Jane Bryant Quinn wrote an article in the June 22, 2008 Washington Post that was a pretty fair summary of the benefits and caveats associated with an insured’s contemplating a life settlement of his life insurance policy. With a life settlement, you sell your policy to a third party who pays the premiums while you are alive. You get cash up front and the buyer collects the proceeds (the death benefit) when you die.

I would add one comment to her advice that “a life settlement makes sense if you truly have no need for any more insurance—no beneficiary who could use the money, no charity you want to give the policy to, no business purpose, no estate taxes to fund.”

While I have yet to meet a beneficiary who could not use the money, I think there are some basic economic issues to be considered as well. If someone wants to get liquid, he or she should probably look to liquidating other assets before liquidating a life insurance policy. The life insurance death benefit is generally free of ordinary income tax, capital gains tax, gift tax and, possibly, federal estate tax. There are no fees or commissions to be paid when it is liquidated, thereby pretty much assuring that more dollars will be delivered to heirs from the leveraging of the premium payments than any reinvestment of life settlement proceeds could likely produce. In most states, a life insurance policy is creditor proof as well.

So, Jane, thanks for a good article. Life insurance, as privileged property, just makes your argument for keeping it stronger!

You can say what you want about the federal government. But when they make “official” pronouncements, we Americans tend to pay attention. When Homeland Security tells us that the National Threat Level has been raised to High from Elevated, it’s time to pay attention. When the Centers for Disease Control recommends a vaccination for our children, it’s time to pay attention again.

So when the Social Security Administration recently made some word changes to the annual Social Security Statement that gets mailed to all Americans over the age of 25, I immediately perked up. I don’t know about you, but I’m always very interested in reviewing this document when it lands in my mailbox. First, I like seeing my historical earnings record laid out nicely and neatly. Second, I’m always curious to see my projected retirement benefits and how they’ll differ depending on the age at which I retire. And lastly, the personal finance geek that I am, I like to read the feds advice about how I’m supposed to plan for my financial future.

With their severely strained budgets, the feds clearly have a major interest in Americans taking many financial matters into their own hands. So while they tout the importance of Social Security retirement benefits, they note: “You also will need other savings, investments, pensions or retirement accounts to make sure you have enough money to live comfortably when you retire.” Simple yet sound advice.

So what do the feds have to say about private insurance? Sadly, not much. In fact, the all-important front page of the four-page statement doesn’t mention private insurance. The word change that excited some people in the insurance industry is this small addition to the back page of the statement: “Medicare does not pay for long-term care, so you may want to consider options for private insurance.” Three cheers for the feds. With millions of seniors confused and disappointed because they think Medicare will pay for long-term care expenses (it doesn’t) and the Medicaid budget crippled by the high cost of paying for long-term care services for low-income Americans, the feds have finally caved in and given us 18 words on the back page of the annual SSA statement.

I know. I’m being a little tough on the feds. I’ll admit it. I used to work in government and it’s not easy being a civil servant. So rather than criticize, let me conclude by dispensing some unsolicited advice. If the feds really want to help Americans plan for a secure financial future, they should start devoting more ink to private insurance. Social Security disability benefits will NOT be available to most Americans if they become disabled and are unable to work. Tell them that and urge them to look to their employers or a local insurance professional for help securing private protection. Similarly, Social Security death benefits will NOT be nearly enough to stabilize a family’s finances in the event of a premature death. Tell them that and urge them to explore their private insurance options.

Achieving a secure financial future requires more that just saving and investing. The feds know it and should start saying more about it in their official pronouncements.

This was the headline from the May 19, 2008 issue of USA Today. Their analysis found that the liability for everyone eligible for Social Security, Medicaid and other government programs will total $57.3 trillion dollars or almost $500,000 per household. Add in state and local government obligations and that number becomes $61.7 trillion, more than four times what Americans owe in personal debt including mortgages.

How are we going to pay for this? Will these programs still be available as Baby Boomers reach their retirement years? There are 79 million Baby Boomers, the oldest reaching age 62 this year. For this first group of Boomers, retirement is age 66. What will be left, if anything, when the last of the Boomers reach retirement, and what of the generations behind them? Read the rest of this entry »

With the high price of gasoline, it came as no surprise to see who is being hurt in a very big way—the companies that make gas-guzzling recreational vehicles. The Wall Street Journal reported that Coachman Industries and Fleetwood Enterprises are experiencing slumping sales in large part because of the $4 gallon of gas, and have been forced to take what the newspaper called “drastic” measures to ease the strain.

Coachman’s decision caught the Insurance Word Blog’s attention. To remedy its cash shortage caused by a 40-percent decline in sales over three years, Coachman borrowed against the cash value of the life insurance policies it holds on its highly compensated employees and retirees. Read the rest of this entry »

Not everyone who makes a lot of money is good with money. Take the case of Ed McMahon, the loveable sidekick to Johnny Carson for three decades, the pitchman for everything from Budweiser to American Family Publishing sweepstakes, and the occasional big screen actor. Over his career, McMahon earned millions on late night TV and in commercials, but then last night, he was on “Larry King Live,” with his wife, telling America that he had no money and was likely going to lose his $6 million Beverly Hills house to foreclosure. Read the rest of this entry »