Expectations for interest rates remaining low for a long time are becoming entrenched among investors, allowing the Fed to delay raising rates.
(Bloomberg) — Two Federal Reserve officials laid out sharply different takes on whether continued low interest rates might raise the risks of financial instability, highlighting divisions on the Federal Open Market Committee ahead of its September policy meeting.
Federal Reserve Bank of Chicago President Charles Evans argued at a conference in Beijing Wednesday that expectations for interest rates remaining low for a long time are becoming entrenched among investors, allowing the Fed to delay raising rates without running the risk of causing financial instability.
“Long-run expectations for policy rates provide an anchor to long-run interest rates,” Evans said in the text of his prepared remarks. “So, lower policy rate expectations act as a restraint on how much long-term rates could rise following a surprise over the near-term policy path.”
Speaking at the same conference, Boston Fed President Eric Rosengren warned that high commercial real estate valuations in the U.S. represented a risk to the banking sector in the event of an economic shock.
“One could envision a scenario where commercial real estate prices could decline significantly if underlying rents, occupancy rates and market interest rates become less favorable,” he said, according to prepared remarks. “Such a revaluation, in conjunction with an economic downturn, could make a recession worse than it would have been had policymakers normalized interest rates more rapidly.”
Two Camps
The central policy debate facing the FOMC involves whether the Fed needs to raise rates before inflation hits its 2 percent target in order to reduce the risks of either creating financial bubbles or overshooting on inflation. Either outcome could force the central bank to subsequently raise rates quickly, potentially pushing the economy back into recession.
Investors see a roughly 34 percent probability of a quarter percentage point rate rise at the FOMC’s Sept. 20-21 meeting, according to pricing in federal funds futures.
Rosengren, who has long favored keeping rates low in order to spur job creation, has swung his concerns toward financial stability as employment, now at 4.9 percent, has approached what most economist believe is its lowest sustainable level, while inflation has gradually risen.
‘Not Without Risks’
“The Federal Reserve’s dual mandate — stable prices and maximum sustainable employment — is likely to be achieved relatively soon,” he said. “By slowly normalizing rates, we would hope to continue to support growth. However, keeping interest rates low for a long time is not without risks.”
Evans, on the other hand, is among policy makers who remain skeptical that low unemployment is doing much to push inflation back toward the Fed’s 2 percent target.
Evans cited recent meetings with executives in the life insurance industry to advance an argument that he and his colleagues should wait to raise interest rates until inflation has reached 2 percent. Their preferred measure has been below that target for more than four years, and Fed staff estimate it will remain so for at least another two years.
The Chicago Fed chief said the investment executives he met “are reassessing the yield-curve environment and increasingly coming to the view that persistently slow output growth in the U.S. and abroad may keep real interest rates low for a long period of time; longer than they likely thought one, two or certainly three years ago.”
The rate-setting FOMC has voted to leave interest rates unchanged so far this year following a rate hike in December that was the first in nearly a decade. While continually signaling a desire to lift rates, Fed officials have been delayed by concerns over global growth and surprise events, like Britain’s vote to exit the European Union.
Copyright 2016 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
The WaiveCar headquarters in Santa Monica, Calif. The car-sharing service bases its fleet of 20 Chevrolet Sparks custom-fitted with electronic screens for advertising out of this garage. Photo credit: SHIRAZ AHMED
Episode 4 of Season 1 of “Futurismo” envisions the transportation market as it looks a quarter-century from today. Automotive News F&I Staff Reporter Hannah Lutz and Interactive Producer Shiraz Ahmed are our future forecasters, chatting with experts in the car ownership and sales realm to examine the potential of mobility. We talk to the self-described Doom Angel of Disruption, meet a car dealer anxious about his business and profile one startup that is trying to make mobility “so easy that it’s free.”
To listen to all of Season 1 of “Futurismo,” go to autonews.com/podcast.
Dubai is a great place to drive but because of speed involved in Dubai roads the accidents can be lethal. We at http://www.insurancemarket.ae see saddening claims on a daily basis – please drive safely and follow some of our guidelines in the video. Also, make sure you have an adequate car insurance policy from a reliable insurer.
The lessons Mike J. de Waal has learned sailing the seas have served him just as well on land. Here’s how. (photo: Thinkstock)
Most entrepreneurs don’t just want to be entrepreneurs — they have to be entrepreneurs.
As a driven entrepreneur in the life insurance industry, you will encounter both challenges and rewards far beyond that of the average employee. Navigating these ups and downs can be as challenging as steering a ship through a storm on the high seas, but I’ve done both — and lived to tell it can be done.
Related: 9 ways to double your business in one year
The lessons I learned sailing the seas have served me just as well on land. Here are 5 tips about entrepreneurship that sailing has taught me:
1. Know the terminology
In sailing, understanding boating terms like aft, starboard and leeward is vital to working with your crew and operating your vessel. The same is true in business. If you can’t speak the language of your clients and your competition, your next deal may get lost in mistranslation.
Attending conferences and taking courses are both great ways to learn new terms and highlight that there’s a reason why you’re the expert.
2. Use trends like the wind
When sailing, jibing and tacking help you manipulate the winds to steer your vessel in the right direction. In business, trends are your winds and you need to understand which direction they’re heading in. Take a few minutes every day and bring yourself up to speed on the latest global and local trends.
Aggregators like Feedly or SmartNews, along with social media feeds, keep you on the cutting edge and aware of which way the wind is blowing.
Related: The successful entrepreneur’s secret? Delegation
3. Learn when to tighten or ease the sheet
The sheet is a line or rope used to adjust a sail against a force of wind.
In business, you need to think about when to tighten or loosen your budget and your business’s growth in line with your sales cycle and market forces.
Markets ebb and flow, and your business will, too. Tracking these fluctuations over time will help inform the ideal time to launch marketing campaigns and hire new employees, or to tighten the purse strings.
Related: 2 more traits of qualified entrepreneurs
4. Adjust quickly and wisely to a changing climate
The weather can change in an instant when you’re sailing, and you need to know how to use the sails to compensate, navigate under tough conditions, and capitalize on whatever’s thrown at you. It’s not much different when you’re a leader in business.
Like the weather, business is always moving and changing. Whether you’re steering your ship at sea or driving your business on land, it takes experience and at times raw courage to weather a storm. See each storm as a chance to gain experience for the next one and know that sometimes you simply need to batten down the hatches — and wait it out.
5. Be a decisive captain
It can take an entire crew to run a sailboat, but they won’t work effectively without a captain calling the shots. The crew rely on your vision, tenacity, and experience to guide their actions. Without this direction, no one will know which way to travel.
As the captain of a ship or a business, you spend your days adjusting your sails, guiding the crew, and at times navigating dangerous waters. If you’re the verge of starting a new business or taking it in a new direction remember one thing above the rest — always keep your hand on the helm and remember:
The pessimist complains about the wind. The optimist expects it to change. The leader trims the sails and sets a new course.
Mike de Waal is president and founder of Global IQX (www.globaliqx.com), a leading software provider of web-based sales and service solutions to employee benefits insurers. Read his full bio here.
First of all, know that not all mechanics are shady. That said, it’s always a good idea to be discerning when taking your car to a new shop. A good start is to ask around to see if any of your friends can give you a recommendation based on their experience. Who do they go to? Better yet, who would they send their mother to?
If you don’t get any recommendations, you’re going to have to be on your toes to choose a shop you feel you can trust. Will they over-charge? Will they charge you for something they said they did, but didn’t? Will they try to scam you? If you’re unsure after talking with a mechanic take your car to another shop for a second opinion.
Here are some things to consider:
Read the manual. A shop may insist a particular service is absolutely necessary. Check your owner’s manual to make sure this is the case. A good example is flushing for coolants and power steering. These services aren’t usually necessary until you’ve hit a certain number of miles.
Check with your dealer. That part you’re told needs to be replaced might still be under warranty, so it pays to find out. If it’s covered, your dealer will replace it at no cost. Ask your dealer before deciding to let the mechanic do the work.
DIY if you can. You can do some maintenance yourself. You can check out how-to videos for just about everything on YouTube if need be. If a mechanic says a belt needs to be changed, ask him to show it to you then buy the piece at a supplier and install it yourself. Another DIY project is an engine hose change. Like with belts, you can inspect hoses for damage or cracks. Get second opinions if you need to.
Make sure the mechanic is certified. A reputable mechanic’s shop should have certifications from the ASE, ASA, AAA or another industry group. This detail can up the trustworthy factor for you.
Don’t be scammed. Some mechanics try to scare you, insisting you really shouldn’t drive away from the shop without a service. If you feel that pressure and suspect that advice isn’t true, it might be worthwhile to get a second opinion.
Get it on paper. Be sure to get a written estimate before approving anything, and never sign a blank work form. Also, ask for a written warranty. If the mechanic is good the work will be guaranteed.
Get your old parts back. Don’t feel uncomfortable about asking to get your old parts back. Getting them back gives you evidence that the part really needed to be replaced, or that the work was actually done.
Want to request auto insurance quotes? You can find out more and use our quote generator tool here.
700 people evacuated as wildfire tears through dry California hills
The blaze has thrown up a line of 25-foot-high flames
The Associated Press on August 31, 2016
A wildfire that tore through brush east of Los Angeles forced 700 people from their homes for several hours Tuesday and destroyed a small building, officials said.
The fast-moving fire prompted the evacuations as it raced through 1.5 square miles of drought-dry hills near Banning, the Riverside County Fire Department said.
Read: Drought gives the kind of attention we give to flood
It was 10 per cent contained by nightfall, and the evacuations, most of which were from a mobile home park, were cancelled.
Two people were taken to hospitals with minor injuries.
An assisted living centre with 10 seniors had to be evacuated as flames came within about 300 yards.
“We have some in wheelchairs, some in walkers, and some get along pretty well on their own,” Richard Feenstra, owner of Cherry Valley Lodge, told the Riverside Press-Enterprise. “It took about 30 minutes to get everybody out of the building and across the street.”
Read: Wildfires in B.C. shouldn’t hike home premiums
The blaze erupted shortly before 12:30 p.m. in the unincorporated Cherry Valley area and has thrown up a line of 25-foot-high flames. Winds gusting to about 20 mph and tinder-dry fuel are helping propel the blaze.
More than 300 firefighters and more than a dozen aircraft are battling the flames.
Officials did not give a cause, but said they were seeking witnesses to the activities of children near the gate to a nature park where the fire started.
Which character are you among these eight networking event personality types? (Photo: iStock)
Editor’s note: The following is taken from Michael Goldberg’s book, “Knock-Out Networking! How to Generate More Prospects, More Referrals, and More Business!”
No matter how great an event is, you probably won’t like about two-thirds of the people you meet there. Yes, two-thirds! Of course, that depends on the event, your communication skills, purpose and understanding of networking. And by “don’t like” I mean “you don’t have a great connection.” Not “hate” although I suppose that can happen too!
Maybe you should consider yourself lucky when you do meet someone you hit it off with. Think about when you first met the people who are still in your life today. Usually there’s a great story behind how you met those with whom you now have a lasting relationship.
How did you meet the love of your life? Did you know at the time that you would be friends or BFFs (that’s best friends forever if you’re out of touch) or whatever? Or did the relationship go through phases?
It works the same way with the connections you make through business networking. You meet people at events and, given your initial contact and the behavior that follows, you develop a relationship. Or not! But at networking events (as in life) you meet all kinds of people and greet many different faces. Everybody is different. Different interests, agendas and motives. As a networker, you have to be prepared to deal with all of these new faces in new places. Which one are you?
Negative Nelly
There’s always someone in the crowd who’s negative. They’re negative about the economy, health-care reform, the political climate, job search — “Nobody’s hiring.” They’re negative about their business, the industry that they’re in, their profession. They’re negative about the event and everyone they meet and everyone else’s products. They’re negative about companies they’ve worked for.
Negative people love company and attract more negative people.
Hard-Sell Harry
All Hard-Sell Harry cares about is selling to everyone that he can. He only wants to talk about his products and services. He is sizing you up as a prospect, trying to identify pain you might be suffering as it relates to your business and looking to shake you down for your money.
Hard-Sell Harry almost always knows exactly what he’s doing. In some cases, he may not realize the purpose of a networking event. Harry has a “hunting” rather than a “farming” mindset. And nobody wants to feel hunted.
Financial advisors are often culprits at being the “hunter” which is why they often struggle seeing enough good people. Again, nobody wants to feel hunted.
Self-Centered Sally
It’s a similar situation with Self-Centered Sally, but it’s not so much that she’s pitching her wares; she just wants to talk about how wonderful she is — how great she is at what she does, how everybody loves her, how much money she makes. “I’m so successful. I’ve been published here, and I’ve been reviewed there, and I’ve been in business here, and I know this person.”
Nobody benefits from those conversations other than her. And really, at the end of the day, does she?
Ravenous Rick
Ravenous Rick is just there for the buffet and the booze. That’s it. He basically wants to kibitz (as they say in the trade) a little bit, get some drinks and nibbles, and he’s happy. Yes, it’s all about the food. The ball game is on anyway, and he can fill his belly.
If he can chat with people for company, that’s fine. But Rick doesn’t really want to be bothered about talking about work — his or anybody else’s. He will make small talk because he knows he should. But Rick really couldn’t care less. It’s a place to go, something to do, what the heck. If business comes out of it, great. If it doesn’t, that’s OK — he had a good meal.
Pass the pretzels!
Blackjack Betty
All that Blackjack Betty really cares about is business cards. Throwing cards at people and collecting them. She thinks she’s in Vegas! So when Betty is at an event, she wants to talk to a lot of people, but not for too long. It’s really just about handing a business card to everybody she can. It’s barely a conversation.
She may say, “I’m Betty, a Mary Kay lady, and this is what I have. Here’s my card, and do you have a card?” In Betty’s world, that’s networking. The name of the game for Blackjack Betty is whoever has the most cards at the end of the event wins.
In fact, Blackjack Betty is so caught up in playing cards that she has forgotten to count them or recount them. She’ll circle the room again and meet you a second time because she does not remember that she’s already met you. Have you ever had anyone do that to you?
A successful event for Blackjack Betty is, “Look, I got almost everybody’s card. I win.” Betty rarely does business with any of these people anyway because she doesn’t know enough about them. And what happens with all those cards? She may be crafty or rude enough to put them in her database, reach out through Facebook or LinkedIn, or to add them to her newsletter mailing list. But other than that, she doesn’t really know what to do with them.
Silent Sam
Silent Sam is someone who doesn’t want to be there in the first place! He’s the guy who’s hanging around at the coffee station. He is shy or at least reluctant to get out there to shake a hand and kiss a baby because he doesn’t want to come across as pitchy or salesy. He hopes that other people come to him. But even if that happens, then what?
Silent Sam is there under false pretenses. He may be there because he needs to promote his business. Or he’s told he needs to be there. He just figures, “If I’m here, maybe something good will happen. Maybe if I collect a card or two, that’s good. If I meet somebody, that’s good too. Just let the time go by—please.”
Silent Sam may be an introvert but may not be. Introverts can be great networkers too!
Social Susie
All that Social Susie wants to do is hang out with people she already knows and have a good time. Yes, it’s all about socializing. And that isn’t all bad. If you want to just go and have coffee with a few pals, there’s nothing wrong with that. But the flip side of that is, why are you going to this networking event in the first place? Go to Dunkin’ Donuts for coffee-talk with friends.
Of course, there should be a social element to networking events and developing relationships with those in your network. But keep your purpose in mind. If the purpose is strictly social, great. If not, consider where you go, what you say, and with whom.
Now, there’s a lot to Social Susie. It’s not that she just wants to have a good time—she may not know how to have a good business conversation. Susie may feel that she’ll compromise friendships if she brings business into the discussion. It’s not that she wants to appear just social in nature; she just doesn’t want to come across as salesy and potentially ruin a friendship.
Susie doesn’t understand that networking is a way to foster those relationships. It’s almost as if she is hiding the fact that she is there for business reasons, and she gets caught up in the hubbub of having fun without knowing how to turn a fun conversation into a business conversation. Can’t a business conversation be fun?
Networking Nick
Networking Nick knows exactly why he’s at an event or in a conversation and what the outcome ought to be. Networking Nick is out to meet people and help them. He is out there to learn something. He is looking for his next venue so that he can do more of the same type of work that he is so good at. Networking Nick is cool!
Nick actually loves to network. He sees the value. The networking “switch” is always on for him. And he is typically very successful at what he does. In fact, Nick seems to know everybody and is a natural connector. Networking Nick knows that other people like him, and he chooses to hang out only with other Networking Nicks.
Did you see anyone you know? Or want to know?
You can see that people are so different — complete with varying styles, approaches and mindsets. And they’re available as both genders too — Social Susie can just as easily be Social Sal.
I’m not saying that Hard Sell Harry, Social Susie, or any of the cast of characters are necessarily bad people. And you might be any one of these characters at any given point in time. But they may make it more difficult for you to network if you’re serious about your business and want to surround yourself with powerful people.
Which one of these faces do you wear?
Once you become more familiar with The Faces of Networking, it won’t take you long to recognize them at your next event.
Deal me in!
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Gen Xers like options. That’s one reason this demographic is well-suited to Indexed Universal Life policies. (Photo: iStock)
If your prospecting is mainly with the age 55-80 group, you know it’s not what it was even a few years ago. “Almost tapped out” is the way some advisors are describing it.
If your practice is feeling that pain, there’s a way to reach a broader, motivated and largely untapped audience: Consumers age 36-55.
You can do it with Indexed Universal Life (IUL) insurance policies. What grabs the attention of this age group is the concept of a “tax-free retirement.”
Unlike IRAs and other qualified retirement accounts, there are few cap limits on IUL contributions. Essentially, this means your clients can invest as much as they want into IUL savings vehicles.
These accounts not only help them hedge any risks associated with their retirement savings; they also offer your clients the potential of having tax-free distributions in retirement. The higher contributions are not only wonderful news for your clients, but you can also benefit from a greater earning potential based on the regular and automatic deposits they make to these accounts.
IUL opens up more sales opportunities
As you know, IUL is experiencing double-digit growth in the insurance and financial services industry. Continue reading to find out why.
See also:
Indexed universal life: It’s just a great investment
3 top producers share their prospecting secrets
Indexed Universal Life is a hybrid product that can allow for policyholder flexibility. (Photo: iStock)
The growth that these types of policies are experiencing is so significant, you can be sure that if you’re not selling IUL, the competition is out there getting the business.
Here are some of the ways you could be pitching IUL to new prospects:
Over-funded minimum death benefit sale showing income distribution in retirement years.
As a GUL alternative. Often showing the same premium with slightly lower guarantees and far better cash value potential or solving for a slightly higher premium with same guarantees as a GUL.
Buy-Sell cases where the policy values can be used for key person retirement income or to buy out a retiring principal.
Frustrated high earners at the inflexibility of their other tax-deferred accounts. IUL is an excellent option for clients who have maxed out their retirement accounts or find themselves limited in the amount of tax-deferred income they can contribute to their 401(k).
401(k) alternative.Why invest retirement dollars tax-free and be taxed on the growth over time? Five dollars invested in an IUL is taxable, but when it turns into $20 later, there’s no tax bill. A 401k lets you invest the $5 tax-free, but taxes you when it grows to $20 later at who knows what percentage.
Protection against the stock market volatility. IULs offer market-linked gains without market-based risk.
Consider this case study: A 45-year-old preferred nonsmoker can buy $1 million of a GUL for $7,230 and have coverage guaranteed for a lifetime with little to no cash build up in his plan. However, he can the same $7,230 and deposit it into an IUL product and have guarantees to age 95 with a projected cash value of $152,000 at age 65, using the default interest rate the carrier can show under AG49.
Even at a lower rate of return, the values are far better than nearly all GULs on the market. Would a client trade the handcuffs that most GULs come with for a few less years of guarantees and the future flexibility than an IUL offers? It has been said this product offers “optionality,” the flexibility of deciding how to use it in the future without having to make any decisions today.
Continue reading to learn by many advisors now prefer IUL over mutual funds.
See also:
Does social media work for prospecting?
3 reasons life insurance should be viewed as an asset
IUL policyholders enjoy virtually all of the advantages of other types of life insurance products. (Photo: iStock)
Why do accountants and advisors often prefer IUL?
Here’s why:
An IUL policy account value can never lose money due to a down market. IUL guarantees an account value, locking in gains from each year.
IUL account values grow tax-deferred like a qualified plan (IRA and 401(k)). Mutual funds don’t—unless they are held within a qualified plan. Simply put, this means that your account value benefits from triple compounding: You earn interest on your principal, you earn interest on your interest and you earn interest on the money you would otherwise have paid in taxes on the interest.
There are few limitations on the amount that may be contributed annually to an IUL.
You control your taxes, not the fund manager. IULs grow tax-deferred, and are never taxed if taken in the form of policy loans.
Mutual funds often make annual taxable distributions to fund owners, even when the value of their fund has gone down in value. An IUL grows tax-deferred, cannot lose value in a market downturn, and imposes no annual tax reporting as it increases in value.
Mutual funds may cause income taxation of Social Security benefits. The growth within the IUL is tax-deferred and may be taken as tax-free income via loans. The policy owner (vs. the mutual fund manager) is in control of their reportable income, thus enabling them to reduce or even eliminate the taxation of their Social Security benefits.
The record-keeping requirements for owning mutual funds are significantly more complex. The keeping of excellent records (redemptions, purchases, dates, values, commissions, etc.) is often one’s only defense in the event of an IRS audit. With an IUL, the insurance company keeps one’s records, copies of annual statements are mailed to the owner, and distributions (if any) are totaled and reported at year-end.
Medicaid disqualification and lifetime income. An IUL can provide their owners with a stream of income for their entire lifetime, regardless of how long they live. Insurance is often classified so that it is not considered assets for Medicaid disqualification of nursing home costs.
Chronic and terminal illness rider. All policies allow an owner’s easy access to cash from their policy, often waiving any surrender penalties when such individuals suffer a serious illness, need at-home care, or become confined to a nursing home. Mutual funds do not provide a similar waiver when contingent deferred sales charges still apply to a mutual fund account whose owner needs to sell some shares to fund the costs of such a stay.
Indexed universal life insurance provides death benefits to the beneficiaries of the IUL owners. Mutual funds provide no such guarantees or death benefits of any kind.
IULs allow the tax-free exchange of one policy for another. A mutual fund owner cannot move funds from one mutual fund company to another without selling shares at the former (thus triggering a taxable event), and repurchasing new shares at the latter, often subject to sales charges at both.
Mutual funds don’t provide cost-free asset rebalancing whereas IUL does. Rebalancing one’s portfolio within a family of mutual funds always requires the sale and purchase of shares, often generating both taxes and commissions.
It’s easy to understand why IUL is setting sales records, particularly with 36-55 year old prospects. They’re motivated consumers who take retirement seriously and want to do all they can to maximize their assets. While IUL may not fit every prospect, the opportunities are enormous.
See also:
5 alternatives to Indexed Universal Life insurance
Not only are millennials and centennials expected to live longer than their predecessors, their income may triple in the next 15 years. (Photo: iStock)
(Bloomberg) — Millennials might not be taking home large pay checks right now, but eventually they will be, and Bank of America Merrill Lynch analysts have a list of stocks that investors should buy in preparation for that day.
Related: What millennials want from work and life
The team, led by equity strategist Sarbjit Nahal, published a report today with a list of names poised to benefit from millennials, and the generation that comes after them — dubbed the centennials — which the firm says could live more than 100 years.
“There are 2 billion Millennials worldwide and they have overtaken Boomers to become the largest living generation in U.S. history,” the team writes. “But we need to prepare for the rise of the 2.4 billion Centennials — born at the turn of the century and set to live to over 100 years. They are embracing diversity, sustainability, globalization, disruptive technology, peak stuff,’ new business models, and entrepreneurialism like no generation before them — and they are economically optimistic to boot.”
Not only is the team betting on them living longer, they are also predicting their incomes will nearly triple in the next 15 years, going from $21 trillion in 2015 to $62 trillion by 2030. Based on this, here are the five key themes they believe are in play:
Tech and entertainment
These generations have grown up with smartphones and social media at their fingertips, so they view technology different than their parents and grandparents. Firms like Apple Inc., Facebook Inc. Match Group Inc., Amazon.com Inc. and Netflix Inc. are all poised to benefit.
The emerging consumer
These generations have a different take on buying things than others have in the past. They research and buy more things online, they have more of a focus on health and wellness, and they like to travel. Some of the names that could benefit are American Eagle Outfitters Inc., Expedia Inc., Target Corp., Starbucks Corp., Fitbit Inc. and Under Armour Inc.
Buying homes (eventually)
While this dream may have been delayed by the financial crisis and the rise in student debt, Bank of America says that these generation will eventually buy homes. Names that are in play here include The Home Depot Inc., Lowe’s Companies Inc., Masco Corp., and Toll Brothers Inc.
More education than other generations
They are more educated and will likely value education highly in the future when it comes time to send their kids to school, so there are a number of stocks that could see a boost here. Some of the ones mentioned in the report are Bright Horizons Family Solutions Inc., Adobe Systems Inc., Alphabet Inc., HP Inc., and Microsoft Corp.
A different take on finance
Lastly, these generations are the ones getting the most attention from financial technology, or “fintech” startups, and for good reason. They are more likely to go to an alternative source for a loan or put retirement funds into an account with a robo-advisor. Some of the publicly traded names listed in this group include First Data Corp. and On Deck Capital Inc.
Goldman Sachs Group Inc. put out a similar report just over a year ago that focused on millennial parents, and the results have been a bit of a mixed bag. Some of the names mentioned in that report, such as Amazon.com Inc., Hasbro Inc., Netflix Inc., Starbucks Corp., and Wayfair Inc. have outperformed the S&P 500 since then. However, others like Target Corp., Walt Disney Corp., Whole Foods Market Inc., GrubHub Inc. and Carter’s Inc. have underperformed.
See also:
The boomer estate planning boom: 9 ways to get in on it
A study in contrasts: financial outlook of boomers vs. Gen Xers
Bridging language gap between humans, self-driving cars; VW turnaround timeline; Walser’s luxury buy; New Ford Credit CEO; ‘Like a big bomb’; Porsche product pipeline.
Ford Motor Credit Co. Chairman and CEO Bernard Silverstone will retire after 37-year career there. COO Joy Falotico, a 27-year veteran, will be his successor.
Ford Motor Credit Co. Chairman and CEO Bernard Silverstone will retire Oct. 1. He will be replaced by COO Joy Falotico.
The COO position will be eliminated, according to Ford Credit spokeswoman Margaret Mellott.
Silverstone, 60, has been with Ford’s captive finance arm for 37 years and has been CEO since 2013, according to a company statement.
“Bernard’s global expertise and strong leadership have been key to Ford Credit’s continued profitability and growth, as well as new financial solutions for mobility,” Mark Fields, CEO of Ford Motor Co., said in the statement. “Throughout his career, Bernard has worked tirelessly to ensure Ford Credit continues to be an important part of our success. We are grateful for his dedication and many contributions around the world.”
Falotico, 49, has worked for Ford Credit for 27 years. Most recently, as COO, she led Ford Credit’s global operations, marketing, sales and brand, business center operations and insurance operations.
Silverstone said in the statement that Falotico is poised to lead Ford Credit. “Joy is an experienced and trusted leader with a sharp focus on driving strong business fundamentals. She is in a great position to lead Ford Credit’s success,” he said.
Previously, Falotico was executive vice president for Ford Credit marketing, sales, Americas and strategic planning; vice president of North American operations; vice president of U.S. Sales Operations; vice president of global marketing; and had pan-European responsibility for customer and dealer service operations and risk management for Ford Credit Europe, the statement said.
It is time for insurers to take personalization seriously.
In every industry, customer experience is becoming highly personalized, and many consumers will not even engage with a brand unless the message and offer is tailored to their needs and situation.
Insurers seeking to deliver personalized services need to have a better grasp of customers’ behaviors and actions, and use this insight to offer more frequent and higher-value interactions.
Accenture research indicates that 80 percent of insurance customers are looking for personalized offers, competitive pricing and recommendations from their auto, home or life insurance providers, and an additional 77 percent are willing to provide usage and behavior data in exchange for lower premiums, quicker claims settlement or insurance coverage recommendations.
Related: 3 in 10 Americans would likely share tracker data with insurers
Digital and retail giants such as Google and Walmart are already ahead, collecting large quantities of consumer data via smartphones, home hubs, shopping loyalty programs and other sources. By doing so, they have the intelligence to identify where customers are located, how they manage their personal lives and possessions i.e. their home and vehicle, and what life stage they are at. In comparison, less than a quarter (22 percent) of insurers have launched personalized or real-time digital or mobile services to date.
It’s clear that many insurers are failing to capitalize on the opportunity, opening up potential revenue to more forward-thinking competitors and cross-industry players who are delivering levels of personalization that many insurers would struggle to match.
Adopting a new mentality
Today’s insurers are hindered by the fact that the industry has traditionally maintained a low frequency of interactions with customers. Product-oriented cultures, reliance on independent distribution partners, complex organizational structures and outdated technologies also provide challenges.
Insurers that strive to provide a superior customer experience must migrate from a transactional mentality to a relationship mentality. They need to think beyond insurance related products and services, and the limited range of insurance process-related customer interactions like bills, payments, renewals and claims. Instead, they should look at the bigger issues, such as helping customers live the sort of lifestyles they want, prevent losses, or to take the necessary steps to improve their financial well-being. By doing so, they will change customer perception and drive growth in new product and service categories.
Capitalizing on customer personalization
To take advantage of the opportunities that greater personalization enables, insurers need to start by formulating and implementing an actionable customer strategy. Advanced analytics capabilities will enable insurers to create precise and actionable customer microsegments and propensity models based on demographics, life stage, needs and behavior. From this, insurers can identify segment-specific opportunities to personalize offers, messaging, pricing and recommendations to individual customers across physical locations, web, mobile, and call center channels. Insurers will need to ensure that their marketing processes, tools, organizations, and agency relationships can cost effectively scale up to enable greater content and message variations necessary to deliver more personalized, omni-channel experiences.
Insurers can also benefit from developing a test-and-learn capability that can operate at speed. Once success is achieved on a small scale, they will need a customer-centric operating model to rapidly integrate the learnings across channels and lines of business, where appropriate.
Leading insurers are starting to take this approach to deliver increased levels of personalization. One major insurance provider, for example, is working to combine profiles of customers’ past and current transactions, and content from social channels, to create a personalized experience on its mobile app. Another insurer is developing customer microsegments to help improve the returns on customer retention and cross-sell campaigns and offers.
See also:
Big data a big deal? For many U.S. life, P&C insurers, not yet
How big data helps the insurance industry
The power of leveraging larger quantities of data
As the number of Internet of Things (IoT)-enabled sensors and devices explodes, insurers will have the opportunity to leverage even more data on a much bigger scale from these devices to better meet customer needs, in particular, around loss prevention and protection, pricing and coverage optimization, and value-added services. For example, by monitoring for water leakage, insurers can alert customers to a problem and enable them to act more promptly to prevent or at least minimize damages in a home or business. As a value-added service, the insurer could even call a plumber on the customer’s behalf to get quotes. Customers who opt into this service could receive a discount on their homeowner insurance.
Some leading insurers are already moving in this direction now. Research suggests that 16 percent are already working with startups and external partners to drive digital innovation, while another 17 percent are partnering with non-insurance companies to offer customers a broader range of relevant products and services.
For instance, Direct Assurance has begun offering You Drive, which collects information from subscribers’ automobiles and provides them with personalized daily driving advice via social media, as well as monthly scores that impact the cost of individual premiums. And Vitality, a global wellness company and loyalty-based program, is working with a number of insurers including John Hancock, Generali and Ping An, to provide proactive fitness and well-being coaching, and to reward policyholders with insurance discounts for healthy lifestyles based on data collected from wearables and other technology.
Delivering on customer needs
Insurers that truly know their customers, maintain a continuous level of interaction and build customer trust will be better placed to capitalize on the opportunities of delivering higher levels of customer personalization. They will also provide a stronger value proposition to their customers — one that includes not just indemnification, but constant protection. Doing so will help insurers maintain a competitive edge in fierce, growing and diverse market.
See also:
4 reasons why insurers must adapt to the omnichannel world
21 emerging risks for the insurance industry and global economy
This week, I answered a grab bag of reader questions about insurance coverage for colorectal cancer screening, hospital facility fees and the tax treatment of annual fees charged by concierge medical practices.
Q. A stool-based DNA test to screen for colon cancer is available that is readily paid for by health plans, including Medicare. But if I have a positive Cologuard test result, I’d have to pay several hundred dollars for a regular diagnostic colonoscopy. Doesn’t this discourage people from getting screened for colon cancer, which is the goal, after all?
A. Patient advocates point to several reasons people may be discouraged from getting tested for colorectal cancer, including the “ick” factor and the time it takes to prepare for and get a colonoscopy, the most common screening test. “But the number one factor is always cost,” said Caroline Powers, director of federal relations at the American Cancer Society Cancer Action Network.
Commercial insurers and the Medicare program cover cancer screenings that are recommended by the U.S. Preventive Services Task Force without requiring any payment by patients. The task force, an independent panel of medical experts, recommends colorectal cancer screening for people from age 50 to 75.
More from this series
Several different types of tests get the thumbs up from the task force, including colonoscopy, in which a flexible tube with a camera is snaked through the colon from the rectum to look for polyps and other abnormalities, and stool-based tests, including the DNA test you mention, which looks for genetic mutations associated with cancer or polyps.
But, as you point out, there’s a potential hitch. If you get a positive test result from a DNA test or other screening method, you’ll need to get a follow-up colonoscopy to check whether the test result was correct.
Patient advocates have argued that the follow-up colonoscopy should be provided without cost sharing by patients, and doctors tell them that some private insurers are beginning to handle the process that way, Powers said. But in the Medicare program that follow-up test is still considered diagnostic, and seniors are responsible for any deductible and coinsurance charges. Patient advocates continue to lobby for a change to that policy.
“From a public health perspective, it goes against everything we’re trying to do,” Powers said.
Q. I have carpal tunnel syndrome in both wrists. I visited a hand surgeon at his office who gave me a cortisone shot in my right wrist. His bill was $450, of which my insurance covered $420. But I also received another bill from the hospital with which his practice is affiliated that included a $1,702 facility fee for which I have a $400 co-payment. This seems so unfair. What can I do to avoid owing that charge?
A. There may not be much you can do after the fact. As hospitals continue recent efforts to purchase physician practices, hospital facility fees are increasingly common. In 2014, a third of doctors were either employed by a hospital or worked in practices that were at least partly owned by a hospital, an increase from 29 percent in 2012, according to a study by the American Medical Association. Even if the doctor’s office is located across town, the physician practice essentially becomes part of the hospital, and patients are typically billed for both physician services and hospital facility charges.
This KHN story also ran on NPR. It can be republished for free (details).
Starting next year, some hospital facility charges will no longer be allowed. Under the Bipartisan Budget Act of 2015, the Medicare program will no longer pay hospital facility fees for outpatient services at physician offices that aren’t located on the hospital campus. However, the change will apply only to practices that hospitals acquire after Nov. 15, 2015, and doesn’t affect commercial insurers at all.
The best way to protect yourself from unexpected facility fees is to get details from the physician’s office before you visit, said Richard Gundling, senior vice president at the Healthcare Financial Management Association, a group for professionals in health care finance. That way, you can make an educated decision about whether to proceed before you get a surprise bill. “The patient should always ask, ‘What is my out-of-pocket cost for this visit?’”
Q. My husband’s family physician is a member of MDVIP, one of many “concierge” practices in which a doctor or group of doctors generally charge an annual fee for faster appointments, more access to the doctor, more time with him during appointments, and preventive services during the annual wellness visit that aren’t included in a regular Medicare annual wellness visit. Is the annual fee of $1,650 tax deductible?
A. The annual fee is generally tax deductible, said Roy Harris, general counsel at MDVIP. That annual fee covers the cost of an executive physical every year for members, often a checkup with extra bells and whistles such as additional tests or screenings. If people itemize their medical expenses on their income taxes, they can generally deduct the expense as a physical exam. Even if they don’t itemize, many people get reimbursed from their flexible spending accounts or health savings accounts for the annual fee after getting their physical, Harris said.
Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax and Accounting, a software and information services company, agreed, although he noted that the Internal Revenue Service hasn’t weighed in specifically on this issue.
Please contact Kaiser Health News to send comments or ideas for future topics for the Insuring Your Health column.
Health Industry, Insurance, Insuring Your Health, Medicare, Syndicate
It is essential to invest time analyzing which lead generation initiatives work well and why in order to focus sales efforts and not become overwhelmed. (Photo: iStock)
Here’s an interesting question for you: How much is it costing you to generate one lead?
Here’s another equally interesting question: How many leads do you need to generate to create one sale?
I have spent the past two weeks asking those two questions of friends, colleagues, fellow sales commentators, clients and prospects — in fact, everyone with whom I have come into contact. And do you know what? Nobody really knew the answer. Of course, there were some pretty wild, finger-in-the-air guesses, but not one rock-solid, convincing response that you would bet your children’s inheritance on.
Don’t you find that somewhat alarming?
I do, particularly when there appears to be such a concentrated focus these days on creating new opportunities. No wonder sales departments are viewed with so much suspicion by the “grey men” in finance, they must be totally convinced that we are completely out of control.
So, what’s the answer?
The reality is that there are so many sources of leads that the process of generating leads can sometimes cause sales people to feel overwhelmed when tackling this vital sales activity.
Every organization is unique and can employ a variety of approaches in their quest to attract the attention of their target market. (This will become even clearer once you have created your ideal customer profile). That’s why it is essential to invest some time analyzing which lead generation initiatives worked well in the past, why they worked well and what improvements can be made to optimize their effectiveness.
There are three areas that you must consider that can help evaluate different lead generation initiatives with greater objectively.
Effectiveness — which lead generation activities produced the most quality leads?
Cost — what were the tangible costs for each lead generation initiative?
Time — how much time did it take to initiate and follow up on each initiative?
Unless we have an accurate handle on our lead generation activities, our salespeople will continue to be overwhelmed, whilst those grey men will continue to be underwhelmed!
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Goldman believes in a rate hike, PIMCO claims it’s not happening.
(Bloomberg) — Federal Reserve Chair Janet Yellen’s speech Friday was hawkish enough for Goldman Sachs Group Inc. to boost the odds of a September interest-rate increase, while Pacific Investment Management Co. said there was nothing of note in her remarks.
Bond traders agree with Goldman Sachs, with the market-implied probability of action next month rising after Yellen said the case for tightening policy has strengthened. The bank, one of the Treasury market’s 23 primary dealers, now puts the “subjective odds” of a move in September at 40 percent from 30 percent previously, economists led by Jan Hatzius wrote in a note.
Fed funds futures indicate a 42 percent chance that the central bank will raise rates next month, up from 22 percent Aug. 19 and zero in late June after the U.K. voted to leave the European Union. The odds of an increase by December have risen above 60 percent from a low of 8 percent reached June 27, according to futures data compiled by Bloomberg. The calculation assumes the effective fed funds rate will average 0.625 percent after the central bank’s next increase.
U.S. economy watchers are turning their attention to August payrolls figures later this week for signs of whether there’s continued strength in the jobs market.
“I’m sure the Jackson Hole setting is lovely for this annual conference, but the Chair did not want to make any real news, and she succeeded,” Richard Clarida, a global strategic adviser at Newport Beach, California-based Pimco, wrote in a client note. Yellen’s remarks didn’t shed any light on “the near-term path for the normalization of interest rates, and the Fed’s longer-run inflation-targeting framework,” he said.
Treasury Yields
The two-year Treasury note yield was little changed at 0.83 percent as of 9:25 a.m. in New York, according to Bloomberg Bond Trader data. The price of the 0.75 percent security due in August 2018 was 99 26/32. The yield touched 0.85 percent, the highest since June 3.
The two-year notes are more sensitive to the outlook for monetary policy than longer-dated securities.
With traders ramping up bets on a 2016 rate increase, the jump in yields on shorter maturities has outpaced longer-dated debt. As a result, the extra yield that 30-year bonds offer over two-year notes shrank to 1.41 percentage points, set for the lowest closing level since 2007. The 30-year yield fell four basis points, or 0.04 percentage point, to 2.25 percent.
The benchmark U.S. 10-year note yield fell three basis points to 1.6 percent.
August Payrolls
Yellen’s speech puts the spotlight on Friday’s August labor report, which is projected to show employers added 180,000 jobs, following a gain of 255,000 in July. The monthly labor force number has exceeded expectations the past two readings, pointing to renewed vigor in the employment market.
“Unless we have a blow-up payrolls number on Friday, and strong data between now and the September meeting, she’ll probably go in December,” said John Gorman, head of non-yen rates trading for Asia and the Pacific at Nomura Holdings Inc. in Tokyo. “The short end of the curve is a bit on the dangerous side, because markets are still trying to decide whether the Fed is going to hike in September or December — which means the two-year notes can sell off quite a lot.”
Copyright 2016 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
The First Command Financial Behaviors Index reveals that 67 percent of middle-class service member households now own a permanent life policy. (Photo: Thinkstock)
Demand for permanent life insurance continues to grow in America’s career military, where two thirds of families now report owning this type of coverage and many others say they are likely to join them, according to the latest findings of the First Command Financial Behaviors Index.
First Command’s annual life insurance survey reveals that 67 percent of middle-class military families (commissioned officers and senior NCOs in pay grades E-5 and above with household incomes of at least $50,000) own some form of permanent life coverage. That’s up 25 points over the past five years.
Related: 10 popular states for military retirees
Among military families who don’t own a permanent life policy, 68 percent say they are likely to consider purchasing one for themselves or someone in their household. This level of interest represents a continuing upward trend, climbing from just 28 percent in 2011.
The most popular forms of permanent life insurance coverage among the military include:
Whole life, which is owned by 42 percent of survey respondents. That’s the same ownership level as the past two years. The index reveals that 36 percent of those who own whole life policies purchased their coverage in the past five years.
Universal life (24 percent, statistically unchanged from last year).
Variable life (18 percent, also statistically unchanged from last year).
Meanwhile in the general population, demand remains steady. The index reveals that 40 percent of middle-class civilian families own some form of permanent life coverage, statistically unchanged from five years ago. The most popular form of permanent life insurance coverage in the general population is whole life, owned by 27 percent of families.
Service member demand for temporary life insurance coverage is also up this year. About half of military families (46 percent) report owning term life products, up 13 points from last year.
See also: Top 10 ways military families plan to spend tax refunds in 2016
But the long-term trend remains constrained. Demand is about the same as five years ago. Civilian ownership of term life products has fallen to 39 percent, down nine points from last year. Demand is also about the same as five years ago.
Military families are turning to permanent insurance products as supplemental coverage to their government benefits. Active-duty personnel are eligible for up to $400,000 in Servicemembers’ Group Life Insurance, commonly known as SGLI. They may add optional spousal coverage of up to $100,000 and dependent coverage of up to $10,000.
Related: Survey: Military families boosting savings, cutting spending
After leaving the service military personnel may convert SGLI to Veterans’ Group Life Insurance (VGLI); however, premiums may be higher and are based on the age of the insured. Supplemental commercial policies allow military families to increase their overall coverage now and provide longer-term protection for their post-military lives.
Supplementing government-provided coverage with permanent life insurance allows America’s career military families to more fully and effectively tackle their present and future needs,” says First Command Financial Services CEO Scott Spiker. “This strategy of combining government benefits with commercial products allows families to address the uncertainties of military life today and effectively pursue financial security tomorrow.”
First Command conducts an annual life insurance survey of military families as part of its September observance of Life Insurance Awareness Month, which was created by the LIFE Foundation in response to growing concern about the large number of Americans who lack adequate life insurance protection.
Compiled by Sentient Decision Science, Inc., the First Command Financial Behaviors Index assesses trends among the American public’s financial behaviors, attitudes and intentions through a monthly survey of approximately 530 U.S. consumers aged 25 to 70 with annual household incomes of at least $50,000. Results are reported quarterly. The margin of error is +/- 4.3 percent with a 95 percent level of confidence.
See also:
Best and worst states for military retirees [infographic]
Veterans hide war injuries from companies in civilian jobs
Military families’ top New Year’s resolution: cutting debt
And total number of individual life insurance policies sold in the second quarter increased 1 percent, marking the seventh consecutive quarter of positive growth.
Individual life insurance new annualized premium increased 2 percent for the first half of 2016, compared with the first six months of 2015. In the second quarter, new annualized premium was flat, according to the LIMRA U.S. Retail Individual Life Insurance Sales Survey.
“A 7 percent decline in indexed universal life (IUL) stifled overall individual life insurance sales and as a result, sales in the second quarter were level with prior year. This is just the second time IUL premium has dropped in a quarter over the last 10 years,” said Ashley Durham, associate research director, LIMRA Insurance Research. “LIMRA attributes much of the decline to the recent illustration regulation, Actuarial Guideline 49, which went into effect in September 2015.”
Total number of individual life insurance policies sold in the second quarter increased 1 percent, marking the seventh consecutive quarter of positive growth. Through the first half of 2016, total number of policies sold increased 2 percent.
Universal life (UL) new annualized premium fell 4 percent in the second quarter due to the decline in IUL sales, which account for 55 percent of total UL sales and 20 percent of all individual life premium year-to-date.
Total UL premium represented 36 percent of all life insurance sales in the first half of 2016.
Whole Life (WL) product sales continued to climb as new annualized premium increased 6 percent in the second quarter. Year-to-date WL rose 8 percent. Similar to last quarter, WL products made the largest contribution to total individual life premium growth in the second quarter. If this trend continues for the remainder of 2016, it would represent the eleventh consecutive growth year for WL.
Year-to-date, total WL premium represents 37 percent of the total life market.
Variable universal life (VUL) new annualized premium fell 12 percent in the second quarter, resulting in a 12 percent decline year-to-date. Election year volatility is expected to disrupt VUL sales throughout 2016.
VUL market share was 6 percent of total life sales in the first half of 2016.
Term life insurance new premium grew 2 percent in the second quarter, compared with prior year. This represents the seventh consecutive quarter of growth for term life.
Term life market share was 21 percent for the first half of the year.
With adjustable life policies, the policyowner may change the premium and/or the level of death benefit. (Photo: iStock)
Adjustable life insurance is a “flexible premium” “adjustable death benefit” type of permanent cash value insurance. It is essentially a hybrid combination of universal life and ordinary level premium participating life insurance.
See also: Whole life vs. term: There’s a clear winner here
In contrast with ordinary level premium, level death benefit policies and similar to universal life, adjustable life insurance gives the policyowner the flexibility to change the plan of insurance.
That is, within limits, the policyowner may change the premium and/or the level of death benefit. Note that when policyowners make changes to an adjustable life insurance contract, the guarantee period will also change. In general, the policyowner may:
increase or decrease the premium;
increase or decrease the face amount;
lengthen or shorten the guaranteed protection period; and/or
lengthen or shorten the premium payment period.
Increases in the face amount usually require evidence of insurability. Also, an increase in premiums requiring an increase in the face amount to stay within the definition of life insurance guidelines of Code section 7702 usually will require evidence of insurability.
Despite its similarities, do not confuse adjustable life insurance with universal life, which is often called flexible premium adjustable life. Direct-recognition, current assumption policies, such as universal life, “unbundle” the policy elements and explicitly show mortality and expense charges and interest credits. In addition, they credit interest directly to cash values.
In contrast, most adjustable life insurance policies’ elements are bundled. Like traditional participating policies, the pure protection and savings components are not segregated or stated separately. However, policyowners may make partial surrenders, up to the sum of premiums they have paid, without surrendering the entire policy, or paying income tax (assuming the policy is not treated as a modified endowment contract).
Like many participating policies in the market today, most adjustable life policies are “indirect recognition interest sensitive” or “indirect recognition current assumption” policies. The insurance company’s favorable investment, mortality, and expense experience are indirectly reflected in the level of dividends that the company actually pays, or directly reflected as additional credits to cash values.
In addition to the bundled nature of its policy elements, adjustable life has all the usual features of ordinary level premium whole life insurance including:
a minimum interest guarantee;
guaranteed maximum mortality charges;
cash values;
nonforfeiture values;
a policy loan provision;
dividend options;
a reinstatement period; and
settlement options.
Similar to other traditional forms of insurance, various options or riders are available including:
waiver of premium;
guaranteed purchase or insurability;
accidental death benefits; and
cost of living adjustments.
Although the policyowner has flexibility in selecting the plan of insurance, changes are generally permitted only at specified intervals and with advance notice to the insurer. Between adjustment periods, the policy is a level premium, level death benefit policy. Depending on the particular premium and death benefit levels chosen, the policy can assume the form of almost any traditional term or whole life policy from low-premium term through ordinary whole life to high premium, limited pay whole life.
Policyowners generally may ask to set premiums to zero without the policy lapsing (or without invoking the automatic policy loan provision), although this virtually always requires notice to the insurer. The minimum annual premium is typically equivalent to the premium for a five-year term policy. In contrast with UL and similar to ordinary level premium policies, once a policyowner has selected a given plan of insurance, the policyowner must pay premiums as scheduled unless the policyowner notifies the insurer of his or her desire to change the plan of insurance. The plan of insurance defines the length of the guarantee at any point in time. The insurance company computes the schedule of cash values based on the current program of premium payments, the face value, and the term or duration of coverage. The insurance company recomputes the cash value schedule each time the policyowner opts to change the plan of insurance.
Continue reading to explore when adjustable life insurance is necessary, as well as its pros and cons, from the 6th Edition of “The Tools & Techniques of Life Insurance Planning” (2015, The National Underwriter Company).
Also by these writers:
15 legal issues every life insurance policy should address
6 problems solved by life insurance
Who is well-suited to adjustable life insurance?
Insurance shoppers can consider adjustable life for almost any life insurance need. Initially, the policyowner can have the insurance company configure an adjustable life policy’s death benefit and premium level to resemble virtually any type of life insurance policy from five-year term insurance to single premium whole life. However, because of policy costs, AL is generally best suited for longer-term coverage needs.
For short-term coverage needs where future insurability is not a factor, a nonrenewable term policy generally would be more cost effective. Here are three specific scenarios in which adjustable life may be a solution.
Reason No. 1: Adjustable life is indicated whenever insureds need or desire greater flexibility over time in life insurance coverage, need or want guaranteed protection, and prefer the forced savings feature of ordinary level premium whole life insurance. Policyowners whose circumstances change can later reconfigure the policy by changing the schedule of premium payments and/or the face amount or duration of coverage.
Reason No. 2: The insurance industry has marketed adjustable life as the only policy a person will ever need. The flexibility makes it very useful in the family market. For example, a young parent with a growing family and modest income can acquire an AL policy that is initially configured with low premiums and a high death benefit to resemble a traditional term policy. As the parent’s income grows, they can increase the scheduled premiums to build up tax-sheltered cash within the policy. At later times when they need cash, such as to pay for children’s educations, they can reduce the scheduled premiums. The policyowner can use partial surrenders or policy loans to help pay the school expenses. After a time, the policyowner can increase scheduled premiums, once again, to build cash values that policyowner and spouse can use for their retirement. Similarly, if the amount of death protection that is needed changes, the policyowner may increase or decrease the death benefit or reduce or extend the term of coverage. Keep in mind, increases in death benefits usually will require evidence of insurability. Each time the policyowner requests a change, the insurance company recalculates the guarantee period.
Reason No. 3: The flexibility of adjustable life also makes it suitable for many business life insurance needs. adjustable life offers a conservative and guaranteed vehicle for all sorts of business applications where the policyowner may frequently require adjustments in death benefits and/or cash accumulations, including split-dollar plans, nonqualified deferred compensation plans, death benefit only plans, key person insurance, buy/sell agreements, retiree benefits funding, and in qualified retirement plans that use insurance.
Continue reading to explore to advantages and disadvantages of adjustable life insurance.
Also by these writers:
Does your client have the right type of life insurance?
5 alternatives to Indexed Universal Life insurance
Advantages of adjustable life
Advantage No. 1: Policyowners have discretion or flexibility in selecting the schedule of premiums that they will pay until they next request a change in the plan of insurance.
Advantage No. 2: Similar to ordinary level premium whole life policies, once a policyowner has chosen a premium payment plan, the policy has an element of forced saving until the policyowner requests a change in the premium payment plan. Many people who lack the discipline to continue a regular savings program will find this feature attractive.
Advantage No. 3: The policyowner may change the face amount of coverage or the term of coverage. The insurance company will permit decreases in the face amount of coverage at virtually any time. Policyowners who reduce death benefits within the first seven years of issue should do so only with the advice and counsel of their insurance advisers because such death benefit reductions may subject them to adverse tax consequences under the Modified Endowment Contract (MEC) rules. Insurance companies generally permit increases in face amounts, subject to evidence of insurability. Increases in the death benefit may also subject the policy to a new test period under the MEC rules. (See discussion under “Tax Implications” below).
Advantage No. 4: Most AL policies offer a cost of living agreement that automatically increases the face amount in response to increases in the CPI without evidence of insurability. Commonly, the premium is also correspondingly adjusted upwards.
Advantage No. 5: Cash value interest or earnings may accumulate tax-free or tax-deferred, depending on whether gains are distributed at death or during lifetime.
Advantage No. 6: The cash values are not subject to the fluctuations in market value characteristic of longer-term municipal bonds and other longer-term fixed income investments when market rates change.
Advantage No. 7: Policyowners can borrow policy cash values at a low net cost. Although policyowners must pay interest on policy loans, cash values continue to grow and are credited with at least the minimum guaranteed rate in the policy. Consequently, the actual net borrowing rate is less than the stated policy loan rate.
See also:
10 advantages of term life insurance
9 more things to know about whole life insurance
Disadvantages of adjustable life
Disadvantage No. 1: Some adjustable life policies, similar to many ordinary whole life policies, use what is called the direct recognition method to determine how favorable investment, mortality, and expense experience is allocated to dividends on policies with policy loans. Under this method, the insurance company reduces the amount of dividends allocated to policies with policy loans to account for the generally lower yield the company earns on policy loans relative to other investments in their general portfolio. Companies most commonly use the direct recognition method in policies with fixed policy-loan rates. Typically, policies with variable-loan rates, and some others with fixed-loan rates, do not employ the direct recognition method and instead allocate dividends without regard to loans. There are also some AL policies that do not have dividends, but credit current mortality and interest to cash values, similar to UL.
Disadvantage No. 2: Lifetime distributions or withdrawals of cash values are subject to income tax to the extent attributable to gain in the policy.
Disadvantage No. 3: Surrender of the policy within the first five to ten years may result in considerable loss because cash surrender values reflect the insurance company’s recovery of sales commissions and initial policy expenses.
Disadvantage No. 4: Interest paid on policy loans generally is nondeductible.
Disadvantage No. 5: The flexibility with respect to premium payments and death benefits permits policyowners to change the policy in such a way that it may inadvertently become a modified endowment contract (MEC) with adverse tax consequences.
See also:
How to compare life insurance policies
5 alternatives to Indexed Universal Life insurance
7 things you need to know about term life insurance
Continue reading to explore when adjustable life insurance is necessary, as well as its pros and cons, from the 6th Edition of “The Tools & Techniques of Life Insurance Planning” (2015, The National Underwriter Company).