Deekay, based upon the numbers, I would think that this is someone who never paid anywhere close to 32K for life insurance.  It is very likely a UL policy that has been underfunded and now a huge premium is needed to stop it from blowing up.  If that is the case, they have to pay 32K this year and more next year and more the following year, etc.  The typical owner of a UL policy has the dilemma that they better hurry up and die or else the policy will implode.

[quote=deekay][quote=whitewlfz][quote=deekay]

How do your client's heirs feel about this?  I'm curious - they wouldn't be interested in getting a tax-free $3mm DB?  They'd rather get $160k or whatever the UL is going to pay out?

[/quote]

Ok ..did you not notice that I said they were in their 70's ...one and two .did also not notice that I said they were paying $32k per year..

Now would you like to repeat your question or make another ?

[/quote]

Yep.  I understood both major points of your case.  I'll ask again - when you mentioned the concept of a life settlement to your client's heirs, how did they react?  Were they concerned they'd receive a much lower benefit?  How did they react when you informed them your client will have a target painted on his/her back? 

And don't give me the "oh, it was sold to an institution" line.  Corporations want to be compensated for their investment.  If you think corporations live in this idyllic world where they've got NO incentive to off your client early, you're more gullible than your posts let on.

[/quote]

The heirs ..were fine with whatever the parents left them ..and perferred nothing in return ..as they have been compensated by the ri folks while they were living.. so with that being said it is a nonissue in this case.. and don't get me wrong.. I suggested to them that they could make the parents payments if they would like.... which they of course declined to do .. so that leaves the opportunity for the product to either be funded by premiums by the client or run its course and exprie in about 18 months when the cash value ran out.. So the easier move was to get the new one funded.. one with a premium they could afford.. not to mention in the process of doing this we wound them out of other policies as well

Secondly .. I just have to ask ..if what you say is true and people become marked for death right .. beacuse they are worth X Y Z .. do you also believe that government planned 9-11 .. I mean really .. These concepts have exsisted for about 40 years now ..in europe they have been using traunches to do this.. You or someone not sure which said it...does have some merrit on the comment about the lower lapse rates on policies ..because the corporation doesn't miss a payment ..so that part might have soem merit.. but in the end I believe the market is effiecient..and will serve the people..

[quote=anonymous]Deekay, based upon the numbers, I would think that this is someone who never paid anywhere close to 32K for life insurance.  It is very likely a UL policy that has been underfunded and now a huge premium is needed to stop it from blowing up.  If that is the case, they have to pay 32K this year and more next year and more the following year, etc.  The typical owner of a UL policy has the dilemma that they better hurry up and die or else the policy will implode.[/quote]

If you read above it was a VUL actually ..and the agent that sold it to him from the "quiet" company.   Never once adjusted the subaccounts since the first day it was sold to him .. the policy was funded no less with $150k initially .. how about that eh.. so yea the premium payments have increased and increased over time and he had to make a choice .. pay up ..or move on.. and the payup option when you have another 12-18 years ahead of you started to look quite bleak ..

The heirs ..were fine with whatever the parents left them ..and perferred nothing in return

The heirs always want as much as possible.  It's just that the one's who care don't want their parents to have to compromise on themselves to leave an inheritance.

Secondly .. I just have to ask ..if what you say is true and people become marked for death right .. beacuse they are worth X Y Z ..

They aren't marked for death because they are worth XYZ.   A stranger doesn't benefit by having you killed simply because you are worth $50,000,000.   They benefit by having you killed because  they are the beneficiary on your life insurance policy. 

Nobody should benefit when a life insurance policy is paid.  This is why insurance companies limit the death benefit and why insurable interest must exist.   Having people benefit from the death of a stranger completely blows up the concept of life insurance. 

A typical beneficiary doesn't benefit from her husband's death.  The $1,000,000 is helping to replace his lost income, etc.  A stranger on the other hand, has a profit of $1,000,000 if he is the beneficiary.  There is an absolute risk to being killed for profit if one has sold their life insurance policy. 

Life settlements can bring the industry to its knees.  If left unchecked, they will cause insurance rates to skyrocket and cause life insurance proceeds to be taxed as income.  Life settlements will serve the few people who need life settlements at the expense of everybody else.  Rates will skyrocket because mortality expenses will skyrocket since lapses will plummet.  Congress will start treating life insurance as an investment which means that 40% will disappear from the typical death benefit.

If you read above it was a VUL actually

UL/VUL/EIUL it all has the same chasis.  It's all UL which means overpriced annually renewable term insurance that can never be dropped without paying a big tax bill.   Term insurance is for temporary needs.  The insurance companies make out like bandits with UL products because they are selling term insurance for permanent needs.  

Everybody's life insurance should be term insurance or whole life insurance or a combination of the two.  The only exception is that GUL can be the best choice for people who are already old.

[quote=anonymous]

Secondly … I just
have to ask …if what you say is true and people become marked for
death right … beacuse they are worth X Y Z …

They aren't marked for death because they are worth XYZ.   A stranger doesn't benefit by having you killed simply because you are worth $50,000,000.   They benefit by having you killed because  they are the beneficiary on your life insurance policy.

I'd rather

Nobody should benefit when a life insurance policy is paid. (Why not, who's listed that beneficiary on the policy?) This is why insurance companies limit the death benefit and why insurable interest must exist.   Having people benefit from the death of a stranger completely blows up the concept of life insurance.

Not really, it depends on how you conceptualise it. Either its some type of financial derivative based on the mortality experience of the underlying person, or its something else.

I can tell you how the insurance companies think about it.

A typical beneficiary doesn't benefit from her husband's death.  The $1,000,000 is helping to replace his lost income, etc.  A stranger on the other hand, has a profit of $1,000,000 if he is the beneficiary.  There is an absolute risk to being killed for profit if one has sold their life insurance policy.

No worse than getting killed by family members. How many people have been killed by life settlement investors vs family members over life insurance payouts.

The main reason that insurco's dont write big policies, is that it adds volatility to their underwriting model, therefore big cases have to be individually underwritten and passed by the reinsurers. One $5m policy is alot more volatile than 50 100K policies.

There is also the issue of  people with lots of life insurance having a slightly shorter lifespan (on a case by case basis).

Life settlements can bring the industry to its knees.  If left unchecked, they will cause insurance rates to skyrocket and cause life insurance proceeds to be taxed as income.

No, because the payout is AFAIK ordinary income to the settlement investor and the cash payment for the policy is likewise.

The main complaint is that life settlement investors are screwing up the insurco's projections about mortality expenses.  Mostly they re doing so by bringing up realised expense much closer to the theoretical expense.

Life settlements will serve the few people who need life settlements at the expense of everybody else.  Rates will skyrocket because mortality expenses will skyrocket since lapses will plummet.  Congress will start treating life insurance as an investment which means that 40% will disappear from the typical death benefit.

I really doubt it. Life insurance will keep its priviliged conditions, although the insurco's will try to have laws passed that will limit the transferability/assignability of life policies. They will also get smarter about rates on older people who are just starting WL policies as well as starting to offer life settlements inhouse via policy buyouts.

Allreit,

The more that you write, the less that show us that you know.

Nobody should benefit when a life insurance policy is paid. (Why not, who's listed that beneficiary on the policy?)

The beneficiary is not supposed to benefit.  This is why insurance companies have caps on the amount of coverage they will issue on an individual.  This is why they won't write more coverage than the human life value of an individual.  A 30 year old making $30,000/year won't be able to buy $2,000,000 of coverage.  They can buy $600,000 of coverage without an issue and maybe as much as $900,000 depending on the company.  35 years of income is being replaced with a lump sum.  The beneficiary isn't benefitting.  The beneficiary is  just having that income replaced.  If the beneficiary were to benefit, insurance companies would worry about incentive to kill.  In other words, insurance companies fear that writing too much coverage on someone would change the mortality #'s. 

No worse than getting killed by family members. How many people have been killed by life settlement investors vs family members over life insurance payouts.

I'm not saying that it doesn't happen, but I've been in business for a long time, and other than on Law and Order, I've never heard of it happening.  I have heard of insureds being killed when the beneficiary was not a family member.  Just use common sense.  The beneficiaries on your life insurance policy are there because you love them and you help to support them in some manner.  Why would these people want to kill you? 

The main reason that insurco's dont write big policies, is that it adds volatility to their underwriting model, therefore big cases have to be individually underwritten and passed by the reinsurers. One $5m policy is alot more volatile than 50 100K policies.

What are you talking about?  $5,000,000 policies are a dime a dozen.  Large companies will write polices for as much as $100,000,000.

There is also the issue of  people with lots of life insurance having a slightly shorter lifespan (on a case by case basis).

Care to speak English?

No, because the payout is AFAIK ordinary income to the settlement investor and the cash payment for the policy is likewise.

What is AFAIK?  The payout is not ordinary income.  It's tax-free.  The cash payment may or may not be taxable and in most case some will be taxed and some won't be.

The main complaint is that life settlement investors are screwing up the insurco's projections about mortality expenses.  Mostly they re doing so by bringing up realised expense much closer to the theoretical expense.

Absolutely correct.  You make it sound like it is no big deal.  It's freakin' huge.  This screws everybody who buys insurance.  If you look at an illustration for many term policies, for example, you'll see a current premium column and a guaranteed premium column for all years.  No U.S. insurance company has ever charged more than the current premium.  If mortality expenses go way up, insurance companies may be forced to raise rates.  The difference in rates between current and guaranteed can easily be 5x different.  It would cause UL policies which already typically suck to blow up much sooner and WL policies would still be guaranteed but a $1,000,000 death benefit wouldn't grow instead of being worth multiples of that in the future. (don't know why this won't write in black)

They will also get smarter about rates on older people who are just starting WL policies

The problem with life settlements really isn't a problem with WL policies. Old people with the intention of selling their policies buy GUL policies.   Old people who have had existing WL policies for a long period of time can walk away with more money by borrowing the CV than they can get from a settlement company.  They may very well increase the premium on GUL policies at older ages which hurts every older person who needs insurance.  Anyway that you slice it, life settlements hurt both the industry and most insureds. 

[quote=anonymous]

Allreit,

The more that you write, the less that show us that you know.

Nobody should benefit when a life insurance policy is paid. (Why not, who's listed that beneficiary on the policy?)

The beneficiary is not supposed to benefit.  This is why insurance companies have caps on the amount of coverage they will issue on an individual.  This is why they won't write more coverage than the human life value of an individual.  A 30 year old making $30,000/year won't be able to buy $2,000,000 of coverage.  They can buy $600,000 of coverage without an issue and maybe as much as $900,000 depending on the company.  35 years of income is being replaced with a lump sum.  The beneficiary isn't benefitting.  The beneficiary is  just having that income replaced.  If the beneficiary were to benefit, insurance companies would worry about incentive to kill.  In other words, insurance companies fear that writing too much coverage on someone would change the mortality #'s. 

No worse than getting killed by family members. How many people have been killed by life settlement investors vs family members over life insurance payouts.

I'm not saying that it doesn't happen, but I've been in business for a long time, and other than on Law and Order, I've never heard of it happening.  I have heard of insureds being killed when the beneficiary was not a family member.  Just use common sense.  The beneficiaries on your life insurance policy are there because you love them and you help to support them in some manner.  Why would these people want to kill you? 

The main reason that insurco's dont write big policies, is that it adds volatility to their underwriting model, therefore big cases have to be individually underwritten and passed by the reinsurers. One $5m policy is alot more volatile than 50 100K policies.

What are you talking about?  $5,000,000 policies are a dime a dozen.  Large companies will write polices for as much as $100,000,000.

There is also the issue of  people with lots of life insurance having a slightly shorter lifespan (on a case by case basis).

Care to speak English?

No, because the payout is AFAIK ordinary income to the settlement investor and the cash payment for the policy is likewise.

What is AFAIK?  The payout is not ordinary income.  It's tax-free.  The cash payment may or may not be taxable and in most case some will be taxed and some won't be.

The main complaint is that life settlement investors are screwing up the insurco's projections about mortality expenses.  Mostly they re doing so by bringing up realised expense much closer to the theoretical expense.

Absolutely correct.  You make it sound like it is no big deal.  It's freakin' huge.  This screws everybody who buys insurance.  If you look at an illustration for many term policies, for example, you'll see a current premium column and a guaranteed premium column for all years.  No U.S. insurance company has ever charged more than the current premium.  If mortality expenses go way up, insurance companies may be forced to raise rates.  The difference in rates between current and guaranteed can easily be 5x different.  It would cause UL policies which already typically suck to blow up much sooner and WL policies would still be guaranteed but a $1,000,000 death benefit wouldn't grow instead of being worth multiples of that in the future. (don't know why this won't write in black)

They will also get smarter about rates on older people who are just starting WL policies

The problem with life settlements really isn't a problem with WL policies. Old people with the intention of selling their policies buy GUL policies.   Old people who have had existing WL policies for a long period of time can walk away with more money by borrowing the CV than they can get from a settlement company.  They may very well increase the premium on GUL policies at older ages which hurts every older person who needs insurance.  Anyway that you slice it, life settlements hurt both the industry and most insureds. 

[/quote]

allreit is hooked up with the garret planning network. arguably the biggest bunch of homos in the world.

Allreit,

The more that you write, the less that show us that you know.

Nobody should benefit when a life insurance policy is paid. (Why not, who's listed that beneficiary on the policy?)

The beneficiary is not supposed to benefit.  This is why insurance companies have caps on the amount of coverage they will issue on an individual. (No they have caps to protect their profits.) This is why they won't write more coverage than the human life value of an individual.  A 30 year old making $30,000/year won't be able to buy $2,000,000 of coverage.  They can buy $600,000 of coverage without an issue and maybe as much as $900,000 depending on the company.  35 years of income is being replaced with a lump sum.  The beneficiary isn't benefitting.  The beneficiary is  just having that income replaced.  If the beneficiary were to benefit, insurance companies would worry about incentive to kill.  In other words, insurance companies fear that writing too much coverage on someone would change the mortality #'s.

Which it does, and is one reason among others that they try to avoid implausible amounts of life insurance. However if the life insurance is properly underwritten so that the insurco makes an actuarial (underwriting) profit on it, they are indifferent. One $5m profitable policy is the same as 50 100K profitably underwritten policies.

No worse than getting killed by family members. How many people have been killed by life settlement investors vs family members over life insurance payouts.

 Just use common sense.  The beneficiaries on your life insurance policy are there because you love them and you help to support them in some manner.  Why would these people want to kill you?

Because they want money.

The main reason that insurco's dont write big policies, is that it adds volatility to their underwriting model, therefore big cases have to be individually underwritten and passed by the reinsurers. One $5m policy is alot more volatile than 50 100K policies.

What are you talking about?  $5,000,000 policies are a dime a dozen.  Large companies will write polices for as much as $100,000,000.

The distribution of mortality on 50 policies is going to be closer the the theoretical model than the outcome of any one policy. That's the whole trick of life insurance. In the aggregate, mortality is very easy to model, on a case by case basis its not.

So if you have a  $100M book of policies, the results on a few $5m policies are going to have a disproportionate impact on your mortality expense. Life insurance is a game of harvesting actuarial profit, not taking risks.

This is why life reinsurance companies come into play. As they get paid to take off excess mortality risk on a pool or case basis.

http://www.rgare.com/

There is also the issue of  people with lots of life insurance having a slightly shorter lifespan (on a case by case basis).

Care to speak English?

People with lots of life insurance tend to have an incentive to get killed or apply with the knowledge that they have latent medical problems or other mortality risks.

No, because the payout is AFAIK ordinary income to the settlement investor and the cash payment for the policy is likewise.

What is AFAIK?  The payout is not ordinary income.  It's tax-free.  The cash payment may or may not be taxable and in most case some will be taxed and some won't be.

I said I'm not sure how the tax treatment is to third party investors.

The main complaint is that life settlement investors are screwing up the insurco's projections about mortality expenses.  Mostly they re doing so by bringing up realised expense much closer to the theoretical expense.

Absolutely correct.  You make it sound like it is no big deal.  It's freakin' huge.  This screws everybody who buys insurance.  If you look at an illustration for many term policies, for example, you'll see a current premium column and a guaranteed premium column for all years.  No U.S. insurance company has ever charged more than the current premium.  If mortality expenses go way up, insurance companies may be forced to raise rates.

But not on term insurance. The issue is the extended life on various WL/UL policies.

What life companies are really scared about is real "mass mortality" event like a cat 5 hurricane that hits florida/NYC a massive earthquake, terrorist attack, SARS etc.

Ultimately this is an issue of bad underwriting and poor customer service on the part of life companies. Alot of people want liquidity now, vs death benefit later.

One $5m profitable policy is the same as 50 100K profitably underwritten policies.

Care to back this up?  You can't because it is not true.   This is why there are less and less companies willing to write small policies.  Many costs are the same regardless of the size of the policy.   50 100K policies have 50x the cost of getting medical records, for example.  They also have to pay for 50x as much for paramedical exams.  They also take about 50x longer to underwrite.

But not on term insurance. The issue is the extended life on various WL/UL policies.

Wrong again.  Life settlements are also offered on term insurance.  Again, for about the 10th time, it is not a very big issue with WL.

What life companies are really scared about is real "mass mortality" event like a cat 5 hurricane that hits florida/NYC a massive earthquake, terrorist attack, SARS etc.

Sure, this worries them, but these things are actually a much smaller threat than life settlements.   

Ultimately this is an issue of bad underwriting and poor customer service on the part of life companies. Alot of people want liquidity now, vs death benefit later.

This has absolutely nothing to do with bad underwriting and poor customer service.  Where do you come up with this stuff.   I will say that much of this was brought on by the insurance companies selling a shoddy product--UL.  With many of these UL products, it's not a choice between liquidity now vs. death benefit later.  It is a choice between cash now and policy imploding in the future.  Since there won't be a death benefit in the future, the client is left with the choice of cash surrender value, life settlement, or 1035 exchange into a policy that won't require ever increasing premiums.

ALLREIT,

It appears to me that you will never understand life insurance because you can't understand the emotions behind it.  You yourself said that one should take the emotion out of it when it is purchased.  Clients  have dreams for their families.  They want these dreams to happen whether or not they are alive.  Nobody really wants for their family to just get what they need.

It's become pretty clear that nobody cares (financially) what happens to you when you die.  Maybe, it's the other way.  You don't really care what happens when you die.  Either way, without caring, it is impossible to understand life insurance as anything more than a theory.  By the way, I say this based upon your life insurance posts combined with the fact that you said that you spend 2 nights a month as a seminar plate licker.  It's out of my realm of comprehension that anybody would do this instead of spending time with loved ones.  Your pedophile defense also makes one think that you have never had children.

[quote=anonymous]

ALLREIT,

It appears to me that you will never understand life insurance because you can't understand the emotions behind it.  You yourself said that one should take the emotion out of it when it is purchased.  Clients  have dreams for their families.  They want these dreams to happen whether or not they are alive.  Nobody really wants for their family to just get what they need.

It's become pretty clear that nobody cares (financially) what happens to you when you die.  Maybe, it's the other way.  You don't really care what happens when you die.  Either way, without caring, it is impossible to understand life insurance as anything more than a theory.  By the way, I say this based upon your life insurance posts combined with the fact that you said that you spend 2 nights a month as a seminar plate licker.  It's out of my realm of comprehension that anybody would do this instead of spending time with loved ones.  Your pedophile defense also makes one think that you have never had children.

Anon, I'm bored with arguing technical points with you about how life insurco's make their money.

We haven't argued any technical points.

If you and others want to think they are in business for purposes other than making a profit, thats fine.

Nobody disagrees with you on this.  It is the reason why many of us have a strong preference towards WL with mutual companies.

I look at LI as the insurance companies do.

That's why you can't understand the product.  The technical aspects have no meaning to the client.  LI is about caring about what dreams and responsibilities that don't go away at death.  You care about how the clock works.  The consumers care about the time.

For myself, I don't see any reason to buy lots of life insurance, since I don't have much mortality risk to transfer

I'm sorry to hear that you haven't been that successful and nobody is counting on you.

And that's the last of my input on this thread.

Let's hope that this is your last input on any thread involving insurance or variable annuities.

I find it interesting AllReit willfully protects himself with DI/LTC/Health insurance, which all certainly have a lost opportunity cost attached to them, while abandoning WL, which can help him recoup those lost opportunity costs.  Yet he only concerns himself with the amount of profits that come from issuing life insurance policies.

Deekay, I think that he simply can't relate to caring about what happens when he dies.  I buy whole life insurance because I want to leave as much money behind as possible when I die while spending as much as possible while I'm alive.  The money that goes into WL is money that otherwise would be invested conservatively.  I also own term insurance because I may die today and I want my family to live out our dreams and I can't afford to have them do it based what I can afford to put into WL.

Besides having a death benefit that doesn't go away, I don't think that people realize the benefit of having long term conservative investments.  Life insurance is not an investment, yet it gives a better after tax rate of return than any conservative investment plus it saves the person term premiums.

if only there were no emotions tied to investment/insurance.  too bad they drive every decision our clients ever make.

[quote=theironhorse]if only there were no emotions tied to
investment/insurance.  too bad they drive every decision our
clients ever make. [/quote]



Emotions don’t have to influence your decisions, if you are aware of
them and how they are moving away from rational decision making.



Ya’ll might want to take a look at this book,IMHO one of the few books on financial advising worth the price.



Behavioral Finance and Wealth Management: How to Build Optimal Portfolios That Account for Investor Biases

And that's the last of my input on this thread.

Stay strong, Allreit.  You can do it!

Do you not understand that emotions matter and that they should help to influence our decisions?  If I die today, I don't have to leave my wife in a position where she never has to work.  I want to do so.  I want her to live in a big house, send our children to the best schools, and never have to have to worry about money.  There is no rational need for this.  It's called love. 

I don't want my wife at a job when she can be watching our little girl's ballet recital or my son's first t-ball game.   I have huge dreams for my family and they will come true whether I'm here or not. 

There's nothing rational here.  It's all emotional.

The basic difference between an advisor like myself who deals with emotions and an advisor like Allreit who deals with rational thought is that advisors who focus on emotions help their clients with their wants while advisor focusing on rational thought help their clients with their needs.

It's the difference between helping clients thrive vs helping them survive.

[quote=AllREIT][quote=theironhorse]if only there were no emotions tied to investment/insurance.  too bad they drive every decision our clients ever make. [/quote]

Emotions don't have to influence your decisions, if you are aware of them and how they are moving away from rational decision making.

Ya'll might want to take a look at this book,IMHO one of the few books on financial advising worth the price.

Behavioral Finance and Wealth Management: How to Build Optimal Portfolios That Account for Investor Biases
[/quote]

WTF does this have to do with anything in this thread?  Not once did we discuss asset management.  Ironically enough, I am a firm believer in this kind of study.  It shouldn't be "investment behavior" but rather "investor behavior".  I agree with you 100% - as Nick Murray once said, "Investor behavior is to investment selection as 19 is to one."  However, the fear of loss is as great, if not greater, than the promise of gain.  And unfortunately, you won't open your way of thinking beyond how insurance companies calculate mortality risk. 

I will not try to improve on what anonymous has written; he/she has pretty much said it all.  For the record, anon has NEVER tried to debate you on the technical aspects of LI, yet that is all you have to fall back on.  For that matter, nobody has, but you insist that insurance companies only benefit.  I truly believe that if you wanted to learn about LI, you would be an enormous resource to your clients.  There IS a benfit to owning LI when you retire.  There IS a benefit to owning it while you work.  There IS a benefit to own it as a single professional.  I can prove it. 

I don't know why I continue to pound my head against a brick wall.  However, if you would like to know more about LI, I'd be willing to help. 

We all have different ways of analyzing and synthesizing information.  It seems to me that AllReit is the engineer type of personality.  As we all know, one of the more difficult to deal with because they are all excruciating detail, beat it to death, analyze it to death types.   Nothing wrong with that.  I'm kind of that way myself. 

Asperger personalities (which are endemic to the engineer) are not conducive to one on one personal relationships and have little internalizing of emotion or projection of other's feelings.  Very smart.  No doubt.  Unfortunately most people operate on emotion and not the rarified intellectual plane.