For anyone who has lived through the cell phone revolution, the tasks that these devices can perform are nothing short of miraculous.  In fact, as far as I am concerned, it’s basically magic how useful they are from day to day, particularly when I travel.  But think back to the days when they were huge, clunky devices that were extremely expensive and could really only accomplish one task – making a phone call.  Less known though is just how life insurance products have evolved on a similar track in a similar time frame.  If you have an old life insurance policy, you might be due for an upgrade.

In the early 1980’s, life insurance companies began to develop a brand new product, called Universal Life Insurance.  This tool had an advantage over traditional cash value life insurance in that it was more flexible, you could allow the cash value build up to take the place of the death benefit or you could even let it pay your premiums for you for a while if you had enough cash value in your policy.   Over time the next evolution allowed for the cash value to be invested in funds that mirrored the stock market, generating huge returns in bull markets but of course creating problems for policy holders in bear markets.

If you have a cash value life insurance policy in force, whether it is fully paid up or if you are still paying premiums each month, you should take a moment to look at what is now available to you in the new cash value life insurance products.  Let’s take a look at some of the things that might tempt you to make a switch to a more modern insurance policy.

Let’s start with mortality tables.  These are tables which predict how long the average person will live given their current age.  When you purchased your cash value life insurance policy, it is likely that your insurance company based your monthly premiums on a mortality table that is now out of date.  People are living longer now and longer lifespans should generate lower life insurance rates.  But if your policy is locked in to an old mortality table, then you are being charged rates that anticipate that you will live a shorter lifespan than now may be the case.  A new policy, based on new mortality tables has the potential to save you a lot of money on your monthly life insurance premiums, even though you are older now.

Administrative costs – If your cash value policy is old enough, say 15 years old or more, you may have built in administrative costs in your policy that are costing you more per month, and/or limiting how fast your cash value can grow inside your policy.  You see, back then life insurance companies, which were very slow to get into the computer game, had not automated a number of their clerical functions, even simple ones like going in and adjusting the growth or interest on the cash value of your account.  Using hundreds and even thousands of clerical persons to handle this was very expensive.  Additionally, they had to rent office space and maintain premises to house all of these workers each day.  Most of that is all gone now and computers have taken on these tasks.  As a result, far fewer people work for these insurance companies and they rent far less real estate.  But, if you have an older policy, those expenses are still built into your policy and you are now paying for ghost employees and empty office buildings. And these expenses are pure profit to your life insurance company.   A new policy will save you from this expense.

Indexing – the new way to grow your money.  Most older, cash value life insurance policies have very rigid investment options that severely limit how your money can grow.  Indexing in life insurance refers to a technique where your money is invested in very safe, low yielding investments for the most part, but the insurance company will buy options on stock market indexes and convert these options if the market goes up and allows them to do so at a profit.  What this means for you in general terms is that your cash value can now earn a large percentage of any stock market gains while avoiding any losses when the market goes down. If you can avoid losses, this technique alone can make a huge difference in how fast and how far your cash value inside your life insurance policy will grow.  Indexing is a powerful tool that can help you end up with a lot more money in a long term investment like cash value life insurance.

Long Term Care – some cash value life insurance policies will now allow you to collect a portion or even all of your life insurance death benefit before you die to use on long term care for yourself as you age and become unable to care for yourself.  This is a powerful feature because it does not require you to move to a long term care facility to collect the funds.  You can use them so that you can continue to live in your own home and hire care givers to help you stay there as long as you are comfortable with that.  Most long term care policies are not this flexible and besides, their cost is very high.  Here you are just using your death benefit as a living benefit for yourself.

Retirement Bucket – this new feature is found on fewer new policies but is catching on and may soon be very commonplace.  Some of these new cash value life insurance policies will allow you to create a bucket where you can dump in money for your retirement, either from a 401k or from non tax deferred funds.  Either way, the advantage is that you will be able to create a lifetime income that you can’t outlive.  This means that as long as you are alive you will receive monthly payments no matter how much that adds up to over your life time.  And the real power of this bucket is that you will be able to generate a much higher monthly amount given each dollar of cash value than any other method of distribution will allow.  This could make a big difference in your retirement lifestyle.

At Clinard Insurance Group we want all of our clients to be informed insurance consumers.  If you would like help with your life insurance, or your auto or home or business insurance, please call us, toll free, at 877-687-7557.

There’s a shifting of the ground underneath the NC homeowners insurance market.  The traditionally regulated rate making process is being undermined by a long forgotten loophole and this is fundamentally changing the way that insurance companies in NC are pricing their product.  This is a creeping phenomenon and if the regulators in this state don’t take some action soon, then we will be left with a sorry hybrid rate making process that could leave some homeowners paying far more than their share for their home insurance and some homeowners going bare when they didn’t even realize it.

Homeowners insurance rates in North Carolina are heavily regulated by the NC Rate Bureau and the NC Insurance Department.  In fact insurance companies have to file the rates that they want to charge and then wait for them to be approved.  For the past 30 years or so, the Rate Bureau has set the maximum rate levels that the insurance companies could charge for home insurance.  The level of competition during this time was such that most insurance companies filed their rates below these levels, often as much as 50% or more below the rate maximums.  But in the past two years we have seen a sea change in the appetite for more home insurance business from insurance companies operating in our state.  They have lost more money than they wish to lose and now the trends have dramatically changed their approach from one of seeking more new home insurance business to trying to find ways to get rid of the policies that they have.

The search for a way to return to profitability in NC homeowners insurance has led the insurance companies to try and find ways to get higher premiums on the homeowners policies in their book of business.  When they started increasing their rates, they pretty quickly ran up against the maximum rates that they are allowed to charge.  These are the maximum rates that the Rate Bureau will allow them to use.  But there is a way around these maximums.  The law states that if the insurance company can convince the homeowner to sign a form that gives them permission to charge rates higher than the Rate Bureau maximums, then rates can go as high as the insurance company wants to take them.  The form that homeowners sign to give their insurance company the right to charge them rates above the NC Rate Bureau rates is called the consent to rate letter.

This loophole with the consent to rate letter was designed to give the insurance companies a way to charge a more appropriate rate to the rare situations where a homeowner has some inherent risk that makes them unattractive to insurance companies.  It was meant to be used only rarely this was the case while the Rate Bureau’s maximum rates were much higher than the rates that the insurance companies wanted to charge. 

The problem now is that with our current rate structure in NC, the rates are just too low.  And the only solutions that the insurance companies have are to either cancel policies or have their clients sign consent to rate letters.  This is like trying to open the battery cover on your cell phone using only a hammer.  In the process you destroy the phone.  The consent to rate letter is a clunky, unwieldy tool to increase rates.  In fact when it is used as often as we see these days, it is really just an end run around the rate making regulatory power that the Rate Bureau is supposed to control.

So how does this work for the homeowner.  Well, if you are one of the ones selected by your insurance company, then you will receive a consent to rate letter with your renewal bill.  If you sign the consent to rate letter, then you will be agreeing to a huge increase on your premium.  If you don’t then your home insurance policy will be cancelled by your insurance company.  So it is sort of an all or nothing approach, some homeowners will escape completely; perhaps because they have never filed a claim or because their auto insurance policy is making enough money for the same insurance company to make up the difference.  These unaffected homeowners will enjoy dramatically lower rates than those chosen for consent to rate letters.  This subdividing of the insurance marketplace for homeowners insurance will, over time, put great stress on the system.  In addition, there is the very real risk that many homeowners will not read or understand the letter and may fail to return it.  They then will not receive a renewal bill and may not discover, until after a large loss has occurred, that they don’t have any homeowners insurance in place.

The solution here is probably to have the Rate Bureau increase homeowner’s insurance rates much more quickly than we have seen.  I understand why they want to move slowly, and since this year was an election year, it was unlikely that we would see increases approved by the Insurance Commissioner.  Now that the elections are behind us, I would like to see the Rate Bureau address this issue and take back control of the rate making process, or choose to scrap it completely.  This hybrid system that we are stuck in right now is not good for consumers or insurance companies.

If you receive a consent to rate letter from your insurance company, I would advise that you not blindly sign and return it.  There may be other options available to you.  First call your agent and try to determine why you were on the list to receive a consent to rate letter.  Next, see if your agent has any other options for you.  If you are still not satisfied, give us a call at 877-687-7557 and we will help you find a solution that works best for you.

At Clinard Insurance Group, located in Winston Salem, NC, we insure thousands of families all across North Carolina.  We will be happy to take your questions on your home or auto insurance and help you better understand just what your options are for the future with these policies.  Give us a call; you will be glad that you did.