Lessons From a Tycoon's $201 Million Life Insurance Policy

By Dan Caplinger 
Posted on May 3, 2014 
Article from http://www.fool.com

Earlier this year, a California tech billionaire set a new record, buying a life insurance policy with the highest death benefit ever: $201 million. The policy was so big that the advisors working with the billionaire had to split the policy between 19 different life insurance companies, so that none of them would bear too much risk from a single person's life. Given the estate planning challenges that the ultra-wealthy face, a policy that big could be a big win for the billionaire's entire family.

Of course, you probably don't need $201 million in life insurance. But most people face the same types of financial risks on a smaller scale, and therefore, having life-insurance protection often makes sense. But people often get confused about life insurance and how to make sure that you get the policy that's right for you and your needs. With that in mind, let's take a look at five lessons that you can take to heart from this billionaire's experience.

1. Buy the right amount of life insurance.

When you're buying life insurance, one key decision is how large a death benefit you want your family to get. The right death benefit will depend on the financial needs of your family, including paying off a large mortgage after your death or ensuring that your spouse and children will have enough financial resources to take care of their needs if something happens to you. Moreover, bear in mind that you can't necessarily count on getting additional coverage later, as health changes can make you uninsurable for new policies while still letting you retain policies you bought prior to an adverse health condition. Therefore, it's smart not only to consider your current needs but also to anticipate future increases in those needs.

2. Make sure you use life insurance companies you can trust.

Shopping for life insurance based on price is a natural thing to do, but in some cases, you do get what you pay for. Some insurance companies offer lower-priced policies because they're not as well capitalized as their competitors, and therefore have weaker ratings from agencies like A.M. Best for financial strength. In exchange for saving minimum amounts on your annual premiums, going with cut-rate life insurance companies can put your family at risk of not being able to collect on your policy after your death. Guaranty associations provide some measure of protection from life-insurance company insolvency, similar to what the FDIC does for bank accounts. But limits can be relatively low, and so you might not get the full coverage you'd expect.

3. Look into special life insurance strategies.

If you're rich enough to need to consider estate taxes, how you own your life insurance can make a critical difference. Owning a policy in your own name means that the proceeds will be included in your taxable estate, and therefore be subject to taxes at rates up to 40% if your total assets exceed the lifetime exemption threshold. If you own a policy through a life insurance trust, however, the proceeds won't be included in your estate, and that can make sure that more of your life insurance payout goes to your family and less goes to the IRS.

4. But be careful of investment-related life insurance products.

Insurance products have special tax advantages that are similar to what retirement accounts offer, in that investments within life insurance products grow on a tax-deferred basis until they actually pay out benefits. As a result, many advisors recommend investment-linked life insurance policies to take advantage of prospective tax savings. However, those investments can be complex, and the fees involved can add substantial annual maintenance costs to sustaining your policy. Some life-insurance investments can be valuable, but in many cases, you'll do better investing elsewhere and keeping your life insurance policy as simple as possible.

5. Revisit your life insurance needs from time to time.

Life insurance is intended to protect your family from the financial consequences of your death. But at some point, your family won't need as much protection, and at that time, it makes sense to revisit whether you really need to retain your life insurance. For instance, once your children are grown, then you won't need to worry about the expenses involved in raising them if you die. Similarly, as your retirement assets grow, your spouse might not need as much financial protection from third-party life insurance companies, instead relying on your own family savings.

Life insurance can be tricky, but that doesn't mean you should just ignore the financial risks you face. By keeping these five lessons in mind, you can make sure your insurance coverage does the job for you and your family.

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Dan Caplinger 
Posted on May 3, 2014 
Article from http://www.fool.com

Let SFC regulate investment-linked insurance policies

Enoch Yiu
PUBLISHED : Monday, 21 April, 2014, 11:41am
UPDATED : Monday, 21 April, 2014, 11:56pm
Article from http://www.scmp.com/business/money/investment-products/article/

New insurance regulator may lack expertise when it comes to investment-linked policies

Sales of ILAS tend to follow the fortunes of the stock market, suggesting that policyholders treat them as an investment product. Photo: Bobby Yip

The Hong Kong government will finally push ahead with the long-awaited establishment of an Insurance Authority next year, but the reform has not gone far enough to solve the problem of investment-linked assurance schemes (ILAS).

To protect the interest of policyholders, the ultimate solution should be to move these products under the regulation of the Securities and Futures Commission instead of the Insurance Authority.

The products, which have become popular in recent years, are a combination of a life insurance policy and an investment fund. Policyholders choose how to invest the premium among various funds.

This is different from traditional insurance policies, where the insurer decides how to invest the premium and pays dividends to the policyholders.

Investment-linked policies have the advantage of providing a higher return in a bull market run. But what goes up can come down.

When the market declines, policyholders may have their fingers burned, and there have been many complaints from policyholders that salespeople did not tell them the whole truth about the risks of the products.

Another problem is that these policies provide less insurance protection. When the policyholder dies, the amount of money left for the family may not be as high as expected.

Hong Kong's 80,000 insurance salespeople, be they insurance agents, brokers or bank staff, do not need to apply for a licence. The lack of regulation has led to mis-selling.

The setting up of the Insurance Authority will help solve this problem, as the regulator will license and regulate the salespeople and may fine those who have committed misconduct as much as HK$10 million.

However, the regulator will not have as much investment expertise as the SFC. So the government should shift the regulation of investment-linked policies to the SFC.

Statistics show investors buy investment-linked products in line with stock market movements. When the Hang Seng Index rose to a record in October 2007, their sales also reached a high of HK$60 billion, three times that of traditional insurance policies.

Then, when the markets were hit by the global financial crisis, such sales dropped in 2009 to HK$15.06 billion, or about half those of traditional insurance policies.

If investors are treating these policies like investments, the job of regulation should fall under the SFC, which has the mandate to protect investors.

enoch.yiu@scmp.com

Enoch Yiu
PUBLISHED : Monday, 21 April, 2014, 11:41am
UPDATED : Monday, 21 April, 2014, 11:56pm
Article from http://www.scmp.com/business/money/investment-products/article/

Policyholders to pay more for coverage

by Christina Chin
Published: Sunday April 20, 2014 MYT 12:00:00 AM
Updated: Sunday April 20, 2014 MYT 11:26:53 AM

PETALING JAYA: Faced with higher claims from rising medical costs, many insurance companies have increased their charges and premiums by up to 20%.

National Association of Malaysian Life Insurance Field Force and Advisers (Namlifa) deputy president Kho Chui Ing said most companies had adjusted their charges and premiums for medical, health and investment-linked policies over the last few months to cope with medical inflation.

“Some companies are offering policy upgrades and at the same time increasing premiums while others just raise the existing policy charges and premiums,” he said, adding that insurance companies only needed to issue a 30-day written notice to policyholders for the hike to take effect.

Policyholders must comply with the new rates or risk their policy lapsing.

Admitting that agents have a tough time explaining the increases, Kho said Namlifa had a duty to protect the welfare of its 12,000 members and policyholders.

“We are also policyholders and we too have to pay the same rates for the same benefits as our clients. Policyholders have to see what is causing the inflation and solve that rather than get angry with the insurance companies and agents.

“Even hawkers are raising their prices insisting it’s not by choice but a necessity as ingredients are expensive,” he said, adding that Namlifa would engage with Bank Negara to ensure a more sustainable growth for the industry.

Prudential Assurance Malaysia Berhad (PAMB) recently notified its policyholders that the PRUmajor med plans (PMM) premiums and charges would be increased effective from the individual’s policy anniversary date. PMM is a medical and hospitalisation rider that is attached to investment-linked insurance plans (known as PRUlink plans) offered by PAMB.

PAMB CEO Philip Seah said only those with a PMM plan attached to their investment-linked policies were included in the revision.

He said the percentage of increase varied from individual to individual, depending on the type of plan. Any revision was only made after taking into consideration the rising costs and frequency of people seeking treatment. This was to ensure that policyholders continued to enjoy medical coverage in the long run.

“We’ve increased the lifetime limit of all PMM plans to ensure that policyholders are able to cope with rising medical inflation,” he said, adding that medical inflation in Malaysia was currently about 10% yearly and projected to continue rising.

In December, the Government allowed a maximum 14.4% rise in private medical fees – almost half of the 30% requested by the Malaysian Medical Association (MMA).

General Insurance Association of Malaysia (PIAM) chairman Chua Seck Guan said medical and health insurance, which accounted for RM920mil of the sector’s total market share last year, was projected to grow as demand in the healthcare sector increased in line with the country’s development as a medical hub.

MMA president Datuk Dr N.K.S. Tharmaseelan said insurance companies should control wasteful expenditure by hospitals instead of increasing premiums. They should also be “eagle-eyed” when presented with hospital bills and speak up when they are overcharged.

“(Instead) they take the easy way out by arm-twisting doctors to lower their fees,” he said.

Fomca secretary-general Datuk Paul Selvaraj said insurance companies should not hold consumers to ransom because health insurance was a necessity.

“Any increase should only be on new or upgraded policies and policyholders must be given an option whether or not they want the extra benefits. If they are happy with the present coverage, insurance companies should not force them to pay more,” he said.

Christina Chin
Published: Sunday April 20, 2014 MYT 12:00:00 AM
Updated: Sunday April 20, 2014 MYT 11:26:53 AM