MOODY'S REVIEW

JANUARY 1997

COMMENTARY ON INVESTMENT AND PLANNING ISSUES

ERROLD F. MOODY JR. BSCE, LLB, MBA, MSFP, PhD

CERTIFIED FINANCIAL PLANNER

REGISTERED INVESTMENT ADVISER

GAYS & LESBIANS: Remember that you, at least under most current laws, will be unable to participate in your partner's pension if he or she dies before payments begin. Only spouses usually receive any funds.

Gifting is limited to $10,000 per year (unless you are using the $600,000 exemption during life) and there is no unlimited marital deduction upon death.

You may have a life insurance on your partner, but invariably there needs to be an insurable interest- such as a house.

If you split with your partner, the mortgage company may require you to get a NEW mortgage. Divorced spouses may not find that necessary.

One benefit is that upon selling a house after age 55, you both will be able to use the $125,000 exemption.

Regardless of the pluses and minuses, make sure you have a partner's cohabitation agreement before moving in together. Splitting up can be just as emotionally and financially draining as a regular marriage.

WOMEN: Mentioned every so often is the fact that women can be good investors if they simply try. In fact, a 1995 NAIC (National Association of Investors Corporations) found that women only clubs outproduced men only investment clubs in 9 of the past 15 years.

Women however have traditionally avoided investments because of their fear of loss- though it's somewhat better due to the market's continued gain. A 1992 study by Employee Benefits Research Institute showed that 10.5 million or 60% of the 17.5 million women eligible for a 401(K) plan actually invested and a rate of $2,100 annually. 69% of the men contributed at a rate of $3,100.

In general however, 52% of 2,400 women surveyed by The National Center for Women and Retirement Research owned no stocks or stock funds at all. 86% said they put their money into passbook accounts and CD's. Worse yet, 54% said they were not likely to purchase a stock mutual fund in the next year.

A separate study of mutual fund owners by the Investment Company Institute showed that 24% of women shareholders are unwilling to take any risks with their money compared to just 11% of men. 40% of men said that they would take considerable risks to earn above average returns verus only 25% of the women. (Of course, most of the men wouldn't know an appropriate risk investment if it bit them.)

JAPANESE REAL ESTATE: When this marketplace went down, it was worse than our Resolution Trust debacle. They had the highest priced real estate market in the world and it was waiting to crumble. It took many major banks and the entire Japanese economy when it crumbled a few years ago. It now appears that their commercial real estate may be getting back on its feet. That is good for the entire economy since about 1 in 5 Japanese jobs are linked to the real estate industry. In Tokyo, only 5.7% of the office buildings are vacant versus about 31% in 1992.

The U.S. has obviously had some major restructuring as well. However Southern California still has a long way to go. But, after the riots, earthquakes, etc., etc., I'm not too sure it will ever reach the prominence it once held. BANKRUPTCY: In 1996, personal bankruptcies are expected to increase 26% over 1995 and include 1% of all U.S. households- 1.1 million families

LONG TERM CARE: A new law taking affect in the Health Care law in 1997 will make it a criminal offense to dispose of assets to obtain Medicaid benefits, particulary nursing home care. Personally, I always thought this was an unethical practice by many elder care attorneys in charging well heeled clients thousands of dollars to set up special trusts in order to pass assets to their kids and let society pick up the costs of long term care. There are numerous issues that are involved in this commentary, but the one that bothers me most is you never want anyone to die in a Medicaid ward with a bunch of screaming Alzheimer's patients. So, did they ask mom and dad if that is how they wanted to die? Wanna guess? And isn't such lack of honesty unethical?

That said, Medicaid planning is a viable option for those having limited assets. For example, each state has limits on how much the at home spouse may retain in assets when the other spouse enters a nursing home. It's half of their assets or about $75,000, whichever is less. So, for example, assume a couple has $125,000 in investments (calculations exclude the home and certain other assets) and the husband requires full time care. They would need to spend down $50,000 in nursing home costs in order to reach the minimum. Can they do something else such as simply giving the money away? Limited since Medicaid looks back 36 months for almost all gifts given (see caveat later). So if one had given the $50,000 to a son or friend, Medicaid would not cover the nursing home payments based on this formula. They would divide the gift by the cost of nursing home care in that area. Let's say that was $3,000 a month. $50,000/$3,000 = 16.67. That means that Medicaid would not pay anything for 16 2/3rd months. Is there anything that might be done? Yes, since the home is protected, they could pay down more of the mortgage. Or add improvements to the home. Neither of these is subject to the look back rules. Admittedly, some can say that that is unethical in its own right, but consider that many homes owned by the elderly are in need of repair, or that the mortgage payments might be overwhelming for the at home spouse. Other safe assets include personal household goods and even a car. But even this "simple" example is fraught with risk. The limits are based when the spouse (assume husband) goes into the home. If they had disposed of the assets before he entered the home, they would have $75,000 in assets and the rule is that they can keep that or of all assets whichever is less. So the $75,000 would be cut half. However, if she had waited till he actually entered the home (the point at which Medicaid looks at their financial situation) then she could put the $50,000 into the home and retain the $75,000.

The difficult problem is the fact that the couple above not only would not spend money for an elder care attorney, they wouldn't even know they existed. And the financial planning "profession" has not yet attempted to provide incisive knowledge and training on the subject at all. So the proper planning to shelter more funds- correctly or otherwise- will probably never be done.

A survey by Harvard University of Public Health and Louis Harris Associates stated that 20% of Americans over 50 were at high risk of needing long term care in the following year, but only 1/4 could pay for even 12 months of care. Most is needed at around 80, but in 1994 only 424,000 policies were sold. Why the lack of sales? One reason is similar to writing wills. People- mostly men- do not like to think about death, dying and so don't do anything at all. That leaves the survivors in desperate straits and emotional turmoil.

401(K): If you leave a firm, you may sometimes roll your 401(k) to your new firm or, more often, roll it to an IRA. If you personally take the money before rolling, the IRS penalizes you 20% for doing so, but you can avoid this by simply having the trustees move the funds directly. Do workers do that? Nope, only about 1/3 over age 40 and 16% under age 40 move their funds to new accounts. The rest SPEND the money. A lot of money won't be there for retirement.

MORE 401(K): A two year study of 1,100 companies with at least 200 employees showed that businesses that provided education to EE's on retirement plans were able to get lower paid workers to invest in the 401(K)- which allowed the highly compensated to invest more.

Additionally, a survey of 2,055 households by Merrill Lynch found that 84% of workers that had education signed up for 401(K)'s versus just 64.4% who did not take the courses.

ESTATE PLANNING: The basic living trusts coming out of the computers might be acceptable to perhaps 20% of the populace. But for bulk of people, the simple computerized plans are inadequate. In California, community property is easily deposited in bypass trusts. But in separate property states, it may not be that simple when man and wife own different amounts of money. Or where they own property as joint tenancy. And do they really understand disclaimers? Doubtful. A little knowledge can really defeat what you intended to do . That's why an ESTATE PLANNING attorney is a must.

S&P 500: Is the S&P 500 index- the most commonly used index for gauging other fund returns- and, old staid and stodgy index? Not quite. The committee that oversees the index has made 46 changes in this component stocks since the start of 1995, many due to mergers and acquisitions. Standard and Poors says it chooses companies not because they are the largest companies in terms of market value, sales or profits. The companies that are chosen tend to be the leading companies in the leading industries. One analyst noted that the S&P 500 is less cyclical and more diversified- both sectorially and geographically than it was a generation ago. Back then it was cyclicals, energy and utilities and today its global consumer brand franchise companies that predominate.

So does that mean that the average S&P 50 index fund changes its stock portfolio frequently? Nope, because few funds buy all 500 stocks? They buy maybe 50 stocks that mirror the index overall and simply adjust those. Therefore, the lack of changes make it (and many index strategies) a good "taxable" fund for the long haul.

INSURANCE: There are all types of agents selling insurance. As I have always stated, only use those with advanced designations and degrees. To do otherwise is economic suicide. But even those that have advanced training may get sloppy. One new aspect advanced training in this area is called the IQ- Insurance Questionnaire- and RQ- Replacement Questionnaire developed by the American College. These are mandatory reviews for large whole and universal life policies that require a lot of info from the insurance companies regarding interest rate assumptions, expenses and mortality assumptions. Difficult to do. Few agents even know about this. So you'll have to work to find a knowledgeable agent. If you don't like that effort, then just hope your policy will hold up for 20 years.

JOBS: Statistics show that the number of layoffs- downsizing if you will- is worse than in previous years. During the 1990's, job loss was higher than in the recession of 1981-1983. Further, it impacted white collar workers more than the blue collar workers of the past. And for the average worker that did get laidoffed, they earned 15% less in their new job and 25% lost health benefits. But it's not just that that has many workers feeling uncomfortable. It's the fact that overall, workers have been losing ground when compared to past decades. The Economic Policy Institute's, The state of Working America says that, from 1989 to 1994, the median worker found wages declining. Women wages dropped 1.7%; men at 6.3%. Median family income dropped 5.2%.

What was most interesting in the study is that the causes were not due to single parents, the uneducated, inadequate skills and so on. It tended to have more to do with a laissez faire attitude with workers and probably the decline of the union. I have been saying that the uncomfortable feeling of workers was not just in their head. This seems to prove it.

FOREIGN INVESTMENTS: One of the tricky parts in investing overseas is that your funds are all earned and returned in foreign currency. If the dollar increases in value or if a foreign currency drops in relationship to the dollar, all your gains can be negated- even showing a negative return for the year. A FED reserve board article last year said that there was also no correlation in U.S. rates and the movement of any foreign currency so it was next to impossible to know what currency would do when and by how much. Anyway, CFO magazine noted that 50% of returns on foreign equities and 70% of the returns from fixed income investments since 1986- positive or negative- were due to changes in exchange rates. "If a pension fund has 15% of its assets in vested overseas and its mix is 70% equities and 30% bonds, the fund's foreign exchange exposure will account for 1.2% of its returns." That's why you limit your exposure to 10% to 25% of an entire portfolio in foreign investments.

CALIFORNIA LONG TERM CARE: California did not enact the federal statutes noted earlier. For example, it has just a 30 month lookback rule versus the 36 months federally. I would check other states before proceeding with any long term care strategy.

PET FUNERALS: People suffer depression and grief when a loved one dies. And the same type of bereavement exists for people who were close to their pets. Many feel misunderstood in regards to this emotion and are likely to hide their emotions. They therefore may have never thought of having funerals to relieve this pain and come to terms with the loss. But you might consider some type of simple ceremony with a number of close friends (who also understand the joy of pets).

NASD OMBUDSMAN: Didn't get fair hearing in an arbitration? You can call the NASD and complain about the staff's misconduct, etc. 888 700-0028

WOMEN: Quickly- if you are over 50, what is the disease that should most worry you. Breast cancer? WRONG! Heart disease. And who dies faster after a heart attack? Women during the first year 44% to 27%. And women and men have the same symptoms of a heart attack. WRONG- even most doctors didn't know that. But if you want to prevent heart disease, do some of the same things men should do- good diet and exercise.

NEW LAWS: Social security recipients can now make $12,500 without losing benefits.

And while pensions normally require distributions starting at 70 , if you continue working, you can defer withdrawals till April 1 of the following year you stop working. (This is not available for IRA's however or for business owners who own at least 5% of the business.)

SONNY BLOCH: You may remember previous commentary regarding this radio guru that had a huge following that "trusted" him and bought the investments that he recommended. He even co authored a book on real estate investments that I believe became a best seller. Well, he was indicted for taking money and advertising some financial scams in wireless cable, radio stations and precious metals. He went to Bermuda, was turned in by his son, was caught, extradited, said he had done nothing wrong and then, finally, in September, pleaded guilty to fraud and conspiracy for defrauding investors out of $21 million by recommending investments he knew were worthless. He made hundreds of thousands of dollars for his "advice". Let's be careful out there.

FUNERALS: (WSJ) The average death rate in the U.S. for many years was 8 per thousand. This is now going up about 1% per year as the baby boomers get older. The average cost of a funeral is:

Professional Service Charge..................$1,025

Embalming.............................................. 343

Other preparation (cosmetology)...............129

Visitation/Viewing....................................292

Funeral at funeral home............................307

Transfer to funeral home..........................125

Hearse (local).......................................... 155

Service car or van......................................76

Acknowledgment cards............................ .25

Casket................................................ 2,146

Total...................................................4,625

You can get cremated cheaply for about $500 to $700.

ETHICS: Prudential is at it again. They got hammered for selling bad partnerships in the 80's to the tune of about $1.2 billion and now they agreed to pay up to $1 billion to policyholders who were lured into buying replacement policies at higher costs. It's called churning and has always been illegal. State investigators said that the activity had occurred over at least a decade. It is not the only company- John Hancock, Metropolitan and New York Life were also required to compensate clients for churning during the last few years.

California Title companies have agreed to pay $840,000 for a state investigation into kickbacks. The California Land Title Association trade group agreed in September to halt practices that were not only illegal, but widespread. The payoffs were to obviously induce Realtors and lenders to refer business to them.

This is all unethical. But some of the major financial planners and organizations in the United States have said "what's the problem?. Everyone else does it. So I should be able to as well."

You have no idea the lack of ethical and moral compass that exists in this business. Sure, many clients don't complain- but that is invariably due to the fact that they don't even know what is happening. In other cases where they might be aware of the problem, they know they got a good deal at the expense of others (Ponzi schemes) and don't care about the implications. Sure, you can make some money being unethical. But it's the reason that the some of the standards of our society have de-evolved.

IRA: Not what you think. An intriguing idea from the FED Bank of New York wherein, instead of providing unemployment payments directly to the worker, perhaps they could be placed in a an Individual Retraining Account and provide the much needed funding for polishing job skills.

MORE HMO'S: The government instituted new laws that state that all gag rules (the inability of a doctor to talk about treatments not available at the HMO) are illegal. And all incentive plans by HMO's (keep costs low to maximize profit) must be revealed to the Department of Health and Human Resources.

REPRODUCTION: Association for Voluntary Surgical Contraception, 79 Madison Ave. New York, NY 10016, 212 561-8000 has info and publications on male and female sterilization

OLD: As the baby boomers get older, there are noticeable changes in our attitudes and philosophies to infirmity and death. There are now far more open discussions to incontinence (just look at the TV ads), loneliness and suicide, and the major issue of euthanasia (the first legal euthanasia in the world was conducted in Australia on September 25th, 1996). Some say the aging process dampens creativity and entrepreneurial activities. But many other articles show that the aging are at least as creative when old than younger- partly due to the freeing up of inhibitions.

In 1790, half of Americans were under age 16. It did not double till roughly 1990 when the median age reached 33. By 2050, it will be over 40 to even 50.

In 1850, a newborn white baby girl could expect to live to age 40- a boy to age 38. Today a girl can expect to live to 79- a boy to age 73. The fastest growing age segment is 80+ where over half are women.

Of course, many issues of retirement involve money. Social Security retirement has been pushed till a later age since we simply do not have enough money to pay for the many extra years of retirement than what was envisioned during the 1950's and 1960's. In 1960, a man could expect 3 years of retirement- now it's 10. The number of workers supporting the retirees is declining. In Japan, there are 6 workers for every retiree. But in 2025, there will only be 2 workers. The same thing has been happening for years in the United States and will be cause in the future for class revolt. (I have said that there will be a major problem between the have and have nots by 2010 and the soured relationship between the young and old will be part of it.) The government spends 9 times the amount on seniors than it does on children.

Also, as the population ages, the savings rate will decline- and it is already horrendously low in the U.S. That's because the elderly will, at some point, need to use all their income to live- finally using up their assets as well. That may mean less capital in the U.S. for growth. And when this money comes out, it could foretell a huge decline in the stock market.

We may avoid a major war in the next century. But the inevitable aging of people globally will cause problems beyond anyone's comprehension.

Workers Per Retiree (ratio of retirement age people to 100 working age adults) Current retirement age after country name
Country Current Retirement Age Ratio of retirement age people to 100 working age adults

1990................2025


Austria 59.9 36.7 61.4
Japan 61.5 24.9 55.8
Belgium 62 32.2 55.2
Germany 61.4 29.6 54.1
France 62.4 28.8 45.9
Finland 65 21.9 44.0
Britain 62.9 29.5 42.0
Spain 63.9 23.4 37.9
Canada 65.1 18.8 35.9
United States 63.5 22.3 35.1

Life Expectancy at birth in 1996

Asia and Middle East
Men Women
Cambodia 48 51
China 68 71
India 59 60
Iraq 66 68
Israel 76 81
Japan 76 83
Philippines 63 569
South Korea 70 77


Africa
Egypt 60 63
Kenya 56 56
Morocco 68 72
Nigeria 53 56
South Africa 57 62
Zambia 36 36

North and South America
Men Women
Argentina 68 75
Brazil 57 67
Canada 76 83
Cuba 75 80
Haiti 47 51
Mexico 70 77
United States 73 79

Eastern Europe
Men Women
Czech Republic 70 78
Poland 68 76
Russia 57 70



Western Europe
Men Women
Britain 74 79
France 74 82
Germany 73 79
Greece 76 81
Italy 75 81
Netherlands 75 81
Norway 74 81
Spain 74 81
Sweden 76 82
Switzerland 75 82

Pacific
Australia 76 83
New Zealand 74 80





It really puts your life in focus since, if most of us had been born in Zambia, we'd already be dead by now. And look at the males in Russia. They represent the only industrialized country that has actually had their life span drop.

Lastly is the issue of suicide. Elsewhere in articles is the fact that clinical depression is now considered to be the 4th leading cause of death in the world. Rates are higher among the elderly and about 12 times higher among men than women. These are statistics for men 75 and older per 100,000 people in European countries compared to men of all ages. 1989- 1991 data
Country All Ages Over 75
Hungary 58 186.2
France 30 114
Belgium 30 98
Switzerland 34 80.7
Denmark 30 72.9
Spain 12 43.5
Britain 12 21.5
United States 20.4 41.1 (older than 65)

CHARITABLE TRUSTS: (Business Week) I have commented previously on the use of Charitable Remainder Trust where you give money to a charity and they provide an annuity for your life and others, if desired. A spinoff of the regular trust is called a NIMCRUT or net income with a makeup charitable provision in a charitable remainder trust. It let's you turn off and on the income as needed. In pre retirement years you would probably defer income. After retirement, you start taking what you need. You can also add to the trust- not always available with some annuities- and particulary useful when you have potentially maxed out on all the other tax deferred or sheltered plans available (403(k)).

HMO's: Some say that HMO's hold back care but most studies have shown that "....HMO's have a better system for assuring quality care than individual fee for service doctors working in isolation". HMO's systematically review the medical literature and the records of their own patients to develop their own guidelines on the best methods of care to be used by participating doctors. They then provide such feedback to the doctors." Such processes, including preventative medicine, are ways of averting or discovering illnesses early.

MARKET TIMING: (Smart Money) If you could pick the perfect lows of the market to buy and sell at the perfect tops, you could make more money than just a buy and hold. Well, nobody's perfect, but how good would the actual returns be? (Remember you would have to pay taxes on each sale and incur potential brokerage costs as well). The Smart Money example considered just a short time frame- February 1989 to February 1995- but is fairly representative of other studies I have seen. An investor putting in $1,000 in the Russell 3000 index would have received $2,050 under a buy and hold. The market timing expert would have received a lesser amount of $1,950 when taxes were included. Admittedly, retirement accounts such as 401(k)'s do not have any tax implications and one can legitimately accept that market timing would have earned more. But then you would have to be almost perfect. So, are you?

ENHANCED INDEX FUNDS: (Ibbotson Associates) There are about eight funds that have attempted to show that the returns of the basic index fund could be greater if one was able to eliminate the obviously weak stocks or by using derivatives. But Ibbotson's study said they didn't do all that well- and didn't mirror the index that well either. Three actually did beat the index, but it was impossible to determine whether it was luck or skill. The kicker was they also had more risk. This is a very worthwhile study that was buried in minutia in a financial magazine. I had considered using these funds in the past but couldn't really determine if they were worth while. Learn something new ever day.

ESTATE PLANNING: A survey by Roper/Starch Worldwide of affluent Americans earning more than $50,000 between the ages of 40 to 64 shows that few are doing estate planning. Only 42% of those surveyed had prepared a written list of assets and their locations; 43% had a living will; 38% had bought long term care insurance and 35% had established trusts. Only 31% had timed gifts to children to reduce estate taxes, only 48% had sought financial planning advice regarding their adult children and fewer still- 41%- had sought help for their aging parents.

One adviser said that "the survey clearly shows that while most investors have focused all their attention on picking mutual funds and other investments as a means of accumulating wealth, far too few have thought about preserving that wealth." That has been a statement that I have made in classes for years. Years trying to earn money- seconds to plan what to do with it.

401(K): I have written about this before and it relates to the increased costs by employees of using a 401(k) at work. An article in Investment Adviser note that "the growing expenses that participants are forced to pay for 401(K) plans have received little attention. Investors haven't noticed yet. They haven't figured out what is happening to them. Participants are not aware of what they are paying and in the recent bull market, their tolerance for fees is growing."

Further, the article says that "although plan sponsors are permitted to pay asset management fees to bank trust departments and insurers, the 1974 ERISA act does not permit sponsors to pay the mutual fund expense ratio. The individual participant (employee) must pay it." Therefore, company sponsors who are using mutual funds, are pushing off the fees to the employees. Some companies, even those who would like to do "the right thing" are so woefully ignorant of investing that they are incapable of determining what to do or who to use. So higher and higher fees get passed on. Others simply don't care how much these fees are since as long as the EE pays it and nobody says anything, who cares? And the bottom line counts no matter what. My point is that the new law regarding 401(k)'s clearly states that it is the company's responsibility to provide EE education about investing. Therefore, the statement requires the ER to PAY for education and within such context, to make known any exorbitant or excessive fees that the EE is being forced to pay. I submit that the ER's must provide commentary on these fees under their fiduciary obligation.

The article also pointed out that there are three different types of fee and fund structures being used. One with deferred sales charges (back end loads), another as mutual funds under a wrap account with 65 to 165 basis points on top of expense ratios and the last with special classes of funds that add 12b-1 fees of 25 to 65 basis points for record keeping and distribution. They finally ended by stating that "most reporters have been telling employees for years that 401(k) plans are the best thing since sliced bread. I predict that for the next several years, you will be reading in the press about what is wrong with 401(k) plans. And it will start with how much they cost."

I'll go further. Not only will this happen, but company's will be held liable for fiduciary violations of code section 404(c). Further , sooner or later, they will have to provide competent instruction to EE's versus the sophomoric Pablum that most are now receiving.

DISABILITY INSURANCE: This insurance is getting tougher to get due to the massive claims companies have had in the past couple years. Here are a couple ideas if you are looking for a policy.

Income Replacement policy might be better than an own occupation policy (which may be next to impossible to get anyway). Under own occ, you may have to wrangle with the insurance company as to whether you can fulfill the functions of your job or whether selling pencils constitutes a suitable occupation.

Also consider buying residual coverage which is considered better than partial disability coverage. Under residual, part of the difference in income is paid if disabled and you can work park time. Partial pays a set amount- say 50%- but only for a period of time, say 6 weeks to a year.

INSURANCE: (LIS) The NAIC (National Association of Insurance Commissioners) is requiring wholesale changes in policy illustrations since so many agents misrepresented interest rates, mortality expenses, etc. A proposed model regulation includes 13 points. Skip this if you like- it's a little involved. However, your agent shouldn't skip it.

1. Only illustrations after the act is enacted will be covered by the new proposals

2. If a carrier determines that an illustration will be presented, it MUST be delivered to the prospect and the prospect AND agent must sign the illustration indicating they have discussed and understand the non guaranteed elements and that the final results could be different than projected.

3. The products are not directly regulated, but the illustrations however, are.

4. Any illustration must be clearly labeled as such. They must contain the name of the insurer, name and address of agent, name, age and gender of insured, underwriting class, initial death benefit and dividend option of the non guaranteed elements

5. Illustration cannot refer to anything but life insurance. This probably emanated from the illegal practices of presenting them as retirement vehicles. Non guaranteed elements must not be misrepresented; provide an incomplete illustrations, represent that premiums are not required unless that is a fact, use the term vanish or vanishing premium, be lapse supported or represent values that are not self supporting.

6. A new term called the Disciplined Current Scale that the scale of non guaranteed elements must be based on a reasonable recent historical experience and must be certified by an actuary.

7. Projections of elements that have not happened cannot be illustrated. For example, one way to make illustration look better is to adjust mortality rates to be more favorable to rates- i.e. lengthen the actuarial period. True, mortality has lengthened over the last 50 years, but it is NOT correct to use anything that does not reflect the most recent history.

8. Any element used must be supportable. Supportability is measured by a self supported test which requires that only the company's current and recent experience be incorporated into a dividend scale or non guaranteed elements to be employed in a sales illustration

10. A basic illustration must include a tabular value which are calculated using the currently payable scale of experience driven pricing factors. In other words, there can't be tables of values that are falsely illustrated by any means.

11.The clients must sign the illustration page that contains the numeric summary and the carrier MUST retain the illustration for as long as the policy is in force PLUS three years.

12. The carrier must provide an annual report on the status of the policy. If any lapse is imminent, the carrier must notify the client.

13. The carrier must notify the policyholder if there is a negative change on the policy

There's more but the gist of the commentary is that the major organizations and states are requiring wholesale changes for any presentation of insurance. You, as the consumer, should be better protected. Fewer agents will be able to stay in the business simply because they will be unable or to comprehend the implications or unwilling to make the changes.

VIATICAL SETTLEMENTS: If you are terminally ill you may try to sell your policy to receive the death benefits early.

1. You should have owned your policy for at least two years (to get past the period of incontestability)

2. Your policy has a large face value

3. You have a waiver from current or potential beneficiaries (if you use up the money, the beneficiaries won't get it and anybody acting as an adviser faces liability as such.)

4. You may owe federal tax if the payments received are greater than the premiums paid. You may also owe state tax- though apparently California and New York will not levy such tax.

MEDICARE HMO: (Kiplinger's) When you turn 65, you will be eligible, in most all areas, to join an HMO. You will simply pay your same Medicare part B and maybe an additional $5 to $15 per visit. That's basically it. There are caveats in their selection. Here are a couple.

1. Ask about how many people leave. If it's over 15%, it may indicate a problem with that HMO.

2. What is the HMO's accreditation with the National Committee for Quality Assurance. You can call them directly at 800 839-6487. AM Best also has ratings under their Managed Care Reports- HMO. Check with your local library or call 800 424-2378. A rating check is $8 and a full report is $18. Don't be cheap here, your life may depend on the research.

3. Snowbirds. If you live in two states during the year, will your HMO cover you when you move to the other state? Some large HMO's like Kaiser are large enough to offer coverage in their other offices. Others apparently offer up to $2,000 for care for the first 90 days you are gone (three months or half the normal stay of snowbirds) and then cover fully after that- but you'd better check carefully.

And here is another unique idea that deserves copying across the country. Some Medicare recipients earn "credit" for their own subsequent care, or for others they designate, by providing care or work to those Medicare recipients who need it now (bartering, if you will). They can mow a lawn, drive someone to a doctor, pick up groceries, etc. They might even use the credit currently- driving someone around while getting credit to have their lawn mowed. Like the Individual Retraining Account listed elsewhere, it really could provide real benefits at almost no cost to the public at large.

FLORIDAIZATION: (NY Times) Florida has the greatest percentage of the elderly and how they address the problems of so many older people may foretell what other states may do. They have already changed street reflectors to just 40 feet apart verus the standard 80 feet. Paint strips are 6" wide instead of 4". The greatest concern is the mounting debt for disability and chronic illness. Most of the long term care is under Medicaid and the cost is growing. Florida is looking into alternatives such as group homes as one way to reduce costs. Florida did note that their elderly are more affluent, but the retirees are running out of money anyway primarily because they had never budgeted on living so long. Whatever the issues, there are going to be a lot more of them as the baby boomers mature. But gerontologists and most others working with the elderly say that "old age will never be the same". Working to the 70's may be the norm. Living longer and longer is already happening. As my own comment, if you want to live longer and better, exercise, exercise, exercise. The quality of life is directly correlated on how you take care of your body.

SOFT DOLLARS: This has been discussed before but it has now become a serious issues for the SEC. Soft dollars refer to the "refunds" a mutual fund might get for doing its trades with a certain brokerage firm. But this money is apparently being converted to the managers use through free rent or through the receipt of computers and other equipment. Such refunds are only allowable if they are reinvested on behalf of the fund. The SEC, which has previously looked at these as minor infractions where a manager may have simply failed to disclose the problem, is now referring to them as "out and out theft".

COLLEGE COSTS: A recent study showed that college costs rose by 5% for private four year colleges and 6% for public four year colleges. While it has remained at 5% for the last five years, and is smaller than what it was in the past, it still is higher than inflation.

Four year in state tuition increased $155 to $2,966 per year

Out of state increased to $4,738

Private universities increased $607 to $12,823 per year

Two year public colleges increased at 5% to $1,394.

Private two year colleges increased to $6,673

Only about 9% of all college students attend the most elite universities that charge more than $16,000 a year. 42% attend colleges that charge between $2,000 and $4,000 a year for tuition. (Remember all the other costs for room and board, books, etc., etc.)

Room and board at private colleges rose 6% to $5,361` for the 1996/97 academic year. Public room and board rose 4% to $4,152.

Student and financial aid nationwide has reached a record high of $50 billion- with a lot more of it now in loans than in scholarships. This high cost is saddling parents with long term loans. This is one of the major reason that people do not have enough money for their retirement.

SOCIAL SECURITY: In 1956 only 2% of people receiving social security took their benefits before age 65. Today, 68% do.

LONG TERM CARE II: Another new law allows a portion of long term care premiums and services to be used as part of the 7.5% of gross income for medical costs. The limits are indexed to your age as indicated:

AGE Deduction

40 and younger.............................$200

41-50.............................................375

51-60.............................................750

61-70............................................2,000

70+...............................................2,500

Now, not all pre existing policies will be granted the deduction and some states will be a problem (not California) so you need to do some checking.

MEDICARE: Doctors used to be able to charge well above the Medicare limits and then require the patient to pay. Medicare kept forcing the limits down and hence the percentage of doctors accepting Medicare has increased from 72% in 1995 to 78% now. Many don't have much choice since it is either that or no patients whatsoever. A Kiplinger's article tends to state that a doctor can charge no more than $9.25% greater than the Medicare limits.

PAYMENTS IN ARREARS: If you retire and file for social security, you are apt to lose some benefits if you earn too much later on. That can happen if you have deferred comp payments from your company that are paid to you after you leave work- say the next year. Not to worry- just notify Social Security BEFOREHAND so that the red tape can be eliminated. They just need to know in what year the money was earned.



GOING UP: A Scripps and Ohio University 1996 study states that up to 25% of all US citizens are obese and about 75% weigh more than they should. It confirmed what most articles have been saying all along: people who exercise regularly are much less apt to get fat, but only about 12% of Americans actually exercise.

NEUROPSYCHIATRIC CONDITIONS: You have read on numerous occasions about the insidiousness of depression. A study by the Harvard School of Public Health, the World Health Organization and the World Bank showed that the first three reasons for premature death and disability are still infectious diseases, but the fourth is clinical depression. They added when disability is added in, not just death, the impact is "huge". One author noted that "for every disabled person, there is a family of maybe four or five other people who are profoundly affected economically and socially." In these families, there is anger, guilt and fear." Admittedly this study covers the entire world, not just the U.S. But the impact is relevant nonetheless. Depression kills.

DISABILITY INSURANCE: (CA Broker) As noted above, many disability companies have suffered severe losses the past decade. In the past five years, 25 companies have exited the business. Much of the problem was attempting to target a specific market- professionals, corporate executives, etc. This backfired as many opted for disability (attorneys and particularly physicians because they were losing business to managed care and the stress just "got to them.")

Target marketing led to "poorly designed products and underwriting practices that ultimately spelled disaster."

ERROLD F. MOODY JR.

BSCE, LLB, MBA, MSFP, PhD

2295 W. Ave 133

San Leandro, CA 94577

Phone & Fax 510 352-4127