Friday, January 30, 2009

Life Insurance industry denied "cashless bailout"; Expert gives tips: conversion to term is not right for everybody

Daniel R. Solin has a column “Spilling the Insurance Beans: 10 insurance tips no one else will tell you” on “Walletpop” on AOL this morning Jan. 30. He says the are the tips most agents won’t tell you. He contests the notion that conversion from whole life to term is always a good idea (floated by PrimeVest and some other companies, which claimed a potential $40 trillion market!), because many people don’t know how to invest the difference (especially now in a poor economy). Young single people should consider life insurance if they intend to have children later because it is cheaper then (and he could hint at the existential problems of not being responsible for someone else). He also suggests a “fee-only” insurance adviser, who will accept fiduciary accountability to the customer (most insurance agents don't he says). Yes, the slide show gives some nice comfy pictures of a well-dressed financial professional sitting with a family. The link is here. He also gives a couple of tips on replacement costs with home and auto insurance.

Also, insurance regulators, working through the National Association of Insurance Commissioners, denied the industry’s request to lower capital surplus standards, with the Jan. 29 press release here. The American Council on Life Insurance had argued that the current standards were too conservative, especially in the current economic depression, and that companies faced ratings downgrades and even more falling share prices. NAIC is essentially saying that a lowering of standards would amount to a “cashless bailout” (or a “karma bailout” – “salvation”). The ACLI gave its reaction here.

I remember the LOMA exams when I was working in the life industry in information technology, and I recall multiple choice questions about what NAIC and ACLI do.

Update: Feb. 1, 2009

David S. Hitzenrath and Nancy Trejos have an article on the front Business page F01 of the Sunday Feb 1 Washington Post "The Risks of Life Insurance
Anxiety About Industry Complicates Consumer Choices" link here. The article discusses the unusual idea of selling a life insurance policy if you believe you don't need it, or become squeamish. But within a state, if a life insurer gets in trouble, the other competitors have to help stabilize it. But annuitants may feel queasy that over time insurers may be unable to pay out life annuities certain, as life spans increase (as with pensions) and investment assets fail to rise for insurers because of a prolonged downturn. Eventually the whole industry could come under stress.

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