Some of you may be wondering how I get the source material for all the crazy things I write. It's easy. There is bad advice about life insurance everyday. Specifically, I go to Google News and enter this search 'allintitle: "life insurance".' Then I sort by date instead of relevance.
So if you want to be the next me, now you know you know just a little bit more about how to do it.
Now I'm going to talk about something I found in that search that is far from news. And frankly I am ashamed that Google would pick up this feed. I mean it's even worse than all the self-serving press releases that flood this search. I know that if I left the default of relevance instead of date, I wouldn't find these types of results for life insurance in the title, but this site should not be in the news feed at all.
Because this blog is about everything that is wrong with life insurance in the news - that's why. Also, because I can do what I whatever I want to.
The site in question is Monitor Bank Rates (no follow), which looks like a cheap knock off of Bankrate. Okay, even Bankrate has too many commercial interests to be objective. Still, these other guys are lousy.
The page in question has grammar and spelling errors throughout. You know, the type of stuff a free text editing program like Open Office would pick up. That's journalistic integrity.
Oh, then it's stuffed with keywords like "insurance" "life insurance" and "insurance coverage" with links out to the old establishment. You know, the big insurance company names I won't mention here - all of them.
They are giving away the generic keywords to the big guys, so they can keep the long tail words for their internal links. "Best life insurance quotes" is too specific to point to someone else. I hope someone at Google is paying attention to this, so they can slap companies like this.
Mind you, I don't read material of this quality, but I found it through Google News when I was looking for rotten stuff to write about. The whole article and life insurance portion are wrapped around a feature that promises to help me find the best life insurance quotes if I enter my zip code. Okay, you zip code has nothing to do with life insurance rates. Not in the US anyway.
I went on ahead and did it just to see what type of quality this misspelled website sent me to. I got a list of about 7 life insurance quoting companies. Some were individual companies, others were the type that collect your information and sell it off as a lead. Um, no thanks.
Now you all know to avoid this site, and hopefully Google learned that Monitor Bank Rates is not a news source (or really all that credible).
Thursday, September 17, 2009
Wednesday, September 9, 2009
Your Life Insurance Policy on the Stock Market
Today's rant is about a post in the NY Times - none other than Jenny Anderson. But while I normally take this spot to rant about the journalist's lack of understanding or misleading language that seems so pervasive in the financial media, she does a pretty good job. Maybe if you are thinking about subscribing to a paper, you should consider them.
Let's get two things straight first:
1. I'm sort of a fan of life settlements. It gives policyholders an extra way to access the value they have in the policy and the value of their own insurability without relying solely on the insurance company. Life settlements are sort of a creative way to stick it to the man. More power to the individuals who can sell their policies for more than the cash value.
2. The slippery slope argument is one of the great argumentative fallacies - meaning while many people might believe it or use it in an argument, it is not always true.
However, in this case, the slippery slope seems to becoming a reality.
Life settlements can be very good things for policy owners, but they should be careful who they sell their policies to. The best choices are usually institutional investors like pension funds and so on. So what would happen if those investors wanted to bundle them and sell them off to other investors?
Well, they would have to create the groups or tranches of the different policies, buy bonds as a way of supporting the value or lowering the risk to those investors and so on. If this sounds like what happened in the mortgage industry a couple years back, you would be correct.
Not only are there questionable moral problems with this type of strategy and the real value of securitization is questionable, but the long term affect for you and me is higher life insurance premiums for everyone down the road. See, when life insurance companies issue policies, they expect a certain number of them will be canceled before the policy owner dies. But if more life policy owners held on to the policies, the life insurance companies would have to set aside more money to pay off those future claims. That extra money comes from the future life insurance premiums you and I pay.
There just isn't a way for that system to work. Eventually, it will be over valued, future premiums will increase, requiring more and more capital to make the machine go, which will cause the bubble to pop. Granted, I think the bubble would take a long time to pop because of the nature of our life expectancy. But this is not a sustainable model. More importantly, it does not offer any real attainable value. It only shifts the value temporarily with a long term negative affect.
My solution would be to let policy owners sell their policies back to the life insurance companies themselves. If life insurance companies competed for old policies the same way new investors do, many people would take a low-ball offer from them over another source any day - solving our problem. What do you think?
Let's get two things straight first:
1. I'm sort of a fan of life settlements. It gives policyholders an extra way to access the value they have in the policy and the value of their own insurability without relying solely on the insurance company. Life settlements are sort of a creative way to stick it to the man. More power to the individuals who can sell their policies for more than the cash value.
2. The slippery slope argument is one of the great argumentative fallacies - meaning while many people might believe it or use it in an argument, it is not always true.
However, in this case, the slippery slope seems to becoming a reality.
Life settlements can be very good things for policy owners, but they should be careful who they sell their policies to. The best choices are usually institutional investors like pension funds and so on. So what would happen if those investors wanted to bundle them and sell them off to other investors?
Well, they would have to create the groups or tranches of the different policies, buy bonds as a way of supporting the value or lowering the risk to those investors and so on. If this sounds like what happened in the mortgage industry a couple years back, you would be correct.
Not only are there questionable moral problems with this type of strategy and the real value of securitization is questionable, but the long term affect for you and me is higher life insurance premiums for everyone down the road. See, when life insurance companies issue policies, they expect a certain number of them will be canceled before the policy owner dies. But if more life policy owners held on to the policies, the life insurance companies would have to set aside more money to pay off those future claims. That extra money comes from the future life insurance premiums you and I pay.
There just isn't a way for that system to work. Eventually, it will be over valued, future premiums will increase, requiring more and more capital to make the machine go, which will cause the bubble to pop. Granted, I think the bubble would take a long time to pop because of the nature of our life expectancy. But this is not a sustainable model. More importantly, it does not offer any real attainable value. It only shifts the value temporarily with a long term negative affect.
My solution would be to let policy owners sell their policies back to the life insurance companies themselves. If life insurance companies competed for old policies the same way new investors do, many people would take a low-ball offer from them over another source any day - solving our problem. What do you think?
Tuesday, September 1, 2009
Life insurance advice gone wrong
I was cruising the headlines recently to see which reporters are most in need of a little life insurance education and came by this fine piece written for the Sun Sentinel. The worst part of it is that the author has an email address on Kiplinger's domain, ugh. I could write her a long email, but that wouldn't be as much fun as parading it around in public. Besides, financial writers who don't know enough about their topics is a sickness that needs to stop. I write as a public service. You're welcome.
The first problem I see with this life insurance article is that the author splits it up into divisions by product categories. This is a pretty basic way to do it that enhances misconceptions about the "types of life insurance". Most life insurance experts will be able to tell you that all types of life insurance are variations on each other, share many similarities, and often you can use one type of life insurance to solve the problems that another is designed to do better. Life insurance is not a world of neat categories. It is all arbitrary nonsense that only serves to confuse the public about the reality.
This is a nit-pick, but when she says, "tax-free death benefits," she ought to say "potentially tax-free death benefits". For a little more on taxes and life insurance, I suggest the author read up a bit. It is usually tax free, but not always.
I'll skip a few more picky points to get to the juice. "Cash-value policies, such as whole and universal life, don't expire." Wrong. They do expire. Even old-school insurance agents will tell you there is a contractual expiration period for most policies, especially whole life. A permanent life policy would certainly expire if it did not have enough value to sustain the death benefit. In fact, I have seen this particular scenario over and over.
Permanent life policies (the all encompassing term for whole life, universal life, etc) can expire for a number of reasons - even if you make the planned premium on time every month. The dividend from the company may go down or disappear. The interest rate you expected to get wasn't reality. The internal charges of mortality costs and administration may have gone up. Or any combination of these.
Another possible reason why whole life and universal life insurance can lapse is because of a bad combination of misinformation. The policy owner reads one article in their local newspaper that says these policies are great because they can't expire. Then they read another one by an against-the-grain financial muckety muck who says these policies are great because you can borrow the cash value from them. Upon calling customer service (because we all know chances are their agent has probably left the business or gone to another company), they are told the truth - that they don't really have to pay back any of the loan. Of course, the policy holder does have to pay back the loan with interest - if they want the policy to continue. But that was just a detail.
Scratch that part about reading another article. In the same Sun Sentinel article, the author speaking about life insurance loans, clearly states, "but you don't have to pay it back." If it weren't for her journalistic exemption, she would be liable for putting this bad combination of advice in print.
So in case I haven't made it abundantly clear, yes, permanent life insurance policies can expire. Making your life policy as permanent as you once thought it was after messing it up with bad advice like this can often be expensive.
The first problem I see with this life insurance article is that the author splits it up into divisions by product categories. This is a pretty basic way to do it that enhances misconceptions about the "types of life insurance". Most life insurance experts will be able to tell you that all types of life insurance are variations on each other, share many similarities, and often you can use one type of life insurance to solve the problems that another is designed to do better. Life insurance is not a world of neat categories. It is all arbitrary nonsense that only serves to confuse the public about the reality.
This is a nit-pick, but when she says, "tax-free death benefits," she ought to say "potentially tax-free death benefits". For a little more on taxes and life insurance, I suggest the author read up a bit. It is usually tax free, but not always.
I'll skip a few more picky points to get to the juice. "Cash-value policies, such as whole and universal life, don't expire." Wrong. They do expire. Even old-school insurance agents will tell you there is a contractual expiration period for most policies, especially whole life. A permanent life policy would certainly expire if it did not have enough value to sustain the death benefit. In fact, I have seen this particular scenario over and over.
Permanent life policies (the all encompassing term for whole life, universal life, etc) can expire for a number of reasons - even if you make the planned premium on time every month. The dividend from the company may go down or disappear. The interest rate you expected to get wasn't reality. The internal charges of mortality costs and administration may have gone up. Or any combination of these.
Another possible reason why whole life and universal life insurance can lapse is because of a bad combination of misinformation. The policy owner reads one article in their local newspaper that says these policies are great because they can't expire. Then they read another one by an against-the-grain financial muckety muck who says these policies are great because you can borrow the cash value from them. Upon calling customer service (because we all know chances are their agent has probably left the business or gone to another company), they are told the truth - that they don't really have to pay back any of the loan. Of course, the policy holder does have to pay back the loan with interest - if they want the policy to continue. But that was just a detail.
Scratch that part about reading another article. In the same Sun Sentinel article, the author speaking about life insurance loans, clearly states, "but you don't have to pay it back." If it weren't for her journalistic exemption, she would be liable for putting this bad combination of advice in print.
So in case I haven't made it abundantly clear, yes, permanent life insurance policies can expire. Making your life policy as permanent as you once thought it was after messing it up with bad advice like this can often be expensive.
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