's indebtedness.  Standard Life was founded in 1934, licensed in 48 states and uses independent agents to retail a variety of annuity products.

METLIFE/TRAVLERS DEAL – Connecticut regulators are making the Met takeover of Travelers difficult. At issue is the loss of high-paying jobs and "philanthropic contributions" in Hartford. To rationalize opposing the deal, the state attorney general said, "Approving this $11.5 billion transaction under the present terms flies in the face of common sense, as we are simply going to spend more public development dollars to make up for the economic damage caused by allowing MetLife to receive a more favorable deal than their Hartford-based competitors who were required to live up to a higher standard."  In answer, Met turned over 50 boxes of documents demonstrating that it meets all requirements of state law.

NASD VIOLATIONS FOR 15 FIRMS – The NASD fined 15 firms more than $34 million for directing sales in exchange for preferential treatment from mutual fund companies (violations of NASD's Anti-Reciprocal Rule), as well as various other violations.  Here are the violators: Royal Alliance, H.D. Vest, Alliance Bernstein, Linsco/Private Ledger, Wells Fargo, SunAmerica, FSC, Securities America, Dain Rauscher, McDonald Investments, AXA Advisors, Sentra, Spelman, Advantage Capital and Advest.

STABLE OUTLOOK – S&P says that the U.S. life insurance industry has a stable outlook for 2005, with sales prospects remaining strong.  

NATIONWIDE HEALTH INFORMATION NETWORK – The Department of Health and Human Services has released a report of initial specifications for developing a nationwide health care information exchange program that will allow for the computerized exchange of health records among care providers.  For more information, the report is available here.

AVERAGE U.S. HOME UP 12.5% - Average home prices in the first quarter are 12.5% above last year's cost. According to the Office of Federal Housing, the major drivers were lower mortgage rates, income growth and speculation in some markets. Home values appreciated at an annual rate of 8.82%.
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Marketing/Tax Update
STUDY SAYS AGENTS, BROKERS CRITICAL – A study financed by the American Insurance Association and conducted by the Wharton School of Business concludes that contingent commissions align the interests of independent agents and brokers, aids in correct pricing of policies and alleviates adverse selection. Further, the study concludes that "although contingent commissions, like most business practices, can be misused by the unscrupulous, in general this type of incentive compensation plays an important role in aligning incentives between buyers and insurers and thus facilitates the efficient operation of insurance markets."

GREENBURG QUITS BOARD – After nearly 40 years at the helm of AIG, 80-year-old "Hank" Greenberg has resigned from the company's board.  Here is what he said: "My decision to resign now results from my inability to receive information regarding the company and its operations necessary to fulfill my fiduciary duties. I wish the employees of AIG every future success." Of course, he still has over $2 billion in AIG stock...actually his wife has it. He gave it to her several months ago.

HMO RATE INCREASE SLOWS – A study by Hewitt Associates indicates HMO rate increases are the lowest in five years, but are still "worrisome." The current average rate of increase proposed by insurers for 2006 is 12.4%, compared to 13.7% proposed at this time last year. Needless to say, the rate of increase completely outpaces inflation. Additionally, cost shifting to the employee is likely to increase.

STUDY SAYS UNINSURED ADD $922 TO PREMIUMS – According to a study by Families USA, health insurance premiums will cost families and employers an extra $922 on average this year to cover the costs of caring for the uninsured and that number will nearly double by 2010. The report also says uninsured patients pay about one-third of the costs of their care and the remaining $43 billion is considered "uncompensated care." The government picks up part of the tab and most of the rest is added to insurance premiums for the rest of us.  Ironically, this increases the cost of health insurance which, in turn, results in fewer people who can afford health insurance.

S-CORP LOOPHOLE – According to Kiplinger, the Treasury Department has uncovered massive noncompliance by one-owner S corporations who pay themselves no salaries and, as a result, pay no payroll taxes.  It's estimated that this costs about $15 billion per year in payroll tax revenue.  Treasury has proposed that Congress close this loophole by requiring that employment taxes be paid on all ordinary operating gains of S corporations that accrue to more-than-50% owners and their relatives.  With the concern about Social Security solvency, there's a reasonable chance of this proposal being enacted in the next year or two.

EXTENDED GRACE PERIOD – In Notice 2005-42, the Treasury Department gave employers the option to add a grace period feature to their FSA plans that would allow reimbursement for claims incurred up to 2-1/2 months after the close of a plan year.  If, for example, the plan year ends on December 31, employees can be reimbursed for claims through March 15, giving plan participants extra time to use their remaining balances from the previous plan year.  The problem is that this grace period could cause some real administrative headaches in deciding whether claims made early in the plan year should draw on current year or previous year FSA funds.  A far easier solution would be to allow unused FSA funds to simply be carried over from year to year.

NO EXPANDED GUARD COVERAGE – Congressional Democrats failed in their efforts to allow all drilling Reservists and National Guard members to participate in TriCare, the military health care system.  

KILL LILACS – The Senate Finance Committee has a contract out on "stranger-owned life insurance" through LILACs ("life insurance and life annuities-based certificates").  These arrangements give an investor the benefit of inside buildup if they agree to give a small portion of the benefits to a charity.  According to Senator Grassley, committee chairman, the pending legislation "will toll the bell on this scam."  Industry groups have been concerned about a trend to broaden the definition of insurable interest, arguing that an increase in LILACs could lead to taxation of inside buildup. 

CONSUMPTION TAX AND RETIREMENT SAVINGS – In testimony before the House Ways and Means Committee, a tax expert with the Urban Institute voiced concern that shifting from the current income tax system to a consumption-based tax system could result in less savings for retirement.  Without the incentive of a tax deduction, workers might be less inclined to invest in qualified pension plans and, instead, put money in less restrictive savings vehicles, increasing the likelihood of taking money out prior to retirement.

STUDENT LOAN RATES – Take note...the interest rates on federal student loans are set to increase by almost 2% on July 1, the first increase in five years.  Borrowers may want to consider consolidating student loans prior to July 1 in order to take advantage of more favorable interest rates.  

SUPREME COURT CONFIRMS IRA EXEMPTION - The U.S. Supreme Court has held that IRA funds may be exempted from a bankruptcy estate. The right to receive IRA proceeds is a right to payment "on account of" age, and therefore can be exempted from a bankruptcy estate under the provision of the Bankruptcy Code that exempts other retirement plans.

HSA FOR SMALL BUSINESS - One of the most pressing issues facing small-business owners, and the employees of those businesses, is rising health-care costs. With that in mind, some businesses are turning to health-savings accounts. The contributions are tax-deductible, and the account pays interest. Unlike a health flexible benefits account, the money can be rolled over at the end of the year. Just another "marketing reminder"!

VARIABLE ANNUITY ASSETS UP, SALES DOWN - According to the National Association for Variable Annuities (NAVA), variable annuity net assets increased by 6.8% relative to the first quarter a year ago.  Total variable annuity premium flow, or total sales, for the first quarter was $31.6 billion, a 9.0% decrease from first quarter 2004. FYI, NAVA has a nice consumer oriented site at http://www.RetireOnYourTerms.com.

LONG DISTANCE CAREGIVING – According to MetLife, there are some 34 million Americans providing care to an older family member, with 15% living one or more hours from that person. To help these folks, Met has produced Since You Care: Long Distance Caregiving and it is available free at http://www.maturemarketinstitute.com.

MILLIONAIRE GROWTH, SMALL BUSINESS SALES – Dow Jones reports the ranks of the wealthiest Americans rose by 21% last year. That means the number of people who have a net worth of $1 million or more has grown to 7.5 million. If equity in primary residences were included in the tally, the growth would be understandable, as real estate has skyrocketed in value in many markets around the country. But it isn't. So in a market that is producing paltry returns in bonds and so-so gains in stocks, where are the wealthy getting their wonder-dog windfalls? The answer: Sales of small businesses. The Financial Planning Association is advising members to seek out these opportunities.