Higher Interest Rates Should Be Good News For Life Insurance Carriers

We have had no shortage of blog entries in the last few years regarding the problems life insurance carriers have encountered during the historic low interest rate environment.  Blog entries citing industry executives’ gloom and doom forecasts, low interest rate winners and losers, as well as blogs on cost of insurance increases and higher carrying costs that have been caused primarily by the low rates.

TRUSTEE ALERT- Why We Started An Affiliated Trust Owned Life Insurance (TOLI) Trust Company

On November 21, 2017, ITM TwentyFirst received a South Dakota charter for an affiliated trust company, the Life Insurance Trust Company, the first trust company focused solely on life insurance trusts.  On December 22, 2017 President Trump signed into law The Tax Cuts and Jobs Act with sweeping tax changes that included a doubling of the federal estate tax exemption amount to just over $11 million, lowering the number of estates affected annually by the federal estate tax from 5,000 to 1,700, less than 0.1 percent of all deaths (1).  Yet, we are extremely bullish about the prospects for our affiliated company. 

John Hancock To Raise Cost Of Insurance (COI) On Performance Universal Life Policies

In February of last year, we reported on limitations placed on inforce illustrations for John Hancock Performance universal life policies. At that time, the carrier announced a “temporary” situation, saying they were unable to provide current inforce illustrations because “regulatory standards that govern illustration practices . . . prevent us from illustrating currently payable amounts based on our current non-guaranteed elements.”

New York State Proposes “Best Interest” Standard in Sale of Life Insurance and Annuities

Last week, the New York State Department of Financial Services proposed an amendment to state insurance regulations that would, according to its December 27th press release, “adopt a “best interest” standard for those licensed to sell life insurance and annuity products.” This new amendment “would require that the product that best reflects the customer’s interest be offered ahead of what is most profitable to the seller.”

Trustee Alert: New Tax Law Changes (Simplifies) Tax Reporting On Life Settlement Sales

Back in May we wrote about the need for trustees to be aware of life settlements. A life settlement can provide a TOLI trust with more value than a policy surrender. The role of a TOLI trustee dictates that all assets are maximized – including “unwanted” life insurance policies.

The Life Insurance Dividend Season - Continued

In an earlier entry, we reported on the dividend declarations from two of the gold standard mutual insurance companies – Northwestern Mutual and Massachusetts Mutual. Both are very highly rated carriers, and have paid dividends each year for well over 100 years. However, like most insurance companies these days, both are feeling the effects of the historic low interest rate environment, and as a result, have reported lower dividend interest rates (DIR).

The Year in Review: Trust Owned Life Insurance (TOLI) in 2017

While 2017 was another challenging year for those of us who manage life insurance portfolios, ITM TwentyFirst started the year highlighting the efficiency of life insurance in an ILIT as a preferred method of passing wealth to the next generation. In our first post of the year we cited an example of a 65-year-old couple in good health purchasing a survivorship guaranteed universal life (GUL) policy. The policy relies on a fixed annual premium paid in full and on time each year for its guarantees, but for those with the cash flow to fund the asset, the return on the death benefit is very attractive.   As seen in the spreadsheet to the right, if the death benefit was paid twenty years out (age 85) the internal rate of return (IRR) on the death benefit would be 11.36%. If it was paid 30 years out (age 95) the IRR would be 5.36%. Even at age 100, the IRR would be over 3.6%. Remember, the policy death benefit is guaranteed (if the premium is paid in full and on time), which makes these returns even more attractive when compared to other “guaranteed” investments. Yes, life insurance can be a great way to leverage assets to the next generation, but managing the asset can be difficult and this was another trying year.

Restrictions were placed on in force illustrations for a handful of carriers, which limited our ability to review some policies. In a February post we noted that John Hancock cited “regulatory standards that govern illustration practices” for limiting the illustrations on some Performance UL policies issued between 2003 to 2010. The issue stemmed from the fact that “experience has differed from the current assumptions which are reflected in the illustrations.”  In at least one instance in 2016, restrictions on in force illustrations were a direct precursor to a cost of insurance (COI) increase.

The Start of Life Insurance Dividend Season

Earnings season for investors are the months that most corporations release their financial results.  Falling in the months of January, April, July, and October after the books are closed on the last quarters financials, they not only tell past performance, but in many instances, are a predictor of future earnings.  Bellwether stocks like Wal-Mart, Caterpillar and JP Morgan, offer an indication of the future performance of a market segment. 

TOLI Trustees Should Not Throw Away A Tax Opportunity With The Policy

We have previously written about how changes in the estate tax laws have some grantors questioning their need for a large tax-free death benefit.  We can provide many reasons why retaining a policy still makes sense, but there may be other reasons (bad policy performance, cost of insurance increase, etc.) that necessitate a policy replacement, or even surrender. The IRS allows a tax-free exchange for policies that have a tax gain (when the cash value is greater than cost basis) through a 1035 Exchange – a carrier to carrier transaction that transfers the cash value from the existing policy to a new policy. This method can also be used to move the cash value of life policy tax-free into an annuity.  (1)

New York State Issues New Regulations Regarding Cost of Insurance (COI) Increases

In November of last year we reported on a regulation floated by the New York State Department of Financial Services to “govern life insurance company practices related to increases in the premiums” of life insurance and annuity policies. The goal was to “protect New Yorkers from unjustified life insurance premium increases.”