kitces.com | Nerd's Eye View - Insurance

Will Veralytic Reform The Life Insurance Industry?

nospam@example.com (Michael Kitces) — Thu, 10 May 2012 07:06:00 -0400

Life insurance policies - permanent ones in particular - have long been difficult to accurately evaluate, due to the relative opacity of actual pricing representations comingled with performance assumptions in policy projections. To address this challenge, a company called Veralytic has developed a tool to "x-ray" through a life insurance policy illustration, evaluating and benchmarking the underlying policy expenses and their viability. In the near term, Veralytic's analytical tools may provide a way for financial planners to finally conduct effective due diligence on client proposed and existing life insurance policies. In the longer run, though, the transparency and benchmarking that Veralytic is bringing to the life insurance industry has a chance to truly reform the industry, making it clear which products and companies are truly competitive and which are not. But Veralytic cannot reach a tipping point without getting more users on board; accordingly, they've offered readers of this blog a special deal to take a test drive!
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A New Way To Pay For Long-Term Care Insurance With Favorable Tax Treatment

nospam@example.com (Michael Kitces) — Tue, 08 May 2012 07:05:00 -0400

While the tax code does allow for the tax deductibility of long-term care insurance premiums, the treatment is very limited. Only premiums up to prescribed IRS limits are allowed, and the premiums (in addition to other medical expenses) must exceed the 7.5%-of-AGI threshold to be deductible at all. However, new rules under the Pension Protection Act of 2006 - delayed to only take effect beginning in 2010 - provided a new means for tax-favored LTC payments: by completing a 1035 exchange from an existing life or annuity policy into a long-term care policy. While the 1035 exchange merely defers the gains associated with the life or annuity policy, the tax-free nature of LTC benefits effectively ensures that the taxable gain disappears entirely. As a result, clients with an existing life or annuity policy with a gain may wish to complete a 1035 exchange - or more commonly, a partial 1035 exchange each year as the LTC insurance premium is due - to gain more preferable tax treatment for funding their LTC coverage.
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Short-Fat versus Long-Thin Policies - What's The Best Choice For Long-Term Care Insurance?

nospam@example.com (Michael Kitces) — Thu, 19 Apr 2012 07:00:00 -0400

Long-term care can be extremely expensive for many clients, with costs that are potentially catastrophic to their financial well being. Accordingly, planners commonly recommend long-term care insurance to help manage the risk. Yet as long-term care insurance costs continue to rise, the insurance itself becomes increasingly difficult to afford, forcing clients to make trade-off decisions about which policy options to select, such as whether to buy a long-thin policy (long benefit duration with small daily benefits) or a short-fat policy (short benefit duration with larger daily benefits). Historically, clients who could afford to do so have leaned in the direction of long-thin policies with lifetime benefits, to address the ever-present fear of an extremely long duration health care event, even though the reality is that most claims only last a few years. More recently, though, the direction has shifted, due to everything from the rise of state partnership programs to the increasingly expensive cost of lifetime benefits. Are short-fat policies now the way to go for long-term care?

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Are Annuities Really Expensive, Or Could They Actually A Cheaper Option? (Guest Post)

nospam@example.com (Michael Kitces) — Wed, 15 Jun 2011 08:43:00 -0400

There is way too much dogma surrounding annuity commissions. The commission argument against annuities is most often posed by registered reps, or investment advisor reps who stand to gain by keeping money out of annuities. In the spirit of fairness, I compared the commissions for annuities in general against the fees that would be earned by an advisor charging an AUM fee and came to a simple conclusion: the "annuities are bad because they pay high commission" argument simply needs to be retired.

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Just How Much Do You Assume Mass Affluent Clients Will Pay For Retirement Medical Expenses?

nospam@example.com (Michael Kitces) — Mon, 02 May 2011 09:30:22 -0400

With the cost of health care just continuing to spiral higher and higher as the years go by, it becomes increasingly difficult to advise clients about how much to save to handle those future costs in retirement. On the one hand, it's crucial not to undersave, such that ongoing health care costs devastate and deplete the retirement portfolio; on the other hand, excess conservatism can be bad too, forcing clients to unnecessarily constrain their lifestyle with more saving than is necessary, or working longer and retiring later than was actually needed. So just how much do you assume your mass affluent clients will pay in projected future health care costs during retirement?
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Big Shifts Continue in the Long-Term Care Insurance Marketplace

nospam@example.com (Michael Kitces) — Sat, 13 Nov 2010 09:51:52 -0500

Citing an array of classic problems - including interest rates, morbidity, mortality, and persistency - long-term care and general insurance behemoth MetLife announced this week that it will be leaving the long-term care marketplace completely. And coming on the heels of recent announcements last month by GenWorth and John Hancock of significant premium increases on large blocks of their policies, it would seem that the long-term care insurance marketplace is in a bit of turmoil. Does this mean the industry is in trouble, or is this actually a sign of stabilization?

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Things are Heating Up with the Next Generation... of No-Load Life Insurance!

nospam@example.com (Michael Kitces) — Thu, 26 Jun 2008 15:50:30 -0400

For many years, the no-load space for life insurance products has been very limited, to a large extent because fee-based advisors were perceived as being a very weak target market by the traditional insurance companies. However, a new entrant to this marketplace is raising the stakes on the pricing and transparency of permanent life insurance, and is starting to get some attention as a result!

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Is your excess insurance capacity for sale? Should it be?

nospam@example.com (Michael Kitces) — Fri, 28 Mar 2008 16:06:59 -0400

The pitch goes something like this: "You are eligible for more insurance than you currently have, giving you "excess capacity" for insurance on your life. Why don't you sell that capacity, since you're not using it anyway, and put the extra money in your pocket to meet your own goals?" And if it wasn't against public policy, the strategy might even work!
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