State John Kerry - In America, "you have a right to be (as)
stupid (as) you want to be."
(But too many Americans are abusing the privilege)
Why did our systems fail and why
will they continue to do so? From Paul Volcker
"our economics are based on “an
unjustified faith in rational expectations, market efficiencies
and the techniques of modern finance"
You must not believe everything you think
language intentionally designed to influence rather than inform is now ubiquitous in the business of sports and politics and markets
Why? Because it works.
Be careful who you call your friends. I'd rather have four quarters than one hundred pennies.
– Al Capone
There is no sense in being precise when you do not know what you are talking about.
There are decades where nothing happens; and there are weeks where decades happen.
Great spirits have always encountered violent opposition from mediocre minds
A scalable profession is good only if you are successful; they are more competitive, produce monstrous inequalities, and are far more random with huge disparities between efforts and rewards — a few can take a large share of the pie, leaving others out entirely at no fault of their own.
Bernd Irlenbusch (Corporate Development and Business Ethics - University of Cologne) ; Marie Claire Villeval (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - CNRS, Université de Lyon)
This review surveys recent research developed in behavioral economics on the determinants of unethical behavior. Most recent progress has been made in three directions: the understanding of the importance of moral norms in individual decision-making, the conflicting role of opportunities provided by asymmetries of information and social preferences, and the crucial effect of rules, occupational norms and incentive schemes in the diffusion of dishonesty. The connection between economics and psychology is the most vivid on the first dimension.
The disinvestment decision is of importance in many contexts: if funds are tied up for too long in a poorly-performing project, then opportunities for re-investment may be missed. Optimal disinvestment theory is a component of real options theory, but is relatively ignored by experimentalists. Two recent papers conclude that decision-makers stay in projects longer than that prescribed by the optimal behaviour of a risk-neutral agent. This departure is explained through riskaversion, but without a formal hypothesis under test. We report here on an experiment which explains the behaviour of the subjects through an estimationof risk-aversion. We also explore an alternative hypothesis – that subjects are myopic. Our results show that few subjects appear to be risk-neutral, many seem to be risk-averse but few are myopic.
, if you invest $10 in the S&P 500 and $10 in bonds, the “portfolio risk” is dominated by equities because stocks are riskier and more volatile than bonds. If you invest $5 in the S&P and $15 in bonds, the portfolio is much more balanced and less prone to sharp movements, but the returns will be much lower. If you invest $5 in equities and $15 in bonds but add a bit of leverage to the fixed income component the portfolio should have the same return as a stock-dominated one — but crucially with less risk.
In theory, when stock markets are climbing the extra leverage will ensure that the bond portfolio does not weigh on returns, and when markets are jittery the leveraged bond bets will counteract a stock slide. When the volatility of one asset class shoots up, some managers adjust the allocations in response. Inflation-linked bonds and commodity contracts are sometimes added as protection against inflation and to further diversity the portfolio.
Seeun Jung (ESSEC Business School - Essec Business School, PSE - Paris-Jourdan Sciences Economiques - CNRS - Institut national de la recherche agronomique (INRA) - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics) ; Radu Vranceanu (Economics Department - Essec Business School)
This paper reports results from a real-eort experiment in which men and women are paired to form a two-member team and asked to execute a real-effort task. Each participant receives an equal share of the team's output. Workers who perform better than their partner can punish him/her by imposing a fine. We manipulate the teams' gender composition (man-man, man-woman, and woman-woman) to analyze whether an individual's performance and sanctioning behavior depends on his/her gender and the gender interaction within the team. The data show that, on average, men perform slightly better than women. A man's performance will deteriorate when paired with a woman, while a woman's performance will improve when paired with a woman. When underperforming, women are sanctioned more often and more heavily than men; if sanctioned, men tend to improve their performance, while women's performance does not change.
Orders are being executed at lightning speeds in huge volumes. But there is another, often overlooked implication: these machines are being programmed to link numerous market segments together into trading strategies. So when computer programs cannot buy or sell assets in one segment of the market, they will rush into another, hunting for liquidity.
Since their algorithms are often similar (or created by computer scientists with the same training) this pattern tends to create a “herding” effect. If a circuit breaks in one market segment, it can ripple across the system faster than the human mind can process. This is a world prone to computer stampedes.
General health has improved worldwide, thanks to significant progress against infectious diseases such as HIV/AIDS and malaria in the past decade and gains in fighting maternal and child illnesses.
But healthy life expectancy has not increased as much, so people are living more years with illness and disability
global life expectancy at birth for both sexes rose by 6.2 years -- from 65.3 in 1990 to 71.5 in 2013. Healthy life expectancy at birth rose by 5.4 years -- from 56.9 in 1990 to 62.3 in 2013.
Healthy life expectancy takes into account both mortality and the impact of non-fatal conditions and chronic illnesses like heart and lung diseases, diabetes and serious injuries. Those detract from quality of life and impose heavy cost and resources burdens
schools unwilling to adapt- perfect article by FT
Any serious reflection about change in business schools must acknowledge that they are embedded in a large, complex ecosystem where forces of inertia have, so far, outweighed forces of deep change. To break from the pack, to stop running in place, exposes bold innovators to the risk of losing legitimacy and revenue. Breaking from the pack requires vision, courage and a huge appetite for risk, a troika that is extremely rare.
Health researchers say there are now nearly 47 million people living with dementia globally, up from 35 million in 2009. They warned that without a medical breakthrough, numbers will likely double every 20 years.
In a report issued on Tuesday, researchers from Alzheimer’s Disease International say about 58 percent of all people with dementia live in developing countries and that by 2050, nearly half of all those with the disease will live in Asia.The high cost of the disease will challenge health systems to deal with the predicted future increase of cases. The costs are estimated at US$ 604 billion per year at present and are set to increase even more quickly than the prevalence.
|China cuts benchmark interest rates|
the official statement made by the People's Bank of
China on Tuesday:
The benchmark one year lending rate has been cut 25 bps to 4.6 per cent with immediate effect.
The benchmark one year savings rate has been cut by 25bps to 1.75 per cent with immediate effect.
The reserve requirement ratio has been dropped by 50bps with effect from September 6.
People have an amazing ability to discount risks that threaten their livelihood. That's dangerous because people who should be the most experienced experts in a field may be the least able to objectively assess their industry.
EFM- the elderly in particular
Risk has a lot to do with culture. Europeans and Canadians are generally wary of the stock market. For Americans, it's a pastime. The French prefer raw milk. Americans are warned against it. Canadians are banned from it. Europeans are terrified of nuclear exposure. Americans couldn't care less. Walk through an international airport and you'll see one person wearing a face mask to prevent the spread of illness and another letting their kid crawl on the floor. Everyone wants to believe they're thinking objectively, but most of the time you're just reflecting the cultural norms of where you were born.
EFM- the one particular risk here is affinity scams. This represents investing withh like people- race, religion, country of origin, etc.
Success is an underrated risk. Jason Zweig once wrote: "Being right is the enemy of staying right -- partly because it makes you overconfident, even more importantly because it leads you to forget the way the world works."
Risk's greatest fuels are debt, overconfidence, impatience, a lack of options, and government subsidies.
EFM- The government via schools et al does not provide anything (or very little) to consumers to help them in real life investing. The industry does not provide anything to the reps. The licensing preparation via both entities does not require inight to real life investing or insuance
Its greatest enemies are humility, room for error, and government subsidies.
EFM- It should be knowledge but that ain't gonna happen
Nothing in the world can give a damn less than risk. Risk doesn't care about your political views or your morals. It doesn't care what your view of the market is, or what you were taught in school. It's an indiscriminate assassin and a master at humbling ideologies.
EFM- but you can limit risk if you want to. But that is not offered as an option by the industry. They make a lot more money letting you suffer losses so big they have destroyed families and businesses.
Risk masquerades as your best friend. It tells you you're doing the right thing and making the right decisions before turning its back on you and making your life miserable.
EFM- Sure, if you sit there like a lump and do nothing to curtail losses.
You can create risk by trying too hard to eliminate it. Dutch psychologist Adriaan de Groot showed that amateur chess players drive themselves crazy trying to calculate the perfect move, while chess masters look for a pretty good move within a broader strategy. In a lot of fields, the smartest people don't have the most sophisticated models. They have the wisest rules of thumb.
Risk can be handled without software algorithms or gurus.
Risk feeds off neglect and belittlement. The more you point and laugh at it, the stronger and more dangerous it becomes.
EFM- got to be diligent and unemotional.
We're not very good at communicating risk. No one wants to hear that there's a 20% chance of a recession in the next year; they want a buy or sell recommendation. No one wants to hear about the prevalence of false positives; they want to know if they have cancer or not. Communicating in certainties for something that works in probabilities makes us dumber.
EFM- Surprise- risk with almost any allocation can be numerically identified. Consumers should know what may befall them BEFORE the blade falls.
The more familiar we are with something, the less risky it feels. But the opposite is often true. Car accidents rarely make the news, but kill 32,000 Americans per year. Terrorism, fracking, shark attacks, and swine flu kill relatively few, but dominate headlines at the slightest event.
EFM- True- consumers have little objective intellect
The more the media is talking about a risk, the smaller it probably is. If something's making headlines, people are already preparing for how to deal with it and anticipating its downsides, which goes a long way in making something less risky
EFM- Well, risk has been identified .since 2008 but I do concede consumers have paid little attention as the market rose and rose. On the other hand, FT, Economist, WSJ and more have stayed hard on the issues since they were getting worse.
There are two parts of risk: How severe it is, and how long it lasts. In investing, there's too much emphasis on the former and not enough on the latter. A 30% crash that rebounds in a year or two probably isn't a big deal. But above-average fees left unchecked for decades can be devastating.
EFM- This strikes as borderline insults. Note that instead of 44% and 57% Morningstar used 30%. Instead of 13 years of no return, they used one or two years.
Learn how to manage risk, taking the right amount of it and handling it when it wants to fight you, and it can be your best friend. It is the seed of opportunity, and necessary to get ahead in almost every field.
EFM- you need to do risk off/risk on and the appropriate times. Their commentary sounds like a nice homily that can such in real life.
Do yourself a favor and learn about risk vicariously through others. Other people have screwed everything up that there is to screw up. Learn from their mistakes rather than figuring it out the hard way.
EFM- DCAD and DCA Up
We develop country-level governance indices using governance risk factors and examine whether country-level governance can predict stock market returns. We find that country-level governance predicts stock market returns only in countries where governance quality is poor. For countries with well-developed governance, there is no evidence that governance predicts returns. Our findings also confirm that investors in countries with weak governance can utilise information contained in country-level governance indicators to devise profitable portfolio strategies.
This paper studies the efficiency of a sample of mutual funds that invest in the United States. Estimating a production function using Bayesian stochastic frontier analysis, we find evidence that the underlying technology presents economies of scale both at the fund and firm level. We also find evidence that informational asymmetries affect efficiency. Funds that invest domestically are likely to be more efficient than foreign funds investing in the US. Moreover, an inspection at the distribution process shows that funds sold directly to investors rather than by financial intermediaries are more efficient. The level of inefficiency persistence is overall high.Persistency of inefficiency is particularly higher for ethical funds, funds oriented to large firm sand lower in funds oriented to growth firms. The analysis done in two separate periods also shows that the efficiency of the funds changes. In particular, funds oriented to non-ethical, small and growth firms b ecome more efficient over the period. Finally, funds' efficiency decreases during global financial crisis, but at the end of the sample period some funds recover and their efficiency levels are higher than those registered before the financial crisis. Our results have implications for investors' decisions in mutual funds.
Dr. Berns and his colleagues asked people to pick between a sure win and a series of gambles. A functional magnetic resonance imaging (fMRI) scanner tracked the changes in blood flow in their brains as they made their choices. In half of the instances, an “expert economist” with impressive credentials suggested which option was better; otherwise, people made up their own minds.
When the “investors” had to think for themselves, two networks in their brains activated: One that determines the payoff from a sure win, and one that that calculates the likely gain from a gamble. These are the areas of our brain that normally make decisions by triangulating the value of what you have, the fear of loss and the hope of gain.
But when the “investors” listened to the expert’s advice, these activations faded – a result that Dr. Berns calls “off-loading,” or letting the expert’s brain do the work that yours would otherwise have done. Strikingly, these valuation circuits stayed quiet even when the expert’s advice was bad.
asked Dr. Berns: Isn’t “off-loading” a pretty incendiary
metaphor for describing these findings? “I wasn’t being that
metaphorical; I was being fairly literal about it,” he said.
When you make financial decisions on your own, your brain’s
regions for evaluating risk and reward are active. When you
take advice from an expert, however, two things happen:
Activation tails off in those areas, and your choices move
toward whatever the expert recommends. Thus, concludes Dr.
Berns, “Your decisions are being driven by the advice, not by
your own valuation structures,”
in the period between 1995 and 2010, productivity in the US economy grew on average by 2.6 per cent each year.
That meant the potential trend growth rate in the US economy, or the speed at which the economy could grow sustainably ignoring capacity issues, was roughly 3 per cent. (The trend rate is usually calculated by adding population growth and productivity increases.) However, since 2010, overall average productivity increases have tumbled to just 0.65 per cent; indeed, over the past year private sector labour productivity, excluding farming, has grown by a paltry 0.3 per cent according to the quarterly data series.
Then there is another, even more intriguing related issue: a technology time lag. As Mr Blinder notes, if you look at the productivity figures in a wider context, there are two other notable points. First, America is not the only country where productivity has tumbled; this is seen in places such as the UK too. Secondly, this is not the first time such a swing has occurred: back in the 1970s and 1980s there was another slump after an earlier boom. This might be just a coincidence. But what is striking about the 1970s was that it was also a period of dramatic technological change; the onset of the computing era.
And while logic might suggest that innovation should boost productivity, the problem with new technology, as economists such as Andrew McAfee of MIT point out, is that it takes time for companies to harness. So, just as it took a couple of decades before computers raised US productivity trends, it might take time before the economy is truly boosted by today’s smartphones.
it is weighted by market value, with the largest companies receiving the largest weighting. No active manager would ever do this. Instead, they would muster their best ideas, and buy roughly equal amounts of each; there would be no point in weighting their holdings according to the size of the company.
S&P has long published an equal-weighted 500 index, in which each stock is 0.2 per cent of the index. This is probably a more valid benchmark than the S&P 500 itself — and as the chart shows, it is much harder to beat. The mere act of regular rebalancing needed to keep it equal-weighted means taking profits in gainers and buying stocks that have recently fallen — which is good. It also overweights smaller and cheaper stocks, which do well in the long run.
At year-end 2014, 401(k) plan assets totaled $4.6 trillion, with nearly 38% invested in equity mutual funds.
In 2014, the average expense ratio for equity mutual funds offered in the United States was 1.33%, but 401(k) plan participants who invested in equity mutual funds paid less than half that amount—0.54%, on average, according to data from the Investment Company Institute (ICI).
According to the report, “The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2014,” the expense ratios that 401(k) plan participants incur for investing in mutual funds have declined substantially since 2000. Back then, 401(k) plan participants incurred an average expense ratio of 0.77% for investing in equity funds. The 2014 figure of 0.54% is a 30% decline since 2000.
The expenses that 401(k) plan participants incurred for investing in hybrid and bond funds also fell from 2000 to 2014, by 24% and 28%, respectively.
From 2013 to 2014, the average expense ratio that 401(k) plan participants incurred for investing in equity mutual funds fell from 0.58% to 0.54%. For investing in hybrid funds, the average expense ratio fell from 0.57% to 0.55, and for investing in bond mutual funds, it fell from 0.48% to 0.43%.
EFM- Bond prices are still too expensive- especially since overall values might be zero for some time. Equity and hybrid funds are acceptable at this expense ratio.
For the year ended December 31, 2014 Edward Jones received $153.2 million from mutual funds and 529 product partners and $55.9 million from insurance product partners. Their net income was $770 million. So this represents 27% of their Net Income.
So now do you understand why Brokers and Registered Reps won't let clients go to cash? This income is extremely important to their bottom line and they will not receive this income if they go to cash.
Do you understand the same thing goes for 12b-1 fees that are paid from Mutual Funds?
Besides currently being able to do transactions (buying and selling stocks and bonds) for commissions, this is a high revenue producer for big brokerage firms.
"There are no shortcuts to anyplace worth going."
· It can tell you what the average student loan debt is at schools you’re considering, what sort of salary might make the debt affordable and how different repayment options could significantly affect what you ultimately spend.
Minimum Required Distribution Calculator
Contribution Plan Study Looks at How Much Participants Rely on
the Guidance of Their Employers
Technological advance has always enhanced household as well as business efficiency. Our domestic productivity has benefited from washing machines, vacuum cleaners and central heating, and before that from electric light and automobiles. But at least these things were partially accounted for: from an economic perspective a car is a faster and cheaper horse. Statisticians in principle incorporated these improvements in the efficiency of consumer goods into their measurement of productivity, though in practice they did not try very hard.
But the technological advances of the past decade seem to have increased the efficiency of households, rather than the efficiency of businesses, to an unusual extent. An ereader in the pocket replaces a roomful of books, and all the world’s music is streamed to my computer. We look at aggregate statistics and worry about the slowdown in growth and productivity. But the evidence of our eyes seems to tell a different story.
from "The 2013 Risks and Process of Retirement Survey," done by the Society of Actuaries.
· Of the pre-retirees surveyed, 38% expected to work until at least 65. Another 15% expected not to retire at all. Yet 54% of the retirees surveyed had retired before age 60.
· Many pre-retirees—59%—planned to stop working gradually. Yet only 22% of retirees had done so. While 35% of pre-retirees intended to keep working part-time, only 10% of retirees actually did.
by Brian I. Gordon, CLTC; and Murray A. Gordon
Long-term care insurance (LTCI) is a young product by industry standards. As such, it continues to grow and evolve at a rapid pace.
The first LTCI policies appeared just 41 years ago, in 1974. Compare that to life insurance, which has been around since the early 1700s. The LTCI industry is still learning and changing accordingly. So where is the product and industry headed in 2015? Here is our take on the trends to watch.
Fifteen years ago, typical LTCI buyers were in their 70s. Today, they’re in their mid-50s, according to the June 2012 Long-Term Care Insurance ASPE Research Brief from the U.S. Department of Health and Human Services. There are various theories about this. Anecdotally speaking, many of the younger buyers we talk to have witnessed family members struggling with long-term care issues and they understand the need on a very personal level.
Of course, buying younger has significant advantages, including: premiums are lower; younger people tend to be healthier, so they’re more likely eligible; and buying sooner rather than later keeps acquisition costs down.
Rather than purchase a LTCI policy that will cover 100 percent of potential liability, we’re finding that more clients are self-insuring 25 to 50 percent, often with their planner’s guidance.
They do this by designating part of their assets—Social Security, 401(k)s, savings, etc.—as their long-term care fund. As a result, they’re purchasing policies with lower benefit amounts or shorter durations, so policies are more affordable and better integrated with their overall financial plan.
In 2014, carriers paid $7.85 billion in LTCI claims, a 5 percent increase over 2013, according to February 2015 data from the American Association for Long-Term Care Insurance (AALTCI). That brings LTCI claim utilization to an all-time high.
In addition, the cost of care continues to increase. According to Genworth’s 2015 Cost of Care Survey, all forms of long-term care—home care, assisted living, adult day care, and nursing facility care—have risen steadily over the past 12 years.
Furthermore, utilization is changing. Forty-one years ago, facility care was the only option. Today, alternatives such as home care and assisted living are increasingly popular. In fact, 70 percent of claims opened in 2012 started as home care or assisted living, as opposed to 30 percent for skilled care, according to the AALTCI 2014 Long-Term Care Insurance Sourcebook.
When carriers developed the first LTCI products, they based their pricing on incorrect actuarial assumptions. Their benefit utilization projections were low, resulting in higher-than-anticipated claims. That’s why most carriers raised their rates over the last few years, some by 75 to 100 percent.
Now rates are closer to where they should be. In addition, the National Association of Insurance Commissioners (NAIC) recently adopted an amendment designed to protect consumers. States are developing procedures for limiting LTCI rate increases. So although rate increases will be inevitable, they will be more manageable.
With more claims experience under their belts, LTCI carriers continue to refine their underwriting methodologies. Over the past five years, applicants with health conditions have found it increasingly harder to qualify.
At least one carrier, Genworth, now requires paramedical exams. That same company has updated its underwriting classifications to include family health history, focusing on early-onset coronary artery disease and dementia.
Utilization is influencing rating methods, too. For years, the industry has known that women generate about 65 to 70 percent of claims (see the 2014 Long-Term Care Insurance Sourcebook for more on this). Two years ago, Genworth introduced gender-based pricing, and most of the market quickly followed suit.
Although asset-based plans are on the rise, traditional LTCI carriers are investing in product development. Some of the most intriguing innovations revolve around tweaking the policy elimination period.
Instead of measuring the elimination period in months, one carrier is reputedly developing a dollar deductible, ranging from $100,000 to $250,000. Others are poised to extend the elimination period, which currently maxes out at one year, to longer durations of two, three, and four years. Such initiatives will help lower premiums and may also be underwritten differently.
Since we’ve been receiving requests for longer elimination periods from financial planners and consumers for some time, we have every reason to believe these innovations will be well received in the market.
While asset-based plans have been around for more than two decades, they’ve caught fire in the last five years. According to industry estimates, sales of asset-based plans are outperforming traditional LTCI plans. Why? Because compared to traditional LTCI plans, asset-based plans can: offer guaranteed premiums (no increases); offer greater flexibility in premium payment schedules; and guarantee that if LTCI benefits aren’t used, the insured’s beneficiary will receive them in the form of a life insurance or annuity benefit.
Several life insurance carriers have recently introduced their first asset-based life/LTCI products, and more are considering it. With asset-based plans, it’s easier to calculate risk than with traditional LTCI plans, which adds to their appeal.
To those of us in the LTCI industry, this is very exciting news. For more than two decades, we have watched carriers exit our market. For the first time in years, consumer’s carrier choice appears to be expanding. This is a win-win for everyone.
In summary, LTCI has changed dramatically over the last 41 years, and there are more changes ahead. But one thing that hasn’t changed is the need for LTC planning.
People are living longer, resulting in a greater likelihood of needing care. Fewer family members can care for loved ones at home. An unplanned long-term care event can decimate the most meticulous financial and retirement plans while placing enormous stress on families. Although not everyone needs long-term care insurance, they do need a long-term care plan.
Brian I. Gordon, CLTC, is president of MAGA Ltd. (magaltc.com), one of the nation’s original long-term care planning specialists.
Murray A. Gordon is CEO of MAGA Ltd. He founded the firm in 1975. Today, MAGA serves financial advisers and consumers, offering long-term care planning solutions, including asset-based and traditional LTCI products.
Kerry Peabody, CLTC
Hybrid life insurance/long-term care policies may be an excellent answer to your client’s long-term care problem, but you must closely examine how they work. Understand how the protection hybrids offer compares to that provided by traditional long-term care insurance, because despite the common accolades of hybrids (for example, stable premiums and ease of underwriting), there may be reasons to stick with traditional LTCI.
Here are some issues to address when considering a hybrid plan:
Are Benefits Triggered?
Usually, the triggers for hybrid plans are quite similar to the triggers for traditional LTCI, including help with activities of daily living or supervision due to a cognitive impairment. But some hybrid plans require the need to be deemed permanent. Many conditions leading to long-term care are not permanent, so this wording could become problematic for certain clients at claim time.
Are Benefits Paid?
Many current hybrids do not have a defined long-term care benefit. Instead, they use a “chronic illness accelerated benefit” approach. This means the client can request a lump sum payment or monthly payments, providing some flexibility. Although there’s usually no up-front charge for this type of rider, there is an actuarial charge against the benefit at the time of the acceleration that can be significant. Here’s an example:
At age 80, the client needs long-term care; he requests a $30,000 acceleration to help cover those costs. He receives a $30,000 benefit payment, but this reduces his remaining death benefit from $250,000 to $206,099—a charge of $43,901. This is the “price” he’s paid for the rider.
Also, some policies require that a minimum death benefit be retained. In this example, the client must keep at least $50,000 of death benefit active in the policy. So although he purchased a $250,000 life policy, he will be able to receive around $130,000 for long-term care over the life of the policy after the minimum death benefit requirement and actuarial charges are taken into account.
With some exceptions, a life/long-term care hybrid typically does not have an inflation-protection rider. If a client buys a $200,000 universal life policy with a 2 percent long-term care rider, it would provide $4,000 a month for long-term care. In 20 years, the benefit would still be $4,000 a month. There is no benefit growth. Of course, if the client buys a $2 million death benefit, they’ll have $40,000 per month available for long-term care costs. Either accept the fact that the LTC benefit will be diluted as time goes on, or buy a much larger life policy from the start.
Care Partnership Eligibility
The Long-Term Care Partnership Program allows clients to keep more of their countable assets if they need to apply for Medicaid. A client with a $200,000 partnership-eligible policy would be allowed to keep an additional $200,000 of their own assets, above and beyond the normal Medicaid asset limits. Hybrid life policies do not qualify for the Partnership program.
a Need Underfunded?
Don’t try to do two things at once. If a client has a legitimate need for the death benefit, but they rely on a hybrid policy to also fund potential long-term care costs, they could be leaving the need for the death benefit (spousal support, special needs trust, estate taxes, etc.) underfunded.
Benefits in Flux
A client typically will not get an up-front deduction for life insurance premiums, but they may for traditional LTCI, and any benefits paid by a tax-qualified LTCI policy will be non-taxable. The tax handling of many life/long-term care hybrids still has a great deal of ambiguity.
From a true long-term care protection standpoint, traditional LTCI can provide vastly better protection. But traditional LTCI comes with its own risks, including “use it or lose it” and the potential for rate increases in the future. However, clients with these concerns should keep in mind that pricing assumptions have changed significantly on traditional LTCI policies in the past decade. As a result, drastic rate increases are far less likely on today’s plans.
Life/long-term care hybrids have some advantages, and they may hold an important spot in a client’s comprehensive financial plan. Individual client needs and the impact various products will have at the time of claim need to be thoroughly considered. Don’t simply assume that one product is as good as the other. Do a thorough review of client needs and concerns, and educate them about the impact of the different long-term care products
eurozone The French
economy is stagnating and growth
is below expectations in Germany, Italy and the
Netherlands. Finland contracted for a fourth consecutive
EFM- dicey economics with The FED increasing interest rates and China- who knows what may happen
8/16: Random allocation