Life Insurance: Told vs. Sold

September 17th, 2019 No comments

Over the course of my life insurance consulting career, it’s been much more common to be called in to fix things that are already in place than to be called in to help understand and build something right from the get go. For full post, click here…

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The Life Insurance Benefits of Quitting Smoking

July 24th, 2019 No comments

Kicking the habit can save clients a bundle.

I recently wrote about improving return in a life insurance policy through better underwriting.  No sooner had I done so than two cases came across my desk regarding the same issue that illustrated just how dramatically meaningful this can be.

Client Quits Smoking

A few years ago, I helped a neighbor with life insurance on himself and his wife. His wife’s policy was a straight forward $1 million 10-year term. She was healthy but a smoker so she got preferred smoker status.  The premium was $3,000. For full post, click here…

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Internal Rate of Return on Underwriting

July 16th, 2019 No comments

Pay attention to where it counts

It’s interesting to see where people put effort and concern and where they don’t.  Parents might go to extreme lengths to keep a child safe and healthy by purchasing the best reviewed products and most healthy food and participating in developmental activities.  However, without even thinking about it, they’ll then put that kid in a car to run to the store, and that’s the most endangering thing a parent could do to a kid according to the Center for Disease Control and the World Health Organization.  But do any of us use that as a reason to not visit grandma?

No.  We use modern car seats and seatbelts and review crash test data and hopefully don’t text and drive.  We do what’s needed to improve the chances of a positive outcome.  In reality, we’re simply not lending credence to those things we’re very comfortable with and that don’t make us stop and think.  Sometimes worse, we make decisions based on unsubstantiated rationale.  After all, we’re victims of emotion at times.  The same emotion that makes us go to some ridiculous length to prevent something from happening that, in all likelihood, is never going to happen is the same emotion that may drive someone to buy a tiny, gas efficient car to save the planet when the full size SUV is going to protect your kid far better. For full post, click here…

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Letters of Explanation: IUL Premium Financing Risk

June 17th, 2019 No comments

Dear Mrs. Client:

Last week I promised you some numbers to put into perspective my thoughts that premium financed Indexed Universal Life isn’t what you think it might be.

The spreadsheet you showed me some time ago assumes an annual loan of $700,000 for 13 years.  This is used to purchase a policy that assumed roughly a 7% annual crediting.  This may sound conservative for an S&P 500 Index return but it isn’t if you understand how Index funds work.  A significant issue is that the dividends aren’t included in the return and historically dividends make up at least a couple hundred basis points of the return and sometime 500 basis points.  There are entire decades where the dividends are greater than 50% of the return of the S&P 500.


For full post, click here…

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The Bastardization of Premium Financing

June 10th, 2019 No comments

What you see isn’t necessarily what you get.

Wealthy people and business owners have always leveraged money and assumed risk but starting about a decade ago, after the 2008 crash, premium financing has been driven by very low London Interbank Offered Rate (LIBOR) based borrowing rates and aggressive return assumptions on insurance products that are easy to manipulate.

Indexed Universal Life (IUL) made a strong showing marketed by a particularly attractive story, if not altogether accurate.  Upside potential of the stock market without the downside risk sounded great with the memory of 2008 still fresh in minds.  These products can be illustrated at unrealistically high rates while appearing to be modest because few understood how they work.  Abuse is rampant even after the regulatory action of AG 49. For full post, click here…

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Q&A: Opinion of IUL Policies

May 24th, 2019 1 comment

Question:

I am curious as to your opinion of IUL policies? They seem to me to substantially overpromise, and they are too complicated for me to understand! Would love to hear what you think.

Answer:

Regarding IUL, I say “There’s not bad insurance as much as there is insurance done badly.” For full post, click here…

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The Tragedy of Group Term

April 30th, 2019 No comments
Steer clear unless it’s the only option.

For full post, click here…

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Understanding the Flaws in a Premium Financing Policy

April 16th, 2019 No comments
Convince a client without opening your mouth.

At the courthouse, the judge looked to the other guy and asked his story. After hearing the guy’s side, the judge ruled in my favor. I never opened my mouth. You can imagine how ridiculous the situation was when I didn’t even have to present my side of the story.

I’ve written at length about how little the typical consumer understands about premium financing. A part of my job has been to vet deals and fix problems. But even I was surprised earlier today when I had a scheduled phone call with a client who retained me to review his deal.

The phone call consisted of the insured individual, the premium finance guys, myself and my associate. In a way, the client was the judge, and respectively, the agent and I were the defendant and plaintiff, though I didn’t mean for it to be adversarial. That being said, I didn’t think it was a good idea for the client to move forward based on what I understood as his goals relative to what I was seeing. All I proposed to do was to bring objective information to the table. For full post, click here…

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Premium Financing is Great… Except When It Isn’t

April 10th, 2019 No comments

Digging into the numbers is exceedingly important.

More and more premium finance deals and proposals are making their way to my desk. Most have some common characteristics. First, they probably aren’t going to work, and second, consumers don’t understand them. When I say “don’t understand,” I don’t mean they simply don’t understand the details but that they have a misunderstanding of how the transactions will play out.

I’m a proponent of premium financing, when it’s done right and for the right reasons. Real-estate owners and developers have used OPM (other people’s money) very effectively because they’re often able to prove mathematically that the leverage makes sense. I’m doing the same thing when I don’t pay off my low interest home mortgage and keep my money in the market. However, when it comes to financing life insurance, I have an issue with much of what I see out there. First of all, I firmly believe that finance deals built around the arbitrage For full post, click here…

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Vetting a Premium Finance Deal

February 25th, 2019 No comments

A family office called me in to review and analyze a proposed premium finance deal. After gathering the details of what the family was trying to accomplish and requesting presentation materials, insurance ledgers and financing term sheets, I dove into it.

The advisors let me know that one of the primary things they wanted to understand was what their “bail out” option would be in 10 years. In other words, they wanted to understand their options in a worst case scenario, which is an important thing to get one’s arms around.

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This plan was built around a 10 pay whole life contract and the collateral for the policy was to be an existing whole life contract on the same individual, the matriarch of the family. A part of my analysis was a historic comparison of whole life dividend, and how they move in relation to the interest rate markets, to LIBOR rates. An important and revealing aspect of this for the advisors was how the policy dividends really work and how they are applied. For full post, click here…

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