(Complete Show Notes Below)
In this action packed episode of the Financial Procast:
Remember all those really awesome mortgages you could get just a few short years ago? In case you've already forgotten the ingeniuous array of products that the mortgage indsustry served up, I'll refresh your memory–state income loans (aka liar loans), no money down mortgages, 80/20 loans, and the every popular interest only adjustable rate mortgage just to name a few.
It seems that despite all of the really bad ideas the mortgage industry has floated over the last decade, they've decided the idea of a no-money-
down mortgage isn't such a horrible idea if you grant the privilege to qualified individuals.
It looks like BNY Mellon, BOK Financial, and Citi private bank to name a few specifically, have decided that they will not require a 20% traditional cash down-payment to obtain a mortgage from their respective institutions. Instead, they are offering some of their clients the option of instead maintaining an investment account within the same institution that will be allowed to serve as collateral for the traditional 20% down payment.
We can see where this would be appealing to some borrowers. Not having to liquidate investment positions to fund the down payment can certainly save potential capital gains liability. Now, this option only applies to a handful of banks that offer this type of loan and furthermore it only applies to jumbo mortgages (this amount can depend upon where you live).
For more detail on this story, see the marketwatch article.
According to a story published last week by Allison Bell over at LifeHealth Pro, LTCi rate increases are finally catching up to the big mutual companies. For years, the mutuals (New York Life, Northwestern Mutual, Mass Mutual, and Guardian) have been very proud to claim that the reason the rates were higher for their long term care insurance products, was because all the other non-mutual carriers had underpriced the product from the beginning. The implication of making these sorts of claims was that their policyowners might not see the sharp rate increases that have plagued many other players in the LTCi market.
But it came to our attention that New York Life is seeking a rate increase from the Insurance department in Connecticut. They are looking to raise the rates on two specific segments of their long term care policies.
Interestingly enough, NYL said the rate increases are “needed due to higher than expected policy persistency, including both lower than expected mortality and lower than expected voluntary lapses.”
Translation: We had no idea that people would actually buy these policies and keep them until we had to pay claims on them. And people are living way too long, the longer they live the higher our claims experience becomes because they will almost definitely need some type of long term care before they die.
See, actuaries plan on a certain percentage of people taking out a policy and not keeping it. In other words, there's a number of policies that the insurance plans on receiving premium for and plans to never be on the hook to pay any claims. Guess what? Not working out exactly as planned.
A little anecdotal evidence–I had a conversation with an agent who has focused exclusively on selling LTCi for the past 20 years and he told me that in his entire book of business (which was about $5million of annual premium if memory serves) he had a 95% persistency rate. That means that only 5% of the people that bought a policy from him stopped paying for it. You can rest assured the insurers never planned for the high a rate of persistency.
I'm afraid this is not the last we'll hear of rate hikes in regards to long term care insurance, it most likely will continue as insurers gain experience in this market. Keep in mind, the first LTCi policy was just issued in the early-mid 1970's.
You should never underestimate the lengths to which life insurance companies will stoop in an attempt to engage you in a conversation about life insurance. It seems that the marketing department (lunatics) have gained partial control of the asylum in downtown Milwaukee.
If you don't believe me check out the press release.
Northwestern Mutual has come up with something they're calling “The 9-Hole Challenge” in an attempt to engage more of us in conversations surrounding: inflation, budgeting, long term care planning, taxes, legacy planning, social security, market investing, longevity and rising health care costs.
Hey they also give you an opportunity to invite your friends and family to play along. I'm sure the agents won't ask you for a list of all your friends and family though…right?
The number one question we get in discussions with people surrounding the use of cash value life insurance as an asset is , “What happens to my policy if interest rates rise sharply due to inflation?”
First, we talk a bit about understanding the differences between inflation and interest rates. Next, we give a brief explanation as to how the two are related. And finally we give you an idea of how whole life insurance and universal life insurance will react in a rising rate environment.
Last but certainly not least, Brandon drops a little known strategy that you could take advantage of in the event that rates do rise sharply. Trust me, you don't want to miss it. It could be a game-changer is the stars align just right!
We dive deep into this discussion, something you'll definitely want to listen to as I can't really do it justice here.
Contact us if you have any questions regarding this episode or if you have any questions at all. We're always glad to help.
Brantley is a practicing life insurance agent and has been for over 18 years. After years of trying to sell like his sales managers wanted him to, he discovered that people want to buy life insurance if you actually explain the benefits.
Myth: Indexed Universal Life Insurance has Stock Market Exposure – Case Study
Case Study: Whole Life Insurance vs. Bond Strategy
Argument against Permanent Life Insurance: Lack of Fee Disclosure
Argument against Permanent Life Insurance: Low Rate of Return