© Copyright 2005
US FlagAugust 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 Proposalâ„¢ 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



FPA ON ADVISORY ACCOUNTS – Broker-dealers not registered as investment advisers will soon be required to give brokerage customers a disclosure stating: "Our interests may not always be the same as yours." The Financial Planning Association is releasing a brochure for clients stating that, "The new SEC rule fails consumers by not requiring the same disclosure standard for all financial advisers, not requiring that all financial advisers place their clients' interests ahead of their own, and not requiring that all financial advisers are fully qualified to help you meet your financial goals." FPA's president, James A. Barnash, further says, "The SEC approach to disclosure is a good starting point.  However, we believe that additional guidance will help the public better understand how the advisory or brokerage arrangement works in practice -- no matter how they are paid and who regulates them."
 
MEDICAL BENEFITS, CONCERN FOR INVESTORS AND RETIREES – GM has brought the issue to the front burner, but rising retiree medical cost is becoming a central issue for investors and retirees alike. Many big companies promised medical coverage to their employees and retirees long before the spiraling of medical costs. Credit Suisse First Boston, estimates that companies in the S&P 500 spent $30 billion on health care and other non-pension benefits for retirees in 2004. While the financial risks of corporate pension obligations have been better publicized, portfolio managers say health costs may pose an even greater threat, a threat that can drive big investors away from companies with large unfunded retiree health promises. And that can cause the companies to cancel the retiree plans if they can or, if they can't, at least increase retirees' contribution to the plans.

MARKET (AND ECONOMY) DOING WELL – With company after company reporting better-than-expected earnings and revenue for the last quarter, investors are hoping earnings growth will break through 10% for the 13th quarter in a row.

WEILL REMAINS AS CITIGROUP CHAIR - "It has hurt me to read speculation that in pursuing any new venture, I might somehow find myself competing with Citigroup or acting contrary to the company's interests," Weill said in a memo to employees. "Nothing could be further from my mind. ... In fact, it was my hope to establish a business whose activities would complement and benefit Citigroup." Rumors had it that Weill wanted to launch a fund with potential investors including Saudi Arabia's Prince Alwaleed bin Talal, one of Citigroup's biggest investors. The Wall Street Journal said talks over Weill's exit broke down over contractual matters and retirement perks.

MORGAN STANLEY CUTS - In a memo to employees, Zoe Cruz, acting president of Morgan Stanley, said the firm expects to cut 10% of its brokers to eliminate the lowest producing brokers who are "not up to our standards" and, "bring the program in line with our peers."

INDIANAPOLIS DEAL: ONEAMERICA AND GOLDEN RULE – State Life, an affiliate of OneAmerica, will purchase the life, annuity and long-term care business of Golden Rule. Both companies are in Indianapolis and employees of the financial services division of Golden Rule will transfer to OneAmerica after the sale closes. The deal will increase the assets of OneAmerica's individual insurance operations by about $1.8 billion. Golden Rule's CEO Therese Rooney will retire. Her grandparents founded the company nearly 65 years ago.

AHPs GET NO CONFIDENCE FROM ACTUARIES - As the House prepares to vote on legislation contingent on getting assurances for association health plans (AHPs), the American Academy of Actuaries raises concerns that the legislation, in its current form, still does not address the main problem of America's health care crisis: the rising costs, among other things. See more actuarial information on this here, but to us it is a simple matter of adverse selection: As any association plan ages, the rates go up. When the rates go up, healthy folks leave for better rates in competing plans. That leaves an ever-increasing number of unhealthy folks in the "pool," which causes even more healthy folks leave and corresponding increases in rates for the association plan to remain solvent.

TERROR INSURANCE - The predictions are that Congress will renew the Terrorism Risk Insurance Act (TRIA), due to expire at the end of this year, but that government reimbursement for catastrophic losses caused by acts of terrorism will be scaled back.  The insurance industry, on the other hand, has been advocating an expansion of the program.  More information on the industry position is available here.
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ENERGY BILL - The president is expected to sign the recently-passed energy legislation.  While most of the "goodies" go to energy companies/producers, individuals will be eligible for a tax credit on the purchase of a hybrid car, beginning in 2006.  Plus, tax credits will be available for energy-saving home improvements with an emphasis on solar energy.

CITIZENS PAYS FOR UNSUITABLE VAs - An affiliate of Citizens Bank will pay $3 million to the state of Massachusetts and provide refunds to all customers who were 75 or older when they bought the products in order to settle charges it sold unsuitable variable annuities to elderly clients. This follows a Massachusetts agreement with Bank of America to offer refunds to elderly customers who may have been sold these unsuitable investments.

NOT OVERWHELMING - A study performed by the American Journal of Public Health found that immigrants, both legal and non-legal, are not overwhelming the U.S. healthcare system.  On the contrary, health spending for immigrants is less than half of that for non-immigrants ($1,139 per immigrant compared to $2,564 per non-immigrant) and their percentage of total healthcare spending is less than their percentage of the U.S. population.  The argument is made that immigrants instead are subsidizing the U.S. healthcare system..."Immigrant families are paying taxes - including Medicare payroll taxes - and most pay health insurance premiums, but they're getting only half as much care as other families."

LIFE INSURANCE MONTH - Congress passed a resolution naming September as "Life Insurance Awareness" month.

MEDICAL MALPRACTICE LIMITS - The House has again passed a bill that would place limits on patients' ability to seek damages for medical malpractice by limiting awards for pain and suffering to $250,000.  Predictably, the insurance industry is supporting the legislation.  Prospects in the Senate, however, remain uncertain.

GREENSPAN: RATES WILL CONTINUE TO RISE – This just in case you have been sleeping for the last several months. Alan Greenspan, in one of his last appearances before Congress as Federal Reserve chairman, told lawmakers the U.S. growth outlook was solid and the Fed will keep lifting interest rates.

BANK OF WAL-MART - The retail giant has applied to establish a Utah industrial bank that would process credit card, debit card and electronic check transactions from its retail locations.  By passing a third-party processor for these transactions would save Wal-Mart a significant amount of money.  Previous attempts by Wal-Mart to get into banking have been unsuccessful.

ILLINOIS HIGH COURT AND MEDICAID - The State of Illinois is appealing a lower court ruling that blocked the state from recovering assets from the probate estate of a late Medicaid recipient.  If allowed to stand, the appellate court ruling could severely restrict the state's ability to recover assets from people on Medicaid after they die.
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SENATE COLI REFORMS - The life insurance industry's leading trade associations (ACLI, AALU and NAIFA) praised the Senate Finance Committee for passing pension reform legislation that would effectively limit COLI to coverage of highly compensated employees and require the consent of insured individuals. The bill will also ensure the "continued viability of COLI as an important business-planning tool that is used responsibly for the benefit of employers, employees and their families, and the general public."  The legislation would also provide new rules for employers that want to convert defined benefit plans to cash-balance plans and, for defined benefit plan obligations, would replace the old 30-year Treasury bond interest rate with a yield curve approach.

ESTATE TAX REPEAL – Lacking sufficient votes for passage, Senate advocates of estate tax repeal have postponed action on the legislation until the Senate returns from its August recess.  Two sticking points:  the cost of full repeal and the issue of carryover basis versus step-up in tax basis at death.  Both concerns point toward a compromise that will retain both the estate tax (but with a higher exemption) and the step-up in tax basis at death.

ALLSTATE GETTING OUT - Allstate announced that effective October 31, it will stop issuing new LTC policies.  Allstate has been marketing Lincoln Benefit LTC policies through Allstate agents, but said it is discontinuing the products in order to concentrate on its life and retirement savings products.

AUDIT INFO - Kiplinger reports that the IRS is "probing company executives with a vengeance."  Particular emphasis is being placed on deferred-pay plans and fringe benefits.  S corporations are also getting increased scrutiny, particularly those that pay little or no salary to owners in an attempt to minimize payroll taxes.  Not to be left out, SEC filings are being reviewed in order to obtain details of split-dollar arrangements.

TAXING HEALTH BENEFITS - There are increasing signs that both the left and right on the political spectrum are in favor of taxing health benefits...the left based on the belief that untaxed benefits favor the wealthy and the right because employer-paid benefits distort the free market.  Bolstering the argument from the left, census data show that 82% of Americans who earned more than $75,000 last year had job-sponsored health plans excluded from taxation, but only 23% of Americans who made less than $25,000 did.  The right makes a valid point when it says that the current health care financing system leaves consumers in the dark about the real costs of health care, leading them to make uninformed decisions that ripple through the health-care economy.  A suggested compromise might be a threshold, with only basic coverage remaining untaxed and anything above that limit treated as taxable income.

VA SUITABILITY - The SEC is proposing to implement a new NASD rule on variable annuity suitability requirements.  If enacted, the rule would impose special suitability requirements on the sale of variable annuities and require that supervisors do more to oversee VA sales.  Several industry organizations (ACLI, NAVA) are expected to ask the SEC to reject the proposed NASD rule during the comment period, which ends on August 11.

NOT GOOD - A Hewitt Associates study found that close to half (45%) of workers who participate in 401(k) plans cash out when they leave an employer.  Of the remaining 55%, 32% left their fund balances in the 401(k) plan and only 23% rolled the balances over into IRAs or other retirement plans.  While younger workers (ages 20 to 29) are more likely to cash out (66%), older workers are not immune to the temptation, with 42% of workers ages 40 to 49 electing to take the cash.

AX THE AMT - The presidential panel with responsibility for making recommendations to reform the tax system has brought forth its first decision...ax the alternative minimum tax.  Since the panel is charged with making revenue-neutral recommendations, it now must come up with a way to replace the estimated $1.2 trillion the AMT is expected to generate over the next 10 years.

MAKE THAT NEST EGG LAST – Here are a few tips. Pay particular attention to number two. 1. Pace Your Withdrawals. Don't splurge and withdraw only about 4% a year. 2. Buy a Steady Paycheck. Get an immediate annuity. 3. Punch Up Your Portfolio. Have a lifetime income from Social Security and a defined-benefit pension (if you can get one!). 4. Turn Your Home into Cash. But don't blow the money. Consider a reverse mortgage. 5. Harvest Your Assets. Use when their value peaks.

SPENDING HABITS - According to Cardweb.com, among U.S. households that have credit cards, the average total debt was $9,300, while the household savings rate is essentially zero and has been for several years. Some of the habits that have resulted in that statistic include giving to our children, instant gratification and impulse shopping. Worse yet, gone are the days of solid Social Security and traditional pension plans...our children will have to look forward to a world in which saving for their retirement is in their own hands. 

GOOD SITE FOR FINANCIAL DIRECTION – When clients fall into serious money problems, here is a government site that might help. Go to http://www.mymoney.gov. Information topics include budgeting and taxes, tips on using and managing credit, financial and retirement planning, home ownership and how to avoid becoming a victim of fraud and scams.

REFINANCING SCAM – With interest rates so low, we are seeing an upswing in "foreclosure scams." "Rescuers" often place ownership of the property into a trust in the owner's name in order to avoid the "due-on-sale" clause in most mortgage contracts. They then transfer ownership through the trust to themselves or to a front operation. In these instances, the mortgage company is unaware that anything is amiss; the homeowner, however, is frequently left on the hook to pay the mortgage on a house s/he no longer owns.

REFINANCE BUT REINVEST THE DIFFERENCE – Most refinance companies are "on the up and up," but some may be seeing an opportunity to acquire houses at well below their value. While lenders out to steal your home are few, the real problem may be the possible loss of homes simply due to misunderstanding the nature of the housing market or any other market for that matter. Many experts point to the similarity of the current housing market and the over-leveraged stock market of 1929. After the tech-stock collapse gave a renewed awareness of our risk tolerance, many Americans turned to their homes as safe investments. Homes are not very liquid investments (you can't sell just one bedroom for example) and many folks have leveraged them to the maximum. If you or your clients have done so, let's hope you have had the good sense to invest the gain in a secure investment. With 25% of homes now being owned by investors, if the housing bubble does burst, we may be facing a perfect storm in the housing sector.

STRATEGIES FOR RISING HOME INTEREST RATES – Most but not all interest rates are rising. In fact long-term rates have remained relatively low. This creates opportunities and pitfalls.  Here are some strategies to consider: 1. The average home-equity line of credit rate is about 6.53%, but they are short term and will continue to rise. Consider switching to a home-equity loan where the interest is fixed and currently about 7.13%. 2. Try a cash-out refinancing for a larger amount, using equity you've accumulated in your home. The average rate on a fixed-rate, 30-year mortgage is around 5.73%. 3. If you have an ARM, now may be the time to get out. Considering that the ARM rate is now about 4.42% (the highest in three years) and the 30-year fixed is at 5.73 (actually lower than a year ago), is the risk of rising rates worth the difference?

CAPITAL GAINS ON HOMES, BIG TAX BREAK – In case you have been in your home for a long time and haven't kept up with the changing laws, the sale of your residence has become a major tax break for most homeowners. When you sell your primary residence, you pay no capital gains on up to $250,000 in profit ($500,000 if married). Before the Taxpayer Relief Act of 1997 you had to use the money to buy another, more-expensive house within two years unless you were over age 55 and an exemption of $125,000 was available.

SURREAL ESTATE – Even Robert Kiyosaki, the author of  "Rich Dad, Poor Dad" and other financial books, is starting to see current real estate prices as surreal. Kiyosaki, who made most of his money (before he started selling books and making speeches) from leveraged real estate deals, now believes that the market is over heated.  

EQUITY LINKED CDs – They do exist and look for more of them in the future as some pundits promote then as an alternative to Indexed Annuities.

BAN ON AGGRESSIVE TAX ADVICE - The U.S. Public Company Accounting Oversight Board (PCAOB), a panel set up under Sarbanes-Oxley, has adopted a ban on auditors from providing aggressive tax shelter advice to audit clients. The SEC must concur but the proposal would effectively shut down the tax shelter advisory business.  While this was once a big business for auditors, it will not affect routine tax planning.

HSA'S POPULARITY GROWING - According to America's Health Insurance Plans, more than 1 million Americans have signed up for high-deductible health insurance policies and HSAs since the program was introduced in late 2003. Expect these numbers to continue to grow and the reason is simple...it is a very simple and appealing concept. 1. Buy a policy with a minimum deductible of $1,000 a year ($2,000 for a family) and with maximum out-of-pocket expenses of $5,100 ($10,200 for families). 2. Set up an HSA funded with tax deductible dollars generally equal to the deductible. 3. Use the money to cover health-care costs if any. 4. Money not spent on the health care is carried over at year's end. If you aren't offering these to your clients, it is past time to do so.

MY LIFE, WHOSE CARD – AMEX is being sued over its "My life. My card" advertising campaign, which features celebrities including Tiger Woods, Robert De Niro and others. At issue is whether the company conceived the idea for the campaign or took it from a credit card marketer who claims he used it in a sales pitch to the financial services company six months prior to AMEX's use of the tag line.