Should the lowest premium decide which life insurance cover you buy?

Financial planning is not complete without adequate life insurance, most of us would agree. And term insurance at that — particularly if you are earning and have dependents — for it is the most cost-effective option available in the market.

But even the cost of a term cover commensurate with your age and risk profile varies from company to company.

So, should you buy a cover from the company that charges you the least premium for the amount of cover you wish to take?

Experts suggest you look at a number of other factors and not the amount of premium alone.

The most important things to consider are the probability of the claim getting settled in the event of your death, and at the earliest, to avoid financial duress to the loved ones you leave behind. Imagine paying premium diligently for 20 years and then, after your death, the claim being disapproved for one reason or the other. You would also not like it if your family fails to get the sum assured say six months or even a year after your death, would you?.

These two considerations — assurance of the claim being settled and on time — are perhaps what have been driving people to prefer the Life Insurance Corporation (LIC) over the private players.

While such apprehensions may hold in a few cases, a generalisation would be far from accurate.

An analysis of the efficiency of claims settlement of various insurance companies based on the figures submitted by them to the Insurance Regulatory and Development Authority of India (Irda) should be in order.
For the sake of simplicity, we have selected six private life insurance companies and the LIC for comparison.

The private life insurers selected here charge the lowest premium for a term cover of Rs 1 crore, for a 30-year-old male, for 30 years. Note that the premium differs significantly across companies as the age and tenure changes. Hence, in case you want a cover for 20 years or for a lower value, it could just as well be that the cheapest cover is provided by some other insurance company.

Next, we compare their claim settlement ratio and turnaround time for settlement based on the data uploaded on their websites and submitted to Irda for the 2009-10 financial year. Turnaround time is the number of days it takes to settle a claim once all the documents have been submitted to the insurance company. For LIC, the latest such data available is for FY 2008-09, which has been taken.

Please also note that the claim settlement ratio and turnaround time for settlement mentioned in the table are cumulative for all the insurance plans offered by a company and not specific to term plans.

As can be seen, the claim settlement ratio of the cheapest term plan, offered by Aegon Religare, is a poor 48% and it also has the lowest turnaround of 46% within one month.


In comparison, LIC has the best claim settlement ratio of 95%, though its cost of cover is more than three times that of the other insurers.

ICICI Pru’s iProtect plan stands out as one of the cheapest term covers with a respectable settlement ratio of 90% and with 74% of the claims getting settled within one month.

Met Life’s Met Protect plan also compares favourably.

An analysis of the rejected claims reveals that most of them are for policies which are less than two years old. This may be a reason for the low claim settlement ratio of new companies such as Aegon Religare. Whether it improves in future will need watching.

To conclude then, even the private insurance companies have good claim settlement records, even when they are offering the cheapest term plan.
Such analysis should be done periodically to check the consistency and long-term trends before zeroing in on any plan.

Financially Speaking: Life insurance: How much do you need?

No one likes to think about death. Unfortunately, it's going to happen to all of us one of these days.

Life insurance was created to help people protect the financial stability of their families in the event of their premature death. With so many insurance products available today, it's becoming more difficult to determine how much life insurance you need, and which type of insurance is appropriate.

Simple rules of thumb are often used to estimate someone's life insurance need. The income rule calculates your life insurance need at six to eight times your gross annual income. For example, if you earn $60,000 per year, this rule calculates your needed coverage at $360,000 to $480,000.

The income-plus-expense rule calculates your insurance need at five times your gross annual income plus the total of your outstanding debt, plus estimated final expenses and special funding needs such as college expenses. Using this rule, if your income is $60,000 and your combined debt plus funding need totals $150,000, you would need $450,000 of life insurance.

The income replacement method assumes you should purchase enough life insurance to replace the income you could potentially earn throughout your working career, considering future inflation, increases in your earning capacity, and the investment performance of the life insurance proceeds over time.

These rules are overly simplistic, in my opinion, because they fail to consider several important factors:


You may be able to reduce your life insurance need by some or all of the value of your existing investments, although you will need to consider the effect of income taxes and any limitations on the accessibility of those assets. For example, retirement plan assets that might be subject to early withdrawal penalties.
If you are married, have you considered your spouse's future earning capacity after your death? He or she might be able to earn enough to cover your debt payments. Conversely, the death of a parent might create a need to obtain professional household or child care services and that expense should be included in your calculation.
You might have already accumulated a vested pension benefit that is available to your survivors.
Liquidity is a consideration that is frequently overlooked. Although there is no federal estate tax in 2010, it will very likely resume after Dec. 31. The value of real estate or a closely held business could easily take the value of a decedent's estate above the federal or state exclusion. Life insurance can be a cost-effective vehicle to provide your estate with the cash needed to pay the tax and avoid a forced liquidation.
Even if estate taxation is not a problem, life insurance can be used to equalize bequests to your heirs. For example, if one of your two children works in a family business valued at $1 million, you could leave the business to one child and a $1 million life insurance policy to the other.
If there is no one who would be financially harmed by your death, you might not need any life insurance at all.

An experienced independent life insurance agent can help you determine the appropriate amount of life insurance you need and the type of policy to purchase. You should also obtain expert advice regarding ownership and beneficiary designations in order to avoid inadvertently creating a tax problem.

Life insurer Axa sold to Resolution

Life insurance consolidator Resolution Ltd has finalised its takeover of Axa UK Life. Resolution, which also bought up insurance provider Friends Provident last year, is based in the Channel Islands, and is paying up to GBP2.75 billion for the life insurance arm of Axa.

Denis Duverne, deputy chief executive of Axa, commented "This transaction is instrumental in our strategy of further optimising capital allocation within the group while focusing our operations on the higher margin and higher growth segments of the UK life and savings market ."

The acquisition of Axa UK Life by Resolution, which led to the suspension in trading of Resolution's ordinary shares from the London Stock Exchange, has been called a reverse takeover .

There have also been a few changes within the company due to the deal. Although Trevor Matthews will remain as chief executive officer of Friends Provident Holdings, David Hynam has been appointed as executive director of operations for Friends Provident Holdings, and Andy Parsons will become interim finance director. Both Hynam and Parsons previously worked at Axa.

Resolution provided a statement on the moves: "A new organisational structure is being implemented which will broaden the complement of top management in the business."

Life Insurance: Think Before You Sell Your Policy for Cash

It's no wonder why many older adults are considering selling their life-insurance policies to strangers: They're looking to shore up their finances. After all, the economy is slumping and the stock market is in a 10-year funk. The strategy, though, might not make as much sense as it did a few years ago, thanks to a steep decline in the prices investors are willing to pay for policies.

In a so-called life-settlement transaction, an investor buys a stranger's life-insurance policy for a lump sum and continues paying the premiums until the policyholder dies, at which point the investor collects the death benefit. The sooner the insured person dies, the greater the return to the investor.

The cash windfall may sound great. But before making a deal, consult a trusted adviser. There may be better options for any policy you own, and commission-paid brokers may not volunteer these alternatives or even understand them themselves.

There also are taxes to consider. A 2009 Internal Revenue Service ruling raised the tax bill for many who sell their policies.

The life-policy secondary market dates back to the 1980s, when AIDS patients sold their policies to raise cash for medical treatments. In recent years, it has evolved into a place for older adults to unload "permanent" life policies—designed to be in place until the policyholder dies, rather than for a specified number of years—they no longer need or can afford.

Hedge Funds Pile In
The market boomed earlier this decade, as hedge funds eager for offbeat alternative investments piled in. With demand keen, older adults typically netted more than they could by surrendering a policy to the insurer for a lump-sum payment.

But things have changed since the credit crisis of 2008-09, and investor enthusiasm for life settlements has yet to recover. After growing rapidly, the total face value of policies purchased in the secondary market fell to $7 billion in 2009 from $13 billion in 2008, according to industry estimates.

Prices for policies, meanwhile, fell to an average of 13% of the death benefit in 2009 from 21% in 2006, according to a recent report by the U.S. Government Accountability Office.

Various factors, including investors' concern about the reliability of life-expectancy estimates, have contributed to "make this current market a buyer's market," says Doug Head, executive director of Life Insurance Settlement Association, a trade group in Orlando, Fla.

The bottom line: "You should think very carefully before you decide to sell," says Richard Connolly, an insurance agent at Ward & Connolly in Columbus, Ohio. With buyers often making stingy offers, "we believe there is often a strong economic case for policyholders to hold on to their policies, provided they have the wherewithal to keep them in force."

Options for Sellers
There are several alternatives to life settlements. Policyholders can often withdraw or borrow funds from a policy or restructure the coverage to make premiums more affordable, for example. There also are tax-efficient ways to exchange one policy for another one that might better suit your current needs, such as a retirement-income annuity.

With a well-conceived strategy, a policyholder can free up cash while preserving at least some portion of the death benefit for heirs, says Caleb Callahan, vice president of investments at ValMark Securities Inc., an Akron, Ohio, independent broker-dealer that specializes in life insurance.

Which option makes the most sense depends on factors including the policyholder's financial goals and health and whether the policy has "cash value," which is a form of savings that accumulates inside permanent-life policies.

If your policy has built up a lot of cash value and you want to access it, you can take out a loan against it. Under New York Life Insurance Co.'s Access Plus program, for instance, clients who are 65 or older and meet certain health requirements may be able to borrow even more than a policy's cash value. As with other types of loans, borrowers must repay the principal and interest, or heirs will see those amounts deducted from the death benefit.

Instead of taking out a loan, consumers with certain types of policies can withdraw at least a portion of their cash value. Although this approach reduces the ultimate death benefit, says Mr. Connolly, it saves on interest expense.

There are caveats: Under some circumstances, loans or withdrawals can trigger tax bills, says Gary Cotter, a certified financial planner at Cotter Financial LLC in Sun City Center, Fla. Moreover, if you substantially erode your policy's cash value, you may face significantly higher premiums down the road, or your coverage will lapse.

'Accelerated' Benefits
Some policies also allow those with a terminal illness to take at least some of a policy's death benefit tax-free. To qualify for an "accelerated death benefit," a policyholder has to obtain a certification from a physician that his or her health condition could "reasonably be expected to result in death within 24 months," according to the IRS.

If you are too cash-strapped to continue paying premiums, some advisers recommend asking your heirs to cover all or a portion of the cost. Each heir can give you a maximum of $13,000 this year free of gift tax.

Another option: Ask the insurer to scale back the death benefit to a level at which you can afford to make payments. Or keep the same death benefit, but reduce the period for which the coverage will be in force.

Susan Bruno, a certified public accountant at Beacon Wealth Consulting LLC in Rowayton, Conn., recently advised a 78-year-old facing a potential estate-tax bill to hold on to a $3 million universal-life policy rather than sell it to investors for $800,000. She recommended the family pay just enough—$85,000 a year—to fund the policy for the next eight years.

If the policyholder lives longer, the family is likely to face substantially higher premiums. But given the policyholder's health, the heirs are willing to take the risk, Ms. Bruno says.

Those who have paid more in premiums than they have amassed in cash value may want to consider a tax-free exchange of their policy for another type of coverage, such as a combination life-insurance and long-term-care contract or an annuity, says ValMark's Mr. Callahan.

Such a move can net substantial tax benefits. One client of Mr. Cotter's recently swapped a $700,000 policy, which had a cash value of $20,000, for a deferred annuity. The policyholder had paid $100,000 in premiums, which meant there was an $80,000 investment loss. As a result, the annuity can appreciate by $80,000 before tax is owed on withdrawals.

RBC seeks to sell US life insurance arm

Royal Bank of Canada is seeking a buyer for a bulk of its US life-insurance arm a decade after it acquired the unit as part of an ambitious strategy to sell financial services in the world’s largest economy.

The bank has been working with Goldman Sachs for several months on selling the unit, which trades as RBC Insurance but is legally registered as Liberty Life Insurance, according to people familiar with the matter.

RBC, Canada’s largest bank by assets, said on Tuesday that it would not comment on speculation about the future of the insurance unit, based in South Carolina. Goldman Sachs also declined to comment.

Apart from a small travel insurance business, Liberty makes up all of RBC Insurance. The potential sale of the unit was first reported by Bloomberg.

People familiar with the sector said that RBC could struggle to attract interest in the business, as companies that had previously been buyers of individual life insurance businesses were now scaling back in that area.

RBC has said that its focus in the US is on expanding its capital markets and wealth management business. The bank is already among the world’s top 20 money managers and almost three-quarters of its capital markets business is outside Canada.

Gordon Nixon, chief executive, told the Financial Times last year that there was “no hurry because there are going to be lots of opportunities and lots of restructuring in the financial services industry over the next five years.

“So if you do something, you want to make sure it’s very sensible and very strategic.”

RBC bought Liberty in 2000 as part of a drive to expand south of the border across a broad range of activities, including retail banking, wealth management and capital markets.

The US contributed 22 per cent of RBC’s total revenues but less than 3 per cent of net income in the three months to April 30.

Its retail banking operations, centred in the south-eastern US, have been through several restructurings in a bid to staunch losses.

The insurance arm, which has assets of about $4bn and employs some 200 full-time agents, has been too small to make an impact. Revenues totalled $733m in the six months to April 30, up from $549m a year earlier. The unit has gone through several chief executives under RBC’s ownership.

Like Canada’s four other biggest banks, RBC has been relatively unscathed by the financial crisis.

Are Life Insurers Playing Fair?

Every day, it seems, another lawmaker or regulator is calling for a probe of how life insurers pay out death benefits.

One concern: whether beneficiaries understand their options for getting money due when an insured person dies.

Often insurance firms put policy proceeds into interest-bearing accounts and provide what many call "checkbooks" for withdrawals, rather than mailing a lump-sum check. With the checkbook, which is not the same as bank-account checkbook, the beneficiary may withdraw all or part of the money.

The checkbook approach has been around since the 1980s. But a July Bloomberg Markets magazine article put a human face on the subject—the mother of a soldier killed in Afghanistan who feels misled—bringing it widespread attention.

The industry promotes the accounts as a useful service for people too bereft to make quick financial decisions. But regulators are looking at whether insurers should be required to offer consumers a lump-sum check, whether it is appropriate for insurers to profit from the money they hold for beneficiaries and whether insurers adequately disclose that their accounts aren't insured by the Federal Deposit Insurance Corp.

Aviva to sell life insurance via Santander

Aviva, Britain's second-biggest insurer, said the agreement with the Spanish bank gave it access to a 25-m strong customer base.

Santander already sells Aviva's general insurance products and will add its life insurance, critical illness and income protection policies under a five-year scheme starting next June.

Nearly Half The UK's Population Have No Life Insurance

Amongst those who currently have life insurance policies, 53% had no idea how much they would receive if they were to make a claim. This suggests that they don't know whether they have adequate cover in place. It is also highly likely they haven't reviewed their cover recently and so could therefore be paying over the odds.

Richard Morea, Technical Manager at L&C said, "Consumers are clearly burying their heads in the sand and adopting an 'it won't happen to me' stance. We urge people with no cover to take action now to protect their family in the event of the unforeseen happening. Those with cover should understand exactly what it will provide in the event of a claim. If it is sufficient, they should review the cost. L&C's online 1 minute life insurance check calculator will quickly show them if savings can be made. In addition they should review whether their cover is still adequate and if it's not take expert advice'.

For a free life insurance review, speak to one of L&C's expert advisers on 0800 073 1932.

AIG to sell foreign life insurance arm for $15.5bn

AIG, which last week agreed to sell AIA, its Asian life business, to Prudential for $35.5bn, has agreed final terms for the disposal of to sell its overseas life and health insurance arm Alico to MetLife for $15.5bn.

The deal, which was announced yesterday – after weeks of intense negotiations and over a year of talks – will provide AIG $6.8bn in cash, with the remaining $8.7bn coming in MetLife shares and options.

The deal will see AIG ending up with a 20pc stake in MetLife, making it the company's second-biggest shareholder, and giving US taxpayers – who control 80pc of AIG's shares – a stake in a second major US insurer.

The cash will be added to the $25bn cash it will receive on completion of the AIA sale, and means the troubled insurer will be able to significantly pay down the credit line it has with the Federal Reserve Bank of New York.

At the end of December, AIG owed $47.3bn to the US Treasury, and $47.9bn to the new York Fed.

"Both sales give AIG greater flexibility to move forward with our restructuring and rebuilding efforts," said Harvey Golub, AIG's chairman.

Like AIA, which AIG had considered floating in Asia, Alico had been the subject of internal discussions regarding a stock market listing in New York since at least July last year.

The discussions continued in spite of talks with MetLife over Alico, which began in early 2009 under former chairman Ed Liddy's tenure, and restarted in the late summer, by which point Mr Golub and AIG chief executive Bob Benmosche had been appointed.

Mr Benmosche ran MetLife from 1998 until 2006, and was responsible for taking it public in 2000. However, he was not part of the Alico sale talks.

Alico, which began life in Shanghai in 1921, has 20m customers in more than 50 countries, with significant operations in central and eastern Europe as well as Latin America and the Middle East, plus Japan and the UK.

90% of critical illness claims paid out

New figures from the Association of British Insurers (ABI) show over 100 families and individuals a day claiming on their life or critical illness insurance, during 2008.

According to the ABI, the average claim stood at £52,000 or double the average UK annual salary.

In addition, the number of critical illness claims paid out rose to 90% in 2008, compared with 80% in 2005, and for life term assurance, 97% of claims were paid last year.

The ABI believes its new Code of Practice has led to less claims being declined due to non-disclosure and says it is now working with its members to tackle the number of claims declined because they don’t meet the definition of “Total Permanent Disability”.

The ABI’s director general, Nick Starling, comments: “The insurance industry pays out £5.9 million every day in life and critical illness insurance claims, making a real difference to people’s lives at the most difficult of times.

He adds: “The new ABI code is making a dramatic improvement to the number of critical illness claims we pay.”

The ABI has also been working with the Law Commission which is reviewing an aspect of insurance contract law that has resulted in huge numbers of claims being rejected over the years.

Under the Marine Insurance Act 1906, the consumer has a duty of disclosure when completing an insurance proposal form.

Currently policyholders answer the questions asked by their insurance company but are expected to disclose any other facts that may be relevant to the insurer, without necessarily knowing what factors the insurer will take into account when accepting a risk.

Health exclusions should equal premium cuts

LifeSearch is advising consumers to seek premium reductions when health conditions are excluded from their protection insurance.

The price comparison website estimates that one or more illnesses are excluded in around 15% of critical illness and income protection applications.

In such cases, the extent of the policy is reduced but not necessarily the premium.

According to the firm, not every insurer will reduce costs, although some have now taken a stand and agreed to make premium cuts.

The firm urges consumers to remember that if they take out a policy and a significant exclusion, such as Cancer, is added, there are insurers who will treat them fairly.

LifeSearch senior policy adviser, Matt Morris, says: “If they refuse, speak to an independent adviser who can find you an insurer that will.”

He adds: “Remember that the way to avoid exclusions – other than the general ones, such as war and suicide – in the first place is to take out a policy while you are still healthy. Don’t wait until disaster strikes.”

Widow of banker settles life insurance case

The widow of a banker whose employer fired him and then collected on a life insurance policy when he died has settled her lawsuit against the employer for an undisclosed amount.

Irma Johnson sued Amegy Bank after she discovered because of a post office error that the bank received $4.7 million when her husband died of brain cancer in 2008. Dan Johnson had been diagnosed with the terminal cancer before the bank bought policies on him and more than 40 other bankers in 2001, according to her lawsuit.

Amegy fired Dan Johnson a few months after it purchased the policies.

The industry refers to such life insurance as “dead peasant” policies. They provide tax benefits for employers who take out the insurance, and a windfall if the covered employee dies, typically without paying anything to surviving family members.

In her lawsuit, Irma Johnson asked for the net proceeds Amegy received, $3.8 million — the death benefit minus the premiums Amegy paid. Under terms of the settlement Thursday, neither party disclosed its details.

“We settled to the mutual satisfaction of both parties,” Amegy Bank spokeswoman Leigh Akin said.

Johnson's lawyer, Mike Myers of McClanahan Myers Espey, also said only that both sides were satisfied.

Insurance market to grow fast in coming years

The "Vietnam's Insurance Sector Forecast To 2010" report, according to the report, Vietnam’s insurance market, one of the fastest growing markets in the world, has expanded rapidly over the past few years.

The life insurance market in Vietnam seems very promising as the country has a population of over 85 million people, with only eight life insurers. Thus, life insurance market can prove to be a boon for foreign life insurers.

The report forecasts that during the 2008-2010 period, Vietnam ’s insurance industry would grow at a Compound Annual Growth Rate (CAGR) of around 22 percent; life insurance is projected to hit a CAGR of about 12.1 percent; and non-life insurance industry is expected to grow at a CAGR of 29 percent./.

Becoming Familiar with Life Insurance Death Benefit Essential,

No one likes to think about it, but a proper life insurance policy is essential to anyone who wants to make sure their loved ones are provided for even after they themselves have passed on. But to design the right life insurance policy, individuals have to familiarize themselves with all the aspects of life insurance policy, including the most important of details, the death benefit.

According to a new InsuranceAgents.com article, "Life Insurance Death Benefit: What It Is And How It Works," a death benefit is what the policyholder's family (or other beneficiary) gets when the policyholder has passed away. This money can help the surviving family members make ends meet during a time of intense grief. They can pay their bills, any debts left behind by the policyholder, mortgage payments, or even just pay for college.

"Remember that the first obligation of a life insurance policy is to ease the burden of your debts and financial requirements that your family must face upon your passing," the article states. "If you so choose and have the means to do so you can include extra benefits to continue or improve your family's lifestyle."

The death benefit can be a lifesaver during an emotional time. There are two ways the death benefit can be awarded to the beneficiary(s):
• One lump sum in the amount of the life insurance policy
• A series of periodic payments in the form of either a fixed or variable annuity
To determine the appropriate amount for a death benefit, individuals should contact their local life insurance agent. The death benefit amount will be based on the individual and family's personal lifestyles and situation. For more information, or to receive free life insurance quotes, visit InsuranceAgents.com.