Lloyd
Plano,#2Consumer Comment
Thu, May 18, 2006
First in fairness Mr. Kay's first statement is not fully, and technically correct; however it is correct in effect. While the insurance company does not in reality keep your cash value, it has that effect as it is in Fact an ART (annual renewable term), actually a DT (Decreasing Term) with the savings feature added. There is IN FACT only one type of life insurance, and that is term. A whole life policy is built with, and on the guaranteed, rates of return and cost of insurance. Each year as the cash value increases the actual protection decreases, thereby keeping the premium, and face amount, level through the insured's lifetime. In one of the first Q & A questions this point is correctly made, and pointed out to the questioner that they are in reality self insuring, which is the correct description for this issue. So in reality what Mr. Kay has stated does not meet the fully correct legal definition of the process the effect is EXACTLY as he describes. The only difference between Whole Life and Universal Life, Variable Life, Or the million other names given to the product is that with these newer types the insurance is usually based on a current, along with a guaranteed rate as a possible cost of insurance (again a ART); another difference is that there is slightly more control over the savings feature, but with that comes added risk. Should the UL start charging the guaranteed rate, along with the guaranteed investment return most policies are designed to eat-up the cash value and self destruct at just the time the client probably needs the savings, instead of the insurance, but they get neither. Another point Mr. Kay points out, right before the questions and comments segment, I have also tried to get someone to convince me that the programs sold are not as bad as they seem, however in 12 + years as a financial advisor I have yet to find a program (Whole Life, UL, VL etc) that would even be equivalent to at basic term policy and taking the difference for investment. In fact in nearly every case the client could buy the term and burry the difference in a coffee can in the back yard for an average of 7 years (some more popular policies the breakeven time is in the range of 20 years). In short nobody, including some very senior managers have been able to supply a set of data in which the client was better off with their policy, for any purpose other then burial policy and even that if the life exceeded more then one to two years the benefit was exhausted. Actually, in most cases (60-65%) where an old agent and I were comparing programs in front of a client the agent leaves their company within 2-3 weeks. I guess they really didn't know, until someone shows them, even one Rep that had been a top sales manager for a major company for over twenty five years (he later worked for me). I do find one other flaw in Mr. Kay's logic and this one is not merely an example that matched effect, as above, but a real disagreement, that is Avoid having multiple term insurance policies. There should be two policies, NO MORE & NO LESS, policies for the average couple. The reason for this is the IRS Tax Code. In the twelve plus years I've been in the industry I have run across two (2) policies that were properly written to avoid being included in the deceased estate, thereby having the true effect of being taxable to the estate (beneficiaries). If the insured is or has a reasonable chance of accumulating enough wealth to be subject to estate taxes they should NEVER own the policy, because at death the IRS views (and it has held-up in court every challenge) sees the payment to the insured thereby increasing the estate by the amount. Rusty's Rebuttal Rusty what is wrong with your logic? It would seem you are the one that has not been properly educated, and now you expect the readers of this posting to believe the bull you're shoveling. Insurance is paid as a percentage of the first year premium, and while there are companies that pay the same percentage for term and cash value policies (about 1/3) nobody pays a higher amount on term then cash value because the benefit to the company is significantly higher with the added premium. Or are you making the point that YOU sell policies that under-insure the client if you sell cash value, which is significantly easier to sell building on the savings hype, while you would properly cover the client if they insisted on term, in which case you are a THEIF. For those others who may read this column commissions on all insurance products are paid based on the amount the company receives the first year of the policy, for an agent that ranges from about forty percent (40%) for a low level captive agent (tied to one company) to slightly over one-hundred percent (100%) at a independent General Agent level. As to his point that he sells a policy that cut a check for the face plus the cash account, yes there are what was known at first as type B Universal life policies, these names of type A B and even a C, have been around for years and in some circles still used quite heavily. What Rusty does not tell you is that type B cost more because the cost of insurance does not go down as you age so the price goes up. Rusty would FRUDUANTLY say that the costs do not increase, that is incorrect as the cost of insurance is internal within the policy and it is only seen in comparing the amount that goes into the savings feature, or a analytical review of the policy itself. The next point of problem with Rusty's comments are that a cash value is Permanent insurance when nothing could be farther from the truth. I have already explained that in cash value policies (with the exception of UL Type B, which costs significantly higher then the extremely high priced other cash value products) the protection fades away as the policy ages to the point that at maturity there is zero (0) protection, you are self insured. This process explains the SALES GIMIC of cash value and why Mr. Kay used the Keep if you Die analogy. Rusty GET EDUCATED yourself before you seriously hurt some widow with YOU'RE uneducated understanding of insurance. Now for Erin's Rebuttal Erin the only thing I can say for your write-up is at least it shows a SLIGHT more thought and insight into insurance then Rusty but you're still about as far out of reality as he. First thing to your First thing it seems that you have the concept of a CPA as a glorified bookkeeper, well several have taken positions with companies that have very little more then that, the license and training for such is among the most rigorous of all professions, and is THE ONLY truly professional designation dealing with personal, or business for some, finance. Of course your managers at whatever insurance company you work for will disagree with that, explaining that their CLU, or ChFC are far superior for that purpose, but let's explore that. First let's work with the education requirements, do you have even any idea of that, I doubt it. CLU and ChFC requires 8 classes, usually taken via distance learning (correspondence) with a small test after each class. There is NO prerequisite for ANY college, there seems to even be some indication that it not even require a High School Graduation. At least the CFP certification starting in 2007 will now require a Bachelor's degree before being eligible for the single exam covering 6 of the 8 classes mentioned above. Now lets find the requirements for the CPA designation, CURRENT requirements include an accounting or finance degree involving a minimum number of accounting classes totaling at least 150 credit hours, let's see those 6-8 classes mentioned for the CFP, CLU, and ChFC, above would count on the same scale as 3 credits each and most would not count as advanced credit. CPA and CFP requires two years under another CPA for CPA's or CFP for CFP certification, on this issue I have to acknowledge that I am unaware of the requirement for mentorship, however the American College (the certification grantor) has nothing on their website that I saw requiring and such experience. By real comparison the curriculum to obtain either of the degrees above other then the CPA would note even equal the last have of the sophomore and first half of junior years (total of one (1) year) of the CPA program at nearly any university. For reality's sake, and to clarify where I'm coming from I have two of the four certifications mentioned above, (Not the CLU or ChFC) and I doubt the classes for the American College certifications really would even qualify beyond freshman level coursework. While the CLU and ChFC classes had more sales issues then real Meat of understanding policies, and has no prerequisites, the University class for insurance in the accounting program had no sales segment in the program but focused the class on understanding the policies from a contract level to understand the policy itself, also it had a Sophomore class (Business Law) and two Junior classes (Personal Finance and Contract Law) as prerequisites. Both the Contract Law and Insurance class were taught by professors from the Law School in the adjacent building. The requirement for an Insurance Professional is pass a very basic test and have a company willing to appoint them. There is no other requirement in any state as of this date. I have in fact taken individuals from zero knowledge to fully licensed in all products currently being sold by the life & health insurance industry in less then a month. The previous statement included one individual that due to English limitation (birth language was Chinese) that had good comprehension but a reading speed of about third grade, so let's put this point to bed right now, nearly any person can get the licenses required for this industry. Also with any agent I have trained they will understand a policy by NWM better then a NWM agent, and policies of MET better then the MET agent, same with NYL, PRU, and most others within 2 months of first meeting them. As much as the industry wants the public to think so, this is NOT ROCET SCIENCE. Insurance companies teach sales techniques, NOT POLICY UNDERSTATNDING, and I would willingly concede to them their expertise in that. I would even go so far as to say that the average CPA has had more training in or relating to insurance then almost any, if not any, insurance professional currently in the practice of marketing insurance, Also the CE requirements for the state departments of insurance are much less then for the State board of Accountancy. Texas currently requires insurance agents to have 30 hours of CE every two (2) years while the AICPA requires forty (40) hours EVERY YEAR, a big difference, nearly 3 to 1. Plus CPA's are required to take several, to all extent and purposes, Law Classes, dealing mostly with contract law as part of the required curriculum, as I already elaborated to above. This along with the course material build to teach financial analysis might explain why Mr. Kay obviously knows more about insurance then you. Next even you seem to agree that families with large need would be foolish to try and cover it with Permanent life insurance, which as I explained above is even less permanent then term. The fact of the matter is that term and cash value have nearly identical laps rates (policy discontinued by one of the parties under the rules of the contract), in which case the client would have paid the significantly higher premium for no advantage (reality at a very high loss). Your quote of 1% is very misleading in that death claims are paid on both types of coverage, but those who understand the true, and only legitimate use of insurance, have the term while there is the need and then discontinue the policy, and as term is usually sold and bought my more sophisticated financial savvy individuals it is used for the purpose and then discarded, and in that same train of though would explain why term has a slightly lower instance statistically of contested death claims. You seem to have fallen into the trap in thinking that people need insurance till they die, while for someone living a normal life span that couldn't be farther from the truth! ! ! ! The intelligent use of insurance, of any kind is identical, to protect assets. The asset life insurance is designed, and needed, for is the protection of the financial impact (responsibility) the individual has to others. Once that responsibility is gone so is the need for insurance at all, but while the need is there the need is great. Like you say funding it with cash value is ludicrous. As to your comment of the nice bonus of the cash value, again I reiterate there has been no time in the history of the equities, or even the cash, market, where the outside savings of the cost difference being invested even in low yield, super conservative, investments did not totally annihilate the so called benefit of the savings feature. Plus as illustrated very well by Mr. Kay, and reiterated above by me the value is totally lost if the insured dies, some bonus. Erie here again is a point where you show your lack of knowledge about the insurance industry. When developing the first Revenue code that went into effect in 1913 during congressional hearings the issue came up about taxing dividends and the insurance made a major mistake in THEIR statement to try and keep insurance dividends non-taxable. That statement, BY THE INSURANCE INDUSTRY REPRESENTATIVES THEMSELVES was that Dividends from a mutual insurance company are not dividends in the normal since of the word, but a partial refund of an intentional overcharge. Now you expect us to believe that you know more then the heads of the companies, and actuaries that designed the process. WAKE UP! ! ! it is exactly as Mr. Kay explained, a marketing gimmick to which the industry made the mistake of putting on the record. Erie please do something very few agents have ever done, read the contract, if it is whole life the face amount will NEVER CHANGE, if it is a newer UL, VL or other the possibility of the face increasing is there due to IRS rules that require a insurance policy to maintain a certain ratio of coverage to balance. Yes I know what you're going to say next, what about my self insured comments above, Whole life was grandfathered for this revenue ruling which was posted for the new Universal life, and similar products. However, the concept of the premium never increasing is extremely deceptive, because the cost of the insurance DOES INCREASE each year just like ART, which is what it is in reality, it is just that the mortality costs are concealed within the policy and the insured only sees the premium. The next paragraph of your rebuttal again shows that you have no idea of the inner workings of an insurance policy. The PREMIUM stays the same, but the cost of protection increases yearly. Whole Life is the first modification of term, and the only one that stuck around for more then fifty years, but it is a Modification of TERM by adding a savings feature. The newer version are the same, just with different savings vehicles and savings characteristics. In so being all except UL Type B described above, are a ART (actually a Decreasing Term) with a savings feature. The client is ALWAYS better of with a side investment and seeing the cost upfront for the coverage instead of concealed neatly inside the most confusing legalese ever placed in a contract. As for the type B Universal Life (or any other name with the same basic concept) is a true ART with a savings feature and will later in life either disintegrate or call for higher premiums, because the cost of the coverage does in deed increase each year. The type A UL is able to potentially remain level through till eventual payout, if it does not exercise the company's right to pay and charge the guaranteed, but if it does these also will disintegrate, or call for higher premiums (letter from the insurance company advising that the cash value has been used up to pay mortality charges and admin fees, and that in order to keep the policy in force the then current amount of premium for the ART is due immediately). So in truth BOTH types of insurance (Still there is only one type TERM) increase in cost each year it is just that one is more visible, and honest and the other is not, but your comment that you pay more for term is not even bordering on, but insane. Erin I hope you read this and take a serious look at the issues I have brought up and take a look with a critical eye at the products you represent. Some of your last comments are approaching the correct point but you need take them a little farther. You are right that People should not view whole life insurance as and investment vehicle but you should have stopped there, once you put the return and data into a spreadsheet you will be convinced that there is no real market for the bundled product of insurance with a savings vehicle. You're comments have shown that you may have and (I believe do have) a real intent to benefit your clients, but seems that your experiences have been within the shelter of your managers or company. If you read any cash value policy to the point of understanding it, and I will say that will probably take quite a bit of work (I've had corporate contract law attorneys tell me that certain characteristics are not in their policies only to then show it to them) you will find that Mr. Kay is right and maybe you need to find another supplier for your products
Erin
Erie,#3Consumer Comment
Fri, March 19, 2004
I am writing to sort of go along a little further with Rusty's comments to the original authors obviously one-sided and uneducated report. First thing, a CPA is NOT an insurance or financial professional in the sense that needs to be taken into consideration here. I am not belittling in any way your profession, I am simply saying that it is a completely different animal. Insurance and Financial services professionals go through extensive licensing and continuing education requirements, like CPAs, in order to be able to leagally practice. Now this doesn't make one an expert by any means, but it does give them more information than your average joe on the street. Permanent life insurance is not for everyone. Families with a large need would be foolish to try and cover that need with strictly permanent whole life. Term is also not the only solution. Statistics are out there that state, less than 1% of term policies ever pay a death benefit. The policy holders either outlive the coverage or dump it when the need they had originally goes down. In other words, term provides protection for a SHORT PERIOD OF TIME (5, 10, 15, 20 years usually). So, the policy holder has, yes saved money with lower premium outlay, but has just given that money straight to the insurance company and recieved nothing in return. Whole life, depending on the company issuing the policy, has that infamous cash value component that term does not. The feature is a nice bonus, but it is not a piggy bank to raid on a whim. It is in place in order to reap some living benefits of your policy and get back a little of what you have put in. If the company is participating, which means pays dividends, although dividends are not guaranteed, then taking some of the cash value is not the evil drain you make it out to be. If the policy is old enough and the policy pays dividends, in some cases it is possible to draw from the cash value and not pay it back and just let your dividends replenish the policy back to it's original state. Also, it is true that if have an outstanding policy loan upon death, the face amount will be lessened by the amount of that loan. However, whole life policies, in addition to building up that cash value, also increase in death benefit over the years. So it is possible to initially take out a 50,000 dollar whole life policy, let it grow for twenty years, depending on the company these figures are just to show a point, and in the end have a death benefit of 75,000 without ever increasing your initial premium. Permanent insurance premiums remain level for the rest of the policyholder's life, the premium is locked in at the age the policy is taken out and never increases. Term products, the premium increases over the years, depending on the length of the term you take out. In the end, you wind up paying more for term than you ever would for permanent because the older you are, the more expensive term gets to be until it reaches a point where the cost is just to great to keep it anymore. A mixture of term and permanent is usually a win win situation, but no one can ever tell you what you need until they sit down and talk with you and your family and decide TOGETHER what your needs truly are. People that say buy term and invest the rest have a good idea but investments and insurance are two separate entities. People should not view whole life insurance as an investment vehicle only, it can be a SUPPLEMENT to your portfolio. Trained, registered representatives are out there to assist you with investment choices if that is what you are looking for. All in all, before you bash an industry and it's professionals, you better have the knowledge and information ready that those individuals have. It's hard to argue a point when you don't have all the facts together. Most insurance and financial professionals are in the business of protecting people and helping them to achieve their dreams in the best way they can. It's a shame that a few dishonest and sneaky companies and agents have tainted the waters for those of us out there who are doing the job the way it is meant to be done. Research who you are thinking of doing business with, talk with friends and family or clients of that company and get their opinions before making your judgement. Please do not make generalizations and statements that may adversely affect someone's livliehood until you are sure that what you are saying has merit and proof.Be careful with your personal opinions, for they can be a double edged sword.
Rusty
St Cloud,#4Consumer Comment
Sun, March 02, 2003
Obviously you have not been properly educated and likely have a connection to the fraud of an insurance company that I used to represent; the buy term and invest the difference crew of Primerica. I work for a company that offers both term and permanent life insurance products. As for your quote that agents make more off permanent products its not true. My commission rate, renewal rate, and total commission is much higher when i sell a term product then a permanent product. Secondly, if you have a good agent; like me, then they advise you which option to take to get your death benefit and cash value out of your policy. Yes this can be easily done. Please educate yourself so you are not misleading your well intending clients who want to protect themselves properly for a lifetime.