MOODY'S REVIEW
AUGUST 2007
COMMENTARY ON ECONOMIC AND PLANNING ISSUES
ERROLD F. MOODY JR.
MASTER OF SCIENCE IN FINANCIAL PLANNING
LIFE AND DISABILITY INSURANCE ANALYST 0626414
REGISTERED INVESTMENT ADVISER
WWW.EFMOODY.COM
LTC (AARP) While 60 percent of those surveyed claimed to be "somewhat familiar" with the long-term care services currently available, fewer than one in ten (8 percent) could reasonably estimate the actual costs of nursing home care. Most underestimated the cost, with some respondents guessing that such care would cost $500 or $1,000 a month. A single room in a nursing home in the U.S. costs an average $6,258 a month, or $75,000 a year.
In addition, 59 percent of those surveyed incorrectly believe Medicare will cover nursing home care beyond three months for age-related or chronic conditions, and 52 percent incorrectly believe Medicare covers assisted living. (Unbelievable)
Interestingly, almost 30 percent of respondents reported that they have purchased long-term care insurance. In fact, industry experts believe that only about 10 percent of Americans who are 55 and older have private long-term care insurance coverage.
People who said they had a personal experience with a loved one needing long-term care did not know any more about long-term care costs that those who had no experience.
I AM NOT GETTING ANY: (AARP) As of 2004, only about 19% of boomers had received any inheritance. Of those, the median amount received was $49,000. This is not good news for those boomers who are counting on an inheritance to plug holes in their retirement savings. Further a Boston College study found that 43% of workers may not be able to maintain their standard of living in retirement. What about the trillions of dollars in wealth that boomers were supposed to receive? Experts have estimated that boomers are expected to receive $7 trillion to $10 trillion, but the primary beneficiaries will be families who are already well off. The perfect solution? Work during retirement.
I WON'T BE ASTONISHED: Starting this year, a new accounting rule (GASB 45) will require that states publicly disclose the cost of health care benefits promised to teachers, police officers and other public sector workers who are retired or will retire in decades to come. Standard & Poor's says the numbers will be scary and the states will have to find enough to money to cover the liabilities or risk hurting their credit rating. The total state and local governments may face in unfunded liabilities for retiree health care benefits will be at least $500 billion. That figure exceeds the estimated $300 billion that states will owe in funding retiree pensions. "The size of this liability [for retiree health benefits] may astonish the public and most government officials."
FAR TOO MANY AND FAR TOO DIFFICULT- Morningstar counts 349 new mutual funds this year, bringing the total number of funds it tracks to 6,858. If you count each separate share class as an individual fund, you have an astonishing 22,974 funds from which to choose. FAR TOO MANY!!!!!!!!!
HEDGE FUNDS: many hedge funds were surprisingly persistent in their performance from one period to the next. For every 100 basis points by which a hedge fund beat its benchmark over a given three-year period, the researchers found, it outperformed that benchmark by 57 basis points, on average, over the next three years. (A basis point is one-hundredth of a percentage point.) The researchers estimated a similar degree of underperformance for the worst performers.
The performance advantage lasts far longer for a hedge fund than it does for a mutual fund (Professor Jagannathan). On average, he said, a mutual fund tends to stay a top performer for 12 months or less; often, it then becomes a market laggard. In fact, performance persistence among mutual funds is so modest that some researchers say it can be explained by factors having nothing to do with genuine investment ability.
Nice study- but who cares? The sub prime lending has caused billions upon billions to be lost by hedge funds who "knew" which way rates were going to go. It's O.K. to put some money in these, but lots of people went hog wild into another sure thing and are now paying a very dear price.
ANNUITY GRADES – (New York Life) 48% of advisors gave themselves "Cs" when asked to grade themselves on explaining annuity products to consumers. 80% of advisers said that better advisor education would be an important factor in enabling them to sell more annuities for retirement income purposes.
If you buy an annuity or insurance from an insurance agent, you got exactly what you deserve.
REG D CONS- "We're doing more cease-and-desist [orders] on [suspect] Reg Ds than any time in previous history," said Joseph Borg, director of the Alabama Securities Commission in Montgomery and president of the North American Securities Administrators Association Inc.
Reg Ds are private placements filed with the Securities and Exchange Commission and are exempt from registration under the Securities Act of 1933.
Under the National Securities Markets Improvement Act of 1996, securities regulators cannot interfere with a Reg D offering unless they have evidence of fraud- and that is where the fraud eminates.
No one disputes that state cops can act once they suspect fraud, but by then, investors' money is gone.
That is the problem I see with most governmental agencies that supposedly look out for the investor: Far too little and far too late.
CAREGIVERS: Over 12 million people need caregiver services in the U.S., and this number will grow dramatically as the older population grows. Unfortunately, demographic and social trends are reducing the available pool of family caregivers, and the caregiving industry is experiencing a severe and worsening shortage of paid direct care professionals, such as home health aides. The report contrasts the U.S. with nations such as Japan, Germany, and Austria who have managed the caregiving needs of their older population by developing systems of long-term care, and asserts that the U.S. arguably has no caregiving system at all.
There is an exploding need for care givers and nurses that will only get larger and larger. By the same token, those that can get professional work in the area will effectively be guaranteed they can work in the same field for a lifetime.
FED CHAIRMAN- "Unless Social Security and Medicare are revamped, the massive burden from retiring baby boomers will place major strains on the nation's budget and the economy." Government spending on Social Security and Medicare alone will increase from about 7% of the total size of the U.S. economy to almost 13% by 2030 and to more than 15% by 2050
As the population ages, the nation will have to choose among higher taxes, less non-entitlement spending by the government, a reduction in spending on entitlement programs, a sharply higher budget deficit or some combination thereof. If the government tried to finance projected entitlement spending entirely by revenue increases, the taxes collected by the federal government would have to rise from about 18% of the total size of the economy to about 24% in 2030.
Longtime readers know that in the late 90s I indicated that there would be a financial maelstrom coming that would bring our economy down several pegs. It would severely hurt the market. And the payments for Social Security and Medicare are the reason. Add in the continued expenditures for terrorism control and we have got some huge expenses where the only revenue will be tax. Going to be very messy.
HAVES AND HAVE NOTS: (USA Today) As the first wave of 79 million baby boomers heads to retirement, the nation is dividing into two classes of workers: those who have government benefits and those who don't. The gap is accelerating in every way — pensions, medical benefits, retirement ages.
Retired government workers are twice as likely to get a pension as their counterparts in the private sector, and the typical benefit is far more generous. The nation's 6 million retired civil servants — teachers, police, administrators, laborers — received a median benefit of $17,640 in 2005. Eleven million private-sector retirees covered by traditional pensions got $7,692.
Governments' generosity could have serious consequences for taxpayers and pensioners. Some states — including Illinois, Indiana, Michigan, New Jersey, Ohio and West Virginia — have troubled retirement systems that may require huge tax increases, spending cuts or even defaulting on promised benefits. (Note my previous comments on this) The U.S. government has a bigger unfunded liability for military and civil servant retirement benefits ($4.7 trillion) than it does for Social Security ($4.6 trillion).
The pension gap will continue to widen because governments pump far more money into employee pensions than companies do. Civil servants earn an average of $12.38 an hour in benefits, about $5 an hour more than private-sector workers, according to the Bureau of Labor Statistics. The difference was just $2.70 an hour in 1995.
typical full-time state or local government worker made $78,853 in wages and benefits in the third quarter of 2006, $25,771 more than a typical private-sector worker, the Bureau of Labor Statistics reports. The difference was $7,604 in 2000. The compensation advantage holds true for all types of public workers, from teachers to laborers and managers. Better benefits for government workers is the biggest reason for the growing compensation gap.
Pensions for civil servants often are superior to private pensions in subtle ways that make a huge financial difference. For example, government pensions:
•Generally base benefits on a worker's top three earning years. Private pensions typically base benefits on the top five years of pay, which lowers the average.
•Often let retirees add the value of overtime, unused leave and other benefits into the pension formula. The results can be extreme. Dover, N.H., Police Chief William Fenniman, 46, added more than $200,000 for severance, sick leave and other payouts into his three-year salary average when he retired in January. This will boost his retirement benefit to as much as $125,000 a year, more than he made as chief.
•Permit early retirement at age 50 or 55 with less of a benefit reduction than private pensions.
•Provide free or subsidized medical care for retirees under age 65 and supplemental coverage after that for those on Medicare.
•More often provide automatic cost-of-living increases to benefits.
Most governments offer health insurance to early retirees until they qualify for Medicare at 65. Massachusetts spent $377 million on retiree medical benefits last year. The state's unfunded liability for such costs is $13.3 billion, nearly as much as its actual debt of $18.5 billion, which is counted separately.
Medical insurance may be the most vulnerable benefit because it has fewer legal protections than pensions, which often are guaranteed in state constitutions. Orange County, Calif., recently slashed promised retiree medical benefits, cutting its liability from $1.4 billion to $600 million. The county hasn't done anything about its pension problem.
"Pension benefits are like a lobster trap. You can get in, but you can't get out," says an Orange County supervisor who has tried to reduce retirement benefits for government workers.
He blames elected officials for awarding unsustainable retirement benefits to win support from employee unions. "Elected officials love to give generous retirement benefits because they don't cost anything today and they'll be out of office when the payments come due. "And the public? Eyes droop with boredom when you bring up the topic." (It's boorring!!)
But public employee unions should not overestimate legal protections for pension benefits. Localities can shed their obligations in a bankruptcy filing (I told you so), and states, as sovereign governments, can ignore the requirements, he says. "Unions can win all the litigation and still lose because the judgments can't be enforced,
Just more unsubstantiated governmental largesse. Lots of lawsuits coming since they will be unable to tax their way out
How much deeper would the ocean be without sponges?
CCRC (Continuing Care Retirement Community) Traditionally, continuing care retirement communities, which offer the prospect of lifetime care on a single campus, have charged hefty entrance fees as well as monthly fees; in some cases, the monthly fees do not increase if residents move to a higher level of care.
But the number and variety of payment plans have expanded rapidly, along with the number of new facilities: some 20 to 30 new communities have been built each year for the past decade, and more than 2,200 are now in operation.
Most of the contracts fall into three categories. Type A's, or "life care," contracts, promise to care for residents for the rest of their lives without significantly increasing their monthly fees. Type B, or "modified," contracts, provide a certain number of free days in assisted living or nursing homes, then charge for additional care. With Type C, or "fee for service" contracts, residents pay more when they need more care.
As recently as 1998, Type A communities were by far the most common type, with 42 percent of the market. But that has changed with the proliferation of payment models: in 2005, Type A communities accounted for just 29 percent of the total. During the same period, Type B contracts grew to 19 percent, from 16 percent, and Type C contracts, combined with an emerging fee-for-service contract called the "rental model," grew to 47 percent from 36 percent.
Fee-for-service communities are gaining popularity because their entrance fees are typically fully or partially refundable, and monthly fees tend to be lower because they do not include health care.
As a hedge against future care costs, residents in Type B and C communities sometimes hang on to their long-term care insurance; some communities offer discounts for insured residents. And some life care communities are lowering their costs for residents with long-term care insurance. Depending on their policy, a couple with long-term care insurance could pay just $145,400 to join Kendal at Oberlin, rather than $202,000 without the policy.
In the past, most entrance fees at the communities were what is known as "declining refundable." Such fees are partially refundable when residents first move in, but become nonrefundable after a certain number of months. Although partially and fully refundable entrance fees are spreading rapidly, some residents still prefer to pay the lower, declining refundable fee and invest their remaining assets on their own.
REDUCED LONGEVITY? (Washington Post) Boomers are now much less likely to smoke- but large surveys are consistently finding that they tend to describe themselves as less hale and hearty than their forebears did at the same age. They are more likely to report difficulty climbing stairs, getting up from a chair and doing other routine activities, as well as more chronic problems such as high cholesterol, blood pressure and diabetes.
Two-thirds of Americans are overweight, and those extra pounds make joints wear out more quickly, boost cholesterol and blood pressure, and raise the risk of a host of debilitating health problems.
Boomers tend to report more stress than earlier generations -- from their jobs, their commutes, taking care of their parents and their kids -- all of which can take a physical toll, which is compounded by having less support from extended families and communities
It is unclear whether boomers are really sicker or are simply more health-conscious by dint of being better educated and having better access to information. They may also have higher expectations, making them more likely to notice and complain about aches and pains that earlier generations would have accepted as just part of getting older.
"Until now people have been living longer and living longer without the need for assistance -- they can dress themselves and take care of themselves. But it looks like we may be on the verge of a change where we'll have an increasing proportion of the elderly needing assistance, and possibly a decline in life expectancy."
From personal experience as a runner for over 42 years, any extra pounds is simply asking for problems. 10 extra pounds makes a material difference on your joints- even if you are not running. You really slow down in all aspects of life. But I tend to see more and more people that are significantly overweight. I suppose one can stay alive longer through drugs- therefore keeping the life expectancy high- but the debilitating effects overall makes one wonder if it is worth it. I know that exercising is not easy- but I haven't found much in life that is. Some things are simply hard.
LTC: (Georgetown University)'s Long-Term Care Financing Project) More than three-quarters of adults needing long-term care rely on unpaid family members, friends, or volunteers, while only eight percent depend solely on paid care. The other 22 percent receive a combination of the two -- unpaid help from friends and family and paid care.
OUT TO LUNCH: I received this reply from a NAPFA member regarding fiduciary duty in regards to my continuing commentary regarding their violation of ethics and the law. My reply follows.
"Alex xxxxx in our firm used to sell commissioned life insurance. He has kept his state certifications as well as his CLU and ChFC. His NAPFA membership prevents him from selling life insurance but his certification allows him to provide insurance advice. We provide comprehensive financial advice for clients with a management account. Alex handles insurance need analysis and then works with a salesman to help the client purchase appropriate coverage. This seemed like the best way for us to serve our clients."
My comment- as a California Life and Disability Analyst, I am not allowed to charge a fee and a commission at the same time (double dipping). Note what is happening above. NAPFA does not allow commissions by their reps. But the client has to pay one on TOP of the fees by the planner. That is double dipping no matter how you cut it- but NAPFA does not require the client be advised of the extra costs. Also be aware that most NAPFA members do not have a CLU on staff- but it doesn't make any difference in California (and about 35+ other states) because they cannot provide fee advise without the proper additional licensing.
"While having Alex licensing and expertise certainly provides our clients with a higher level of expertise and our firm with a higher level of protection, I am not convinced that it is required in order to provide general insurance advice. While states reserve specific insurance advice to licensed individuals only, I do believe that general advice can be given by non-licensed individuals."
My comment: I will concur with the issue that providing advice like- "you need insurance" is acceptable, but what's the point? If all that can be provided is something simplistic and sophomoric, you are not a planner. Effectively all clients over 50 come to a planner with insurance policies, disability policies, annuities and, in many fewer cases, long term care. If all that is being offered is "gee, you need help" you do not have a planner. If one the other hand you need specific advice, what is the benefit of getting it from planners who are illegal?
(In order to get my focus on the following, please read "How to Find a Planner" first at my site. You will note the reference to using those having a very high degree of knowledge.)
"To use your analogy, the doctors in the ER must have enough expertise to diagnose that your daughter has a brain tumor. They need to be able to distinguish between a simple headache and the symptoms that would suggest the need to refer your daughter to a neurologist. Similarly, a personal financial advisor is like a family practice doctor. When a patient has multiple problems, the family practice doctor is in charge of the patient and the specialists send their reports to him. He is responsible for the patient in a way that the specialists are not."
My reply- As far as, "personal financial advisor is like a family practice doctor", has got to be one of the more moronic positions stated by NAPFA and the entire industry. A physician has a minimum of 8 years of specific education and then years of residency. It is a very defined discipline. A personal financial planner is somebody who pretty much wants to use the moniker. A CFP has effectively one semester in money- and that's pushing it. The comparison of one to the other is a waste of ink. The education and competency level is what sets apart the hacks and the true professionals. CFPs are still not taught diversification. The material on standard deviation is wrong (actually it is missing). The College for Financial Planning eliminated the insurance course in 1995. It was never real life anyway. The material in the MSFP, as of my effort, was also far removed from real life. Having reviewed numerous plans and presenting testimony in all types of cases, the idea that a generalist planner has competence is so far removed from reality it is ludicrous. The point is this- effectively all planners- and I am sure you are in the same league- get paid by doing investment ‘research and management'. You perceive this competency and you accept the pay because you are "good". You are the specialist, in most cases. But everything else as a responsibility can be waved away by saying ‘gee, you are O.K.' or 'Golly gee, you need to see a specialist'.???
UNDERSTANDING BEHAVIORAL RISK IN THE RETIREMENT RED ZONE
1 Prudential Financial has identified a critical time period for retirement investors—The Retirement Red Zone.
• If you plan to retire within five years, or have retired less than five years ago, you are in The Retirement Red Zone.
• The Retirement Red Zone represents an important time for Americans to both strengthen their retirement savings and protect against key risks.
2 Certain risks confront investors in The Retirement Red Zone:
• Longevity Risk – People are living longer and need to ensure they have the means to generate a lifetime of income.
Investors need to grow their assets far longer than any previous generation.
• Sequence Risk – Unpredictability of negative market performance within The Retirement Red Zone can have negative effects on retirement assets. Negative performance during this time can greatly reduce the level of assets counted on for later in life.
• Behavioral Risk is the risk that emotionally driven behavior can have an adverse affect on investment decisions.
3 Behavioral risk is an often overlooked challenge to retirement investors:
• The findings of this study show behavioral risk affects nearly all investors to some degree. Three out of four individuals (76%) rate moderate or high on their Retirement Emotion Quotient (EQ) score.
• No single group is free from the influence of behavioral risk. Seventy-two percent (72%) of men and 80% of women have moderate or high EQ scores.
• Yet, only a third of Retirement Red Zone Americans (35%) feel emotions have an impact on their investment decisions.
4 The effects of behavioral risk are witnessed through five distinct emotions or tendencies that are most influential to investors.
• Of the most prominent emotions, 80% and 71% of investors register high or moderate degrees of regret and fear, respectively, that can influence financial decisions.
• Over half display high or moderate degrees of inertia (57%) or susceptibility (58%), and one-third (37%) have high scores for aggressiveness.
• Even at low levels, these five emotions have the potential to influence investors to make less than optimal investment decisions.
5 Behavioral risk can influence investors to react in ways that may not be in their best interests.
• For example, investors influenced by fear are less likely to take managed risks or to plan steps to secure their future.
• Those influenced by aggressiveness may display overly ambitious investing behaviors without adequate risk management.
• Investors experiencing regret are unlikely to take positive future steps toward a secure retirement for fear of regretting their actions.
6 When confronted with the possibility of significant losses within The Retirement Red Zone, investors question their confidence in their retirement planning.
• Eighty-nine percent (89%) of pre-retirees and 80% of retired investors wish they had incorporated better downside protection of their retirement assets.
• Most wish they had planned better as they approached retirement (85% preretired, 63% retired).
• Investors driven by specific emotions (susceptibility or fear) would be even more likely to overreact by taking money out of the stock market, potentially further limiting their chances for financial recovery.
• Eighty percent wondered if there were products that could help protect or manage early retirement portfolio losses.
7 Products that provide both accumulation and income guarantees help mitigate the effects of behavioral risk and improve beneficial investor behaviors.
• Half or more were not aware of guarantees available to either lock in market gains (61%) or to protect against principal losses (46%) on investments used to generate lifetime income.
• Yet three in four (75%) would consider an investment product that could provide various guaranteed protections including guarantees that protect account values, lock in market gains, provide a minimum annual growth rate and
provide lifetime income.
• With the benefit of these guarantees, nearly all would be likely to weather out short-term losses (85%), choose more aggressive investments with greater potential returns (71%) and invest for the longer term (80%).
DIVIDENDS- Strategists say that many signs — like erratic dividend histories or a high payout ratio, which is the percentage of earnings that a company pays as dividends — may indicate that a stock's dividends are on shaky ground.
Yield is a function of two factors: a stock's historical dividend payments and its current share price. Some stocks have high current yields because their share prices have fallen, which can indicate that many investors expect future dividend payments to decline.
the Standard & Poor's 500-stock index has an average payout ratio of 30 percent. The telecommunications stocks in the index have the highest average ratio, with 64 percent of earnings going to dividends, while the technology stocks in the index have the lowest, at 15 percent.
UPDATED HEAVY BUILD CHART
Height Preferred Table C Table H
5ft 6 in. 185 267 316
6ft -- 217 325 368
6 ft 3 In. 238 345 388
6 ft 6 in 259 365 406
HEDGE THIS- (NYTimes) Amaranth had been a respectable fund; investors loved it for its high returns and energy exposure, until the high returns turned into epic losses and its energy "exposure" turned out to be a bunch of concentrated bets on the direction of natural-gas prices (bets that did not work out well). (Remind you of Long Term Capital?)
Soon after $6 billion went poof, Mr. Maounis tried to pull a rabbit out of his hat. On a brief, carefully lawyered phone call with investors, Mr. Maounis suggested that he intended to win back the trust and faith of his investors. "We have every intention of continuing in business generating for our investors the same consistently high risk-adjusted returns which have been our hallmark." Right.
(Remember Long Term Capital?)
When Long Term Capital Management imploded in 1998, its $4.8 billion quickly shrank to $600 million (although enormous leverage magnified the losses and brought the financial system to its knees).
FIDUCIARY: The U.S. District Court for the Western District of Michigan ruled that a brokerage firm that gave investment advice to a profit sharing plan for a fee is considered a fiduciary under the Employee Retirement Income Security Act (ERISA). The court rejected brokerage firm Edward D. Jones & Co.'s argument that it did not qualify as a fiduciary for the Rycenga Homes Inc. profit-sharing plan under ERISA because it did not have discretionary authority over the plan. Judge Joseph Scoville wrote in his opinion that, "Although it is certainly true that the possession of discretionary authority and control is generally the benchmark for fiduciary status under ERISA, it is also true that, in the special case of those providing investment advice, the existence of discretionary authority is not necessary to a finding of fiduciary status."
DIVORCES ARE LESS- the divorce rate for married couples peaked in the United States in 1979, when it was 22.8 per thousand married couples per year. Since then it has continued to decline, reaching 16.7 divorces per thousand married couples in 2005.
If matrimony as an institution has declined, it is because fewer people are marrying in the first place. Marriage is at its lowest rate in recorded American history, and marriages are shorter than before
One group more likely to be married today than ever before is Americans over age 65. Men are closing the life expectancy gap with women, and that means fewer widows, a comforting thought. The elderly are the most likely to require marriage for assistance with medical problems, not to mention sex and companionship.
Consistent with economic reasoning, marriage is growing among groups who benefit from marriage the most. Furthermore, the women least likely to remarry are highly educated with a high income, namely those who are best able to handle single life. Women with the least resources are the most likely to remarry
COMMUNITY ASSOCIATIONS- analysis indicates that in 2003, 46 percent of owners in single-family homeowner associations were over the age of 50, as were 56 percent of owners in condominium/coop communities.
DISABILITY INSURANCE CLAIM DENIED! JUSTLY OR UNJUSTLY?? (Larry Schneider Disability Insurance Specialist)It's a fact that Disability Income Insurance claims have increased dramatically over the last several years, along with a disproportionate number of inappropriate denials.
Some of the reasons are: 1) elimination period not being satisfied, 2) definitions, terms, conditions not satisfied, a) total disability, b) residual disability, 3) renewability 4) exclusions.
Some Definitions of Total Disability are:
· Own occupation – Pays if the insured can't do duties of their occupation even if the insured is working elsewhere so long as it is another occupation.
· Own occupation, not gainfully employed elsewhere - Pays if the insured can't do duties of their occupation and is not working elsewhere. Working or not then becomes the choice of the claimant.
· Own occupation, unable to work elsewhere - Gives true own-occ (first definition above) for a period of time, usually two to five years, then changes to unable to work elsewhere (by reason of education, training,
experience, and sometimes prior economic status).
Another major reason, has to do with misstatements and/or omissions made on the application.
Occasionally they are unintentional, due to the poor wording of the questions. Since the claim starts with the application, who is at fault? Is it the carrier for poorly constructing the wording of the questions, or is it the fault of the applicant who intentionally withholds pertinent information that could negatively impact the underwriter's decision as to whether or not to issue a contract?
Some critical areas of the application which affect a claim and could be inadvertently answered incorrectly, have to do with 1) occupation/duties, 2) health, 3) income, 4) and other pertinent facts such as; avocations, etc... Incidentally, some of the "honest" mistakes made by the applicant, might be "overlooked" after two years, as outlined in the contract's incontestability clause.
What is not "overlooked" however, is fraudulent misstatements or omissions such as a major misstatement regarding health or income. Come on, can someone honestly say that they "forgot" that they had a back operation or a heart attack two years ago?! With this view in mind, let's not forget the agent's role in completing the application. Did the agent record all answers exactly as they were answered or was there some hidden agenda or motive for writing them down in such a way so that the policy would be issued as "applied for" (e.g. without a rating or an exclusion)?
What actually happens when a claim is submitted for payment? The file is pulled and compared with the information appearing on the claim form for any inconsistencies. To support the claim, DI Article Folder-Word Document-DI Claim Denied Abbreviated 2005
2 APS's will be ordered. Tax returns will once again be reviewed and it will be re-underwritten. If the claim is invalid due to fraudulent omissions, etc... and it is within the contestability period, the policy will usually be rescinded. If it is past the incontestability period, it will usually be paid unless the carrier strongly feels there was a strong intent to commit fraud, then rescission/denial will take place. In any event, if it is a long term claim, expect possible surveillance and or a possible buy-out of the claim.
MAYBE BIOFUELS WON'T DO THAT MUCH GOOD (NY Times) Bush's State of the Union address called for a sharp increase in the use of biofuels, along with some improvement in automobile fuel efficiency to reduce America's use of gasoline by 20 percent within 10 years. Congress is considering legislation calling for a nearly fivefold increase in the use of ethanol.
That has forced many oil companies to reconsider or scale back their plans for constructing new refinery capacity. (And that has rarely happened anyway)
In hearings before Congress last year, oil executives outlined plans to increase fuel production by expanding existing refineries. Those plans would add capacity of 1.6 million to 1.8 million barrels a day over the next five years, for an increase of 10 percent.
But those plans have since been scaled back to more than one million barrels a day. Uncertainty about the ethanol growth "will do little to accelerate desperately needed investment in complex United States refining units."
"Indeed, it is likely to deter and further delay investment, if not rule out many refinery investments completely."
Oil is now above $78/barrel. I told clients months ago that the price was absolutely going to stay close to $70 a barrel- then I watched it plummet to below $60. Could not figure out the logic. Now I think it was merely an aberration and prices of $3+/gallon may be preordained for the rest of my lifetime.
LIFE INSURANCE- 17% of institutionally managed policies will lapse prior to life expectancy
• 26% of institutionally managed polices will lapse prior to maturity
• 55% of institutionally managed policies have a management concern or a potential performance issue
• 11% of institutionally managed policies are not competitive relative to peer products.
LTC- As of 2006, about 200,670 LTC Partnership policies were still in force in the 4 states that have established Partnership Programs (California, Connecticut, Indiana and New York). Of these, how many policyholders have exhausted their benefits and received Medicaid? 175
Of course, the statistics did not indicate how many policies have actually been started.
And LTC coverage is affordable by 20% and owned by just 7%-8%.
DIFFICULT CHOICES: TO AGONIZE OR NOT TO AGONIZE? Good stuff- though a little heavy at times.
What makes a choice difficult, beyond being complex or difficult to calculate? Characterizing difficult choices as posing a special challenge to the agent, and as typically involving consequences of significant moment as well as clashes of values, the article proceeds to compare the way difficult choices are handled by rational choice theory and by the theory that preceded it, Kurt Lewin's "conflict theory." The argument is put forward that within rational choice theory no choice is in principle difficult: if the object is to maximize some value, the difficulty can be at most calculative. Several prototypes of choices that challenge this argument are surveyed and discussed (picking, multidimensionality, "big decisions" and dilemmas); special attention is given to difficult choices faced by doctors and lawyers. The last section discusses a number of devices people employ in their attempt to cope with difficult choices: escape, "reduction" to non-difficult choices, and second-order strategies.
"a choice whose outcome is likely directly to affect the agent's own life and career is more difficult than a choice whose outcome is likely directly to affect the lives of many people other than the agent's – even when the effect on the lives of the many might be momentous."
"The costs of choice are the costs of coming to closure on some action or set of actions. They are of diverse kinds: time, money, unpopularity, anxiety, boredom, agitation, anticipated ex-post regret or remorse, feelings of responsibility for harm done to self or others, injury to self-perception, guilt, or shame. The costs of error relate to achieving suboptimal outcomes, whatever the criteria for deciding what is optimal.
These costs are assessed by examining the number, the magnitude, and the kinds of possible mistakes. The anticipated costs constitute an important motivation for the adoption of "second-order decisions," meaning decisions about an appropriate strategy for avoiding decisions or for reducing the difficulties associated with making them. Sometimes, second-order strategies are a response to motivational difficulties rather than to cognitive problems; people try, for example, to counteract their own tendencies toward impulsiveness, myopia, and unrealistic optimism. (Weinstein 1987) A second-order decision is made when people choose one from among several possible strategies: when they adopt a firm rule or a softer presumption; when they create standards and follow routines; when they delegate authority to others; when they take small reversible steps; when they pick rather than choose.
People frequently adopt rules, presumptions, or self-conscious routines in order to guide decisions that they know might be too difficult or costly to make, or might be made incorrectly because of their own motivational problems.
Unfortunately, people who do not read and think adequately (the bulk of consumers) will establish poor rules, presumptions and routines. They will be easy to follow but not necessarily right or useful.
If you do not do extensive reading on difficult areas, you have not done adequate homework and you may end up getting exactly what you deserve.
KILL ALL THE ATTORNEYS- America's legal system cost $865 billion every year, or $9,827 per family. This figure is 27 times more than the government spends on homeland security, 30 times more than the money dedicated to finding cures for deadly diseases, and 13 times more than the U.S. Department of Education spends to help educate our children
NASD ETHICS: Course Description
This two-day course examines ethical issues in today's financial services industry. Case studies and scenario-based group exercises lead participants through discussions of fair business behavior and ethical decision-making.
Topics Covered
The relationship between ethical and legal issues
Promoting ethics through management and leadership
How to increase employee sensitivity toward and awareness of ethical issues
Prescriptive decision-making tools that resolve ethical issues
Calculating punishment for illegal conduct
The human limitations that interfere with ethical decision making
My god, just how stupid can these people be? You cannot determine an ethical issue unless you know what should have been done. You have to know the fundamentals of investing to figure that out. Are they taught? No. So, is an EIA legal? Yes. Can they be offered legally to elderly people. Yes. Is that ethical? Can Be. But how is anyone going to know unless you understand what the product is, how it works, where it can be used, under what conditions ad infinitum. An attorney has no clue to real life applications, no licensing to get the material regarding the different products, is unaware of any seminars given, has never.............. well, you get the idea.
WILL PEOPLE BE HEALTHY ENOUGH TO WORK LONGER? As recently as the mid-1960s, the median retirement age for men — the age at which half of all men are no longer in the labor force — was 66. Today, it is 63. But given the scheduled decline in Social Security replacement rates, increased longevity, and the relatively low balances in 401(k) accounts, Americans risk serious income shortfalls, especially at older ages, if they continue to retire at age 63. A rational response is to move the average retirement age back to 66 or even older. A key consideration is whether people will be healthy enough to work longer. This brief compares the health status of older people today with those forty years ago and explores what happens to people's health as they age.
The bottom line is that the health of older people (those 65 and older), as opposed to older workers (those 50 to 64), showed little improvement in the 1970s, mixed results in the 1980s, and marked improvement since the 1990s. The marked improvement for older workers most likely began earlier, in the 1980s. Today, the health of older workers appears to be at least as good as it was forty years ago. Thus, if half of the male population were then healthy enough to work until age 66, the same percentage should be able to do so today. Two important issues not addressed in this brief are whether the jobs will be there for older workers and the challenge presented by the 15 to 20 percent of the older population for whom work will be impossible.