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Pros and Cons of Life Settlements

Posted in Life Insurance

September 2nd, 2010
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Life settlements have grown in popularity in recent years. This practice of purchasing life insurance policies from senior citizen policyholders who are in need of money has resulted in a cash crop for investors. However, some critics argue that because the practice is virtually unregulated and some conflicts of interest are also at play, it could become problematic for the policyholders.

With the life insurance industry already under scrutiny, it’s possible more issues with life settlements will be brought to light. As they stand now, both policyholders and investors still argue in favor of their benefits, so let’s take a closer look at the pros and cons of life settlements.

Why Investors and Policyholders Love Life Settlements

There are a number of reasons why investors and policyholders love life settlements. Here are a couple of pros for the investors:

• Guaranteed return: One major benefit of purchasing a life settlement from a policyholder is the guaranteed return. There’s no doubt that at some point, the policyholder will die. Since the investor has purchased the life insurance policy, when the holder dies, the investor will redeem the cash.
• Double the profit: The nature of a life settlement allows the investor to purchase a $1 million policy for $500,000, for instance. This means, when the policyholder dies, the investor cashes in on double the return.

One major benefit for the policyholder is the money. For a person in need of some quick cash, a life settlement could be a quick option that could help pay down bills and take care of other immediate needs.

Problems Associated with Life Settlements

With definite benefits for each party, it may be difficult to understand why there could be any problems with life settlements. However, several have been named:

• Conflict of interest: One major issue that many critics have with life settlements is the conflict of interest. One person is looking for money while the other is looking for a person to die. With that said, the investor could undergo shady tactics to convince the policyholder to sell–or even go as far as make sure the policyholder dies in a specific time frame.
• High fees: According to the Government Accountability Office, another issue with life settlements is the possibility of excessive fees charged to the policyholder. Since there are differing fees to consider based a policyholder’s state of residence and other factors, they could be charged more than they originally anticipated.
• Unregulated: To date, 12 states and the District of Columbia are lacking insurance laws specifically geared toward regulating life settlements. As for the other 38 states, regulation varies, similar to auto insurance policies. The authority to examine brokers who negotiate settlements is often not followed through on and many policyholders could go unprotected in their transactions.
• Wall Street has caught on: Another issue with life settlements is that Wall Street caught on in recent months and has looked to profit as well. Due to the major Wall Street crash just two years ago, no one is eager to see it dive into any more risky investments.

The good news is that many federal agencies have decided to take a closer look at life settlements to make sure that no one is mistreated during the process.

Life Settlements Task Force Created

One major adjustment made in the world of life settlements is that the Securities and Exchange Commission (SEC) has created a Life Settlements Task Force. The task force is responsible for analyzing the life settlement market and regulating any gaps that could expose investors or policyholders to risks.

A big risk that the task force is aiming to regulate is the stranger-originated life insurance (STOLI) transaction where a stranger approaches a senior citizen and encourages them to purchase a policy only to have them transfer it later. This action would violate state laws and is being closely monitored.

What If I Want to Sell?

If you have decided that you would like to sell your life insurance policy, there are a number of existing companies ready to help you get started. However, before you do, make sure you learn all you can about how you can benefit from life settlements, as well as how they could hurt you.

The more you learn about this risky transaction, the better your chances will be of making the right decision for you and your family.

U.S. Households Without Life Insurance Reaches 50-Year High

Posted in Life Insurance , Term Insurance

August 30th, 2010
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New data from industry-funded research firm Limra has revealed that nearly a third of U.S. households have no life insurance coverage. According to the firm, this is the highest percentage of households going without insurance in five decades.

Millions Are Uninsured

The report found that about 35 million (about 30 percent) U.S. households are without both their own life insurance policies and a policy covered under their employer-sponsored plans. This number is up from 24 million (or 22 percent of households) in 2004.

With only slightly over two-thirds of households having coverage, the percentage is a considerable drop from the over 80 percent of households that held coverage in 1960. It is, in fact, the lowest figure seen by the firm since the same year when the firm began keeping records.

Why So Many Go Without Coverage

Limra determined the high percentage of households without life insurance coverage has a lot to do with the financial pressures resting on the shoulders of the middle class. With the recession having the hardest impact on middle class workers, many who found themselves unemployed could no longer qualify for coverage from employers or simply could not afford coverage on their own.

Of those who responded to the survey, half said that they needed more life insurance but haven’t bought it due to financial difficulties that would be made worse with the extra expense. Are you in this position?

Acquire Affordable Life Insurance

If you find yourself in the position of needing life insurance but are unable to purchase it, it’s good to consider a term life insurance policy. It allows you to pay less because you’ll be covered for a shorter amount of time. This is one of the best low cost life insurance options available for those who need quick coverage at an affordable price.

However, it’s important you don’t go with the first company that’s offering a good deal because there may be an even better one right around the corner. Instead, before committing to anything, shop around for the best deal. This way, you increase your chances of protecting your family without depleting your finances.

Today’s News: AIG Reports $2.66 Billion Loss, Missouri Refuses Health Care Reform Law and Questionable Auto Insurance Claims Increase

Posted in AIG , Auto Insurance , Health Insurance , Life Insurance

August 20th, 2010
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AIG reported a $2.66 billion loss in the second quarter, Missouri voters shot down one aspect of the federal health care reform law and a new report has found that questionable auto insurance claims have increased.

AIG Reports $2.66 Billion Loss

Life insurer AIG has reported a second quarter net loss of $2.66 billion, which is a considerable drop from its $1.82 billion loss posted in the first quarter. However, the loss is not from a drop in earnings. It’s instead a result of the loss after selling some of its life insurance divisions to help repay the government bailouts it received in 2008 and 2009.

Aside from the losses posted from selling its companies, AIG’s core insurance companies were able to nearly double their earnings in the second quarter, showing an adjusted net income of $1.34 billion (CNN Money).

Missouri Refuses Health Care Reform Law

Recently, 71 percent of Missouri voters were asked to decide whether they wanted the federal government to require them to purchase health insurance, and they responded with a resounding “No.”

Their votes in opposition to the portion of health care reform law that will require nearly all Americans to purchase coverage or face penalties has set no legally binding precedent. However, the opposition could result in fewer people voting for Democrats in the fall midterm elections, which could shift the balance of power in Congress and impede President Barack Obama’s health care agenda in the long-term (FreeP.com).

Smashed Car Windows Increase Questionable Auto Insurance Claims

According to a new report from the National Insurance Crime Bureau (NICB), questionable auto insurance claims increased by 14 percent in the first half of 2010. This increase was largely due to the fivefold increase in claims from car owners who said that their windows had been smashed.

The NICB says that many policyholders deliberately damage their car windows or stage phony accidents to receive a payout. On a larger scale, almost half of the 7,993 cases of suspected fraud were related to vehicles (Bloomberg).

Beneficiaries Warned About Life Insurance Payouts

Posted in Life Insurance , Met Life , Prudential

August 16th, 2010
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On Sunday, the National Association of Insurance Commissioners issued a consumer alert about the industry practice of retaining life insurance funds. This alert follows a recent series of subpoenas from the New York State Attorney General to life insurance companies that he suspected were holding funds in retained-asset accounts to grow interest and make money rather than distributing life insurance policy funds to beneficiaries.

Life Insurers Under Fire

Last week, we reported New York Attorney General, Andrew Cuomo, had subpoenaed more life insurance companies in an effort to determine how the retained-asset funds of life insurance beneficiaries were being managed. Among those companies under investigation included MetLife, Prudential Financial, New York Life Insurance Co., Guardian Life Insurance and Northwestern Mutual Life Insurance.

In a meeting the NAIC panel held on in Seattle on Sunday, it was determined in July alone, life insurers had profited by holding and investing millions.

NAIC Issues Alert

As a result of investing the retained-asset funds instead of distributing them, $28 billion was owed to 1 million beneficiaries. In response to its investigation, the NAIC issued an alert to consumers to let them know that they may be able to earn a higher interest rate on their life insurance proceeds if they were to select a different payout option rather than retained-asset accounts where beneficiaries are given a draft book to draw on their money.

Retained-Fund Accounts Aren’t FDIC Insured

In addition to life insurance companies holding on to a beneficiary’s money longer with a retained-asset account, consumers were alerted that these accounts are not insured by the FDIC. In an announcement issued last week, the FDIC told consumers if their insurer was to default over time, it would not be responsible for the beneficiary’s losses. Instead, a state guaranty would cover the losses.

With so much to consider, the NAIC wants to make sure the consumers know what they’re getting into when setting up a retained-asset account. It may be that insurers are looking to benefit the most while beneficiaries wait for the full payout on a policy.

Today’s News: More Life Insurers Subpoenaed, Young Drivers Have Higher Crash Rates and 1 in 5 Californians Uninsured

Posted in Auto Insurance , Health Insurance , Life Insurance , Met Life , Prudential

August 16th, 2010
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Today’s News: Fed Moving to Improve Health Insurance Appeals, Life Settlements Have High Fees and Nationwide Insurance Surprises Thieves with Bait Vehicles

Posted in Auto Insurance , Health Insurance , Health Insurance Claims , Life Insurance , Nationwide

August 16th, 2010
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The Fed took its first step on July 22 to ensure consumers who want to file a health insurance appeal have a neutral party to speak with. In other insurance news, research shows that life insurance settlements have high fees and Nationwide Insurance has been surprising auto thieves with their new bait vehicles.

Fed Works to Improve Health Insurance Appeals

The Obama administration has taken the first step necessary to make sure consumers are treated fairly if they are denied a medical claim by their health insurance company. The regulations will be spelled out in a two-step process.

First, consumers will appeal directly to their insurers. Two, if they are denied a second time, they will work with an independent reviewer for which health plans must pay the costs. Unfortunately, the new federal safeguards won’t be immediately available to most Americans with private coverage since the overhaul law is so much more complicated than previous health insurance laws (Associated Press).

Life Settlements Have High Fees

Cashing out on life insurance policies, also known as taking out a life settlement, has become very popular over the years because it allows senior citizens to sell their policies to investors for thousands of dollars, while the investors receive the full payout after the original policyholder dies.

However, according to the Government Accountability Office, taking part in this practice may be risky for both sellers and buyers due to inconsistent regulation and excessive fees. In particular, senior citizens could get less than they should for their policies (Bloomberg).

Nationwide Insurance Surprises Thieves with Bait Vehicles

Houston law enforcement has partnered with Nationwide Insurance to keep residents safe from the increase of auto theft in the area. To assist with the goals of various policy and sheriff departments, Nationwide has presented bait vehicles (unmarked cars outfitted with special GPS tracking and remote-control immobilizing equipment) that allow officers to monitor cars that have been seized by thieves without the need for a vehicle pursuit.

According to Nationwide, vehicle theft rates have dropped in almost every region where the auto insurance company has placed vehicles. So far, over 55 bait vehicles are in service or in progress in 17 states (Business Wire).

Consumers May Mistakenly Believe Life Insurance Accounts Are FDIC-Insured

Posted in Life Insurance , Met Life , Prudential

August 13th, 2010
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The Federal Deposit Insurance Corporation (FDIC) recently revealed concerns that consumers may mistakenly believe their life insurance accounts are FDIC-insured. This concern came in the wake of recent media reports that the life insurance industry may be holding onto money due to beneficiaries rather than issuing them lump sum checks because the interest rates they earn are higher.

Life Insurance Companies Subpoenaed Over Beneficiary Accounts

Recently, New York Attorney General Andrew Cuomo subpoenaed a number of life insurance companies, including Prudential Financial Inc., MetLife, Guardian Life Insurance, New York Life Insurance Co., Genworth Financial Inc., Unum Group and Northwestern Mutual Life Insurance in order to investigate their life insurance policy records.

The normal practice after a policyholder dies is for a life insurer to place money into a retained-asset account, which earns interest that can be withdrawn at any time. Some of the interest is to be paid to the beneficiary and the insurance company keeps the rest.

Cuomo is investigating companies under the suspicion that they are holding the money longer to draw more interest.

Is Your Beneficiary Account FDIC Insured?

As the reports of subpoenas have circulated through various media outlets, the FDIC has become concerned that consumers believe these accounts are FDIC-insured. The corporation says this is not the case.

Instead, in the event that a life insurance company was to collapse, the accounts will be covered by a state guaranty. This guaranty would cover as much as $300,000 per account in 49 states as well as up to $500,000 per account in Connecticut.

The attorney general is in the process of looking into the accounts to determine if the lump sum payments are being held too long. While this all gets straightened out, the FDIC wants to make sure beneficiaries understand their accounts are not insured by the corporation and should look to the state guaranty for collapsed-fund answers.

Today’s News: Digital Medical Records on 5-Year Deadline, AG Probes Life Insurance Industry and Policyholders Choose Not to Sue Auto Insurance Companies

Posted in Auto Insurance , Health Insurance , Life Insurance , Life Insurance Companies , Medicare , Met Life

August 11th, 2010
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The Obama administration has given the medical world five years to figure out how to move all medical records to a digital format, the New York attorney general is pushing for a probe into the life insurance industry and individuals recently surveyed revealed that if given the opportunity, they would not be interested in suing their auto insurance companies.

Digital Medical Records Get 5-Year Deadline

In mid-July, President Barack Obama dished out an ambitious five-year plan that would require doctors and hospitals to move all medical records to a digital format. This, according to his administration, would offer greater safety for patients, as well as lower costs for health care and health insurance.

As soon as 2011, the medical world will have access to federal money that could use to help lower the costs of the systems, as well as train workers for their use. Those who don’t comply with these guidelines by 2015 will face Medicare payment cuts (MSNBC).

AG Probes Life Insurance Industry

New York State Attorney General, Andrew Cuomo, recently stated he plans to open a fraud investigation into how life insurance companies pay out benefits after their policyholders die. Cuomo said that he believes some insurers are retaining life insurance beneficiaries’ funds in company-controlled accounts, rather than paying out lump sums because they earn higher rates of interest by holding on to the money. So far, his office has already subpoenaed Prudential Financial, Inc. and MetLife, Inc. in hopes of learning more about their use of life insurance policies (Associated Press).

Policyholders Choose Not to Sue Auto Insurance Companies

A new survey released by the Insurance Research Council (IRC) revealed that most Americans don’t believe that adopting new laws allowing people to sue their own auto insurance company for punitive damages is a good idea. The law relates to a first-party bad-faith lawsuit that allows one person to sue their own insurance company because they feel that the company acted in “bad faith” in the settlement of their claim.

So far, only a few states allow policyholders to sue their companies for this reason. However, according to the survey, 57 percent of respondents think the ability to do this is either a poor or only fair idea (PR Web).

Today’s News: States Implementing High-Risk Programs, Gen Y Knows Life Insurance and Esurance Offers New iPhone App

Posted in Auto Insurance , Auto Insurance Companies , Compare Life Insurance , Health Insurance , Life Insurance

July 21st, 2010
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Many states are getting ready to implement high-risk health insurance programs, Generation Yers are showing that they know more about life insurance than one would think and Esurance is making  a new iPhone application available.

States Implementing High-Risk Programs

This summer, many new programs will be implemented to offer high-risk health insurance to individuals with pre-existing conditions who have not been able to acquire coverage to date. States like South Carolina have already begun implementing this bridge program that is set to stay in service until states are required to create health insurance exchanges that will provide affordable insurance to everyone in 2014. Since the deadline to either expand existing high-risk pools or create new ones was July 1, many states are already accepting new patients (Columbia Free Times).

Gen Y Knows Life Insurance

Many assume that individuals born between 1979 and 1994, also known as Generation Y, don’t have enough experience and wisdom to make the hard decisions in life. But they were able to prove everyone wrong via a recent survey conducted by Prudential. In the survey, 68 percent of Gen Yers said that they intend to buy or add life insurance coverage within the next three years. The survey also discovered that this generation feels that life insurers don’t target them for purchases and hope that more purchase coverage despite this fact in the near future (Market Watch).

Esurance Offers New iPhone App

Many auto insurance companies have caught up with modern technology and developed their own Android and iPhone apps to make their insurance products more widely available and their services more accessible to customers. Esurance is the latest auto insurer to unveil its iPhone application available for free in Apple’s App Store. The Esurance mobile app offers features that are available to both customers and shoppers, including ID card access, quote estimates, coverage details, the ability to make payments and even an repair monitoring feature. The app will make features available 24/7 to enhance the experience (PR Newswire).

Today’s News: Anthem Blue Cross Seeks Rate Hike, Vehicle Monitoring Raises Privacy Concerns and AIG Units for Sale Again

Posted in AIG , Health Insurance , Life Insurance , Life Insurance Companies , Save on Health Insurance

July 16th, 2010
1 Comment

Health insurance companies are seeking to once again raise rates, a vehicle monitoring system that could lower auto insurance rates raises concerns of privacy and AIG is looking to sell two more life insurance units to raise money.

Anthem Blue Cross Seeks Rate Hike

Earlier this year, Anthem Blue Cross proposed a 39 percent rate hike for its California customers, but after receiving a lot of criticism from everyone including President Barack Obama, the health insurance company temporarily suspended the increase. Now the company is proposing that the rates be increased again, but this time by 20 percent. It submitted filings on Wednesday to the state Department of Insurance and the Department of Managed Health Care and hopes to see the increase take effect for 600,000 Californians by Sept. 1 (San Francisco Chronicle).

Vehicle Monitoring Raises Privacy Concerns

Texas auto insurance company, MileMeter, has filed a lawsuit against Massachusetts-based Liberty Mutual Group Inc. for patent infringement with the use of a vehicle monitoring system that helps track cars for pay-as-you-drive (PAYD) services. MileMeter says that using a monitoring system infringes upon a customer’s right to privacy and could also result in an unfair increase in auto insurance rates. The company is the first in the United States to offer PAYD services without the use of such technology, but notes that it carries over 100 patents that include the technology it claims Liberty Mutual as taken (Market Watch).

AIG Units for Sale Again

Major life insurance provider AIG has placed two more of its units for sale in order to build income. Currently, it plans to sell two Asian life insurance units with the hopes that doing so will drum up about $5 billion for its remaining businesses. Also, the company, which is still trying to repay money it was granted to avoid bankruptcy, hopes that the money could help to reduce its deficit. So far, it has also sold its ALICO business to MetLife and hopes to retry its sale of AIA Group to Prudential PLC (Market Watch).

American International Group Inc. is putting two Asian life-insurance units back on the sales block, hoping to get roughly $5 billion for the businesses, The Wall Street Journal reported Thursday, citing unidentified people familiar with the matter.