Insurance for reality tv shows

I admit it. I'm a fan of reality tv. Not only that, I don't understand the disdain people hold for that genre. I don't see a bright line between "scripted" and "unscripted" shows. Plenty of so-called scripted shows feature ad libs or at least input by actors. Reality shows are plotted, just by people whose job title is producer rather than writer. I liken the process to eliciting testimony at trial. You can prep your witnesses, you can ask the right questions, but sometimes it's the unexpected answer that leads to magic (or the money shot).

Here's a great article by Emily Holbrook at Risk Management Monitor on insurance issues for reality tv. Best quote:

What types of reality shows spur the most insurance claims?

LM: Many times it’s more of the “walk and talk” shows as opposed to
those with stunts that spur the most claims. Audience members are often hurt
while being moved in and out of the auditorium.

I'm waiting for the lawsuit by the estate and family of Russell Armstrong from Real Housewives of Beverly Hills.

On a related note, here's an article on how game shows insure large prizes.

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Michigan Health Plan Tax Lawsuit Tests Business Community Priorities

A lawsuit filed last week in Federal Court seeking a declaration that Michigan’s Health Insurance Claims Assessment Act is preempted by the Employee Retirement Income Security Act (ERISA) will certainly test existing legal precedent, but perhaps the more interesting test will be how the business community responds.

This blog previously reported that officials from one prominent business organization in the state had no intention of pushing back against the legislation at the time citing both internal and external political concerns. That said, they suggested that there would likely be “private” support of a legal challenge from within their organization if in fact the law was challenged.

It will be interesting to see how this “leading from behind” approach plays out. In a conversation with my source shortly before the lawsuit was filed, it was noted that Michigan self-insured employers are now starting to pay more attention to the law and what it means to them.

More specifically, this blog has learned that one prominent multi-state self-insured employer based in Michigan calculated its yearly projected expenses to comply with new law to be more than $250,000. Of course, the administrative headaches are just a bonus.

But even with such a direct adverse impact on their company, senior company executives remain guarded about expressing opposition to the new law.

Now that the legal flaws of new law have been laid bare in the detailed complaint filed against the state and word is starting to get out about its practical impact, we’ll see if any heads pop up out of the foxholes.

And while the this legal challenge is important to self-insured employers in Michigan and to other entities that pay healthclaims for Michigan residents for services received within the state, its significance extends more broadly.

Michigan is not the only state that is strapped for cash and looking for new revenue streams. If its new health plan tax law goes unchallenged, this will likely embolden other states to consider this same approach and the cornerstone of ERISA preemption will be greatly compromised, and with it, the viability of self-insured health plans.

I suspect that if Michigan self-insured employers in large numbers estimated the financial impact to their balance sheets if they were forced to switch to fully-insured health plans and publicly communicated this to policy-makers and business association leaders early on this train would have been pulled off the track before arriving at the courthouse door.

The state has declined to comment on the lawsuit thus far but is required to file a formal legal response in the next 30 days so it will soon become clear how they intend to fight this challenge.

Perhaps the business community may yet demonstrate some clarity with regard to where it stands.

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A Tale of Two Domiciles...Revisted

We suggested a narrative earlier this year that two southern captive insurance domiciles would be worth watching to compare and contrast based on insurance commissioner appointments in each state. Let’s review.

The captive industry in South Carolina fell on hard times during the regime of Insurance Commissioner Scott Richardson who left office at the end of 2010. When newly-elected Governor Nikki Haley named David Black as his replacement in February, this blog reflected the puzzlement expressed by many industry and political insiders.

Mr. Black was a largely unknown quantity aside from being the CEO of an inconsequential life insurance company.

But the sparse resume and lack of ART industry credentials didn’t deter Governor Haley from appointing Mr. Black and pronouncing him as a savior. Consider her comments when naming him to the position where she said “Understanding the importance of your industry, I chose David Black to lead the Department of Insurance. He has the energy and capability to revitalize the captive industry for our state.”

As it turned out, he had neither

Earlier this week, Mr. Black abruptly announced his resignation to his staff via e-mail giving no specific reason for his decision.

So now Governor Haley has a chance for a second bite of the apple to get it right. This means naming someone to the position who is willing and capable to shake up the bureaucracy within the department and establish a firewall between the regulation of traditional insurance companies and alternative risk transfer programs, as originally envisioned by former commissioner Ernie Csiszar more than a decade ago.

A tall order for sure and we’ll be watching.

A very different story continues to play out in nearby Tennessee where Governor Bill Haslam tapped Julie Mix McPeak to head up the insurance department in that state.

This blog noted that Ms. McPeak had both the credentials and reputation to turn heads within the ART marketplace when word of her appointment surfaced. But her future success was not assured.

The first order of business as it related to the ART industry was to shepherd a bill through the Legislature that made comprehensive updates to the state’s captive statute. This effort proved more difficult than expected but Ms. McPeak was up to the task and that legislation, which she helped draft, was signed into law.

Since that development, she has been working methodically to assemble a top notch regulatory team and now most of the key positions have been filled and she introduced these individuals at an industry event earlier this month.

So armed with a progressive captive stature and a regulatory team inspired to transform Tennessee into a premiere captive insurance domicile, the stage has now been set for her to make it happen.

But let’s not get ahead of ourselves as there are certain to be pitfalls ahead as the domicile finds its footing under Ms. McPeak’s leadership in 2012. That said, the fact that leadership is on display is certainly refreshing for those vested in the growth of the ART marketplace.

This tale of two domiciles will continue.

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Happy New Years, Everyone.

I wanted to post some funny insurance jokes today, but after wasting a lot of time searching the web I couldn't find any that were actually funny. So I asked my ten year old daughter for the best joke she knows. This is what she said:

An alien comes down from Mars. He changes into the form of a human except he doesn't give himself any ears because he thinks they look weird.

He starts a business and puts a "Now Hiring" sign on the window. The first person comes in to ask for a job. The alien asks, "Do you notice anything odd about me?" The person says, "Yes, you don't have any ears." The alien disintegrates him on the spot.

The second person comes in to ask for a job. The alien asks, "Do you notice anything odd about me?" The person says, "Yes, you don't have any ears." The alien disintegrates her.

The third person comes in to ask for a job. The alien asks, "Do you notice anything odd about me?" The person says, "Yes, you're wearing contacts."

The alien says, "How did you know that?"

The person answers, "You can't wear glasses if you don't have any ears."

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Appeals court holds judge not required to give jury instruction on presumption of consent to use vehicle if contrary evidence has been offered

McConnico, an employee of Dollar Rent-A-Car, struck and killed Kohlmeyer, a pedestrian, while he was driving one of Dollar's automobiles.

McConnico's primary responsibility was to deliver automobiles to hotels. On the evening before the accident McConnico took a Dollar vehicle to run a a personal errand. The accident occurred as he was driving the car back to Dollar the next day.

McConnico had signed a written acknowledgement when he was hired that he was prohibited from using company rental vehicles except under the direction of a Dollar manager, and that unauthorized use of a vehicle was grounds for discharge. He was in fact fired on the morning of the accident for violating the policy.

There was evidence that personal use of Dollar automobiles was commonplace and few employees were reprimanded for doing so.

Dollar and its excess carrier filed a declaratory judgment action seeking a declaration that there was no coverage because McConnico did not have express or implied permission to drive the car.
The excess policy provided coverage for liability incurred by Dollar and "anyone . . . using with [Dollar's] permission" an automobile Dollar owned.

After trial the jury returned a verdict that McConnico was an unauthorized driver, thereby finding no coverage.

On appeal, Kohlmeyer's estate argued that under Mass. Gen. Laws ch. 231, § 85C*, McConnico was presumed to be driving with Dollar's express or implied consent. The statute states that in certain circumstances in cases against automobile insurers a driver is presumed to have consent to drive a car.

In United Nat'l Ins. Co. v. Kohlmeyer, 81 Mass. App. Ct. 32 (2011), the Massachusetts Appeals Court held:

The presumption embodied in G. L. c. 231, § 85C is part of a legislative structure
supporting the Commonwealth's compulsory motor vehicle insurance requirements.
Read in the context of the statutes to which § 85C refers, the support structure operates in this fashion. An insurer's liability under an automobile policy “insuring against liability for loss or damage on account of bodily injury or death” becomes absolute when a covered loss occurs and is not conditioned on an insured's payment of the loss to the injured party. See G.L. c. 175 § 112, amended by St.1977, c. 437. If the injured party obtains a judgment against the insured, the injured party is entitled to bring an action against the insurer to reach and apply the insurance proceeds.
See G.L. c. 175 § 113; G.L. c. 214 § 3(9). In an action to reach and apply, the
presumption desired by the estate applies but, as § 85C expressly states, only if the plaintiff is seeking to “reach and apply the proceeds of [a] motor vehicle liability policy, as defined in” G.L. c. 90 § 34A.

The court noted that the statute applied only to compulsory policies, and the policy at issue was excess, not compulsory.

It went on to hold that even if the statute had applied, the presumption would have been enough to meet the estate's burden initially, but it was rebuttable, "and continue[d] only until evidence [was] introduced which would warrant a finding contrary to the presumed fact." Because there was such evidence, the judge was not required to instruct the jury on the presumption.

*This link is to the statutes posted by the Commonwealth of Massachusetts. Massachusetts Lawyers Weekly recently ran an article explaining that this website is not updated frequently, and recent revisions to statutes are not shown.

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Gap insurance

Here's an interesting article at The Frugal Toad on a type of insurance I'd never heard of. I was hoping that Gap Insurance might cover the jeans my kid spilled tomato sauce on just after I bought them. But it actually covers the difference between the actual value of a new car and what you paid for it, since new cars lose their value the instant you drive them off the lot.

Another solution to this problem: Don't buy new cars.

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U.S. District Court holds that insurer who wrongfully denied duty to defend must indemnify insured where question of duty to indemnify is in equipoise

A couple of days ago I wrote about Manganella v. Evanston Ins. Co., 2011 WL 5118898 (D. Mass.), in which Evanston Insurance Company denied coverage for a sexual harassment claim because the misconduct began before the policy period.

At issue was the MCAD claim of Burgess against her employer, Jasmine Company, alleging that she had been harassed by Luciano Manganella since she began her employment a couple of years before the Evanston policy went into effect. At a deposition she clarified that although Manganella had made inappropriate comments prior to the policy period, she had not felt physically or emotionally threatened by him until after the policy period began.

Evanston made an argument that I don't quite understand that it was entitled to rely on readily knowable facts outside the complaint to deny coverage. (I don't understand it because the black letter law it cites states that facts outside the complaint may be used to trigger the duty to defend, not the opposite; and because the facts outside the complaint appear to trigger coverage rather than show no coverage.)

The court rejected Evanston's argument. It went on to hold that because it had breached its duty to defend Jasmine, Evanston is liable for the costs of settlement reached with Burgess. Although a breach of the duty to defend does not provide an automatic right to indemnity, an insurer that has wrongfully declined to defend a claim has the burden of proving that the claim was not within the coverage of the policy. "Because the evidence on this later issue is in equipoise, Evanston has not met its burden of showing coverage did not attach."

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U.S. District Court holds that continuing violation doctrine does not apply to insurance coverage disputes

Luciano Mangenalla owned and, after selling the company in 2005 to Lerner, managed a women's clothing boutique called Jasmine.



In 1998 Jasmine was sued by Sonia Bawa, a former employee, for sexual harassment. In the wake of the lawsuit Manganella caused Jasmine to purchase an Employment Practices Liability Insurance (EPLI) policy from Evanston Insurance Company. The insurance application stated that, except for the Bawa matter, Jasmine was unaware of any outstanding instances, real or alleged, of claims of wrongful employment practices including sexual harassment. Burgess, Jasmine's human resources manager, warranted that the statement was true.

In or after 2005 Manganella was terminated for sexually harassing four Jasmine employees, including Burgess.


In 2007 Burgess filed a complaint against Manganella, Jasmine, and Lerner at the Massachusetts Commission Against Discrimination. She alleged that since she began her employment in 1997, Manganella subjected her to nearly constant physical and verbal sexual harassment, and on five occasions intimidated her into engaging in sexual acts with him.


Evanston denied coverage because the "wrongful Employment Practice" had not occurred entirely during the coverage period.

At a subsequent deposition Burgess testified that she had not felt physically or emotionally threatened by Manganella before the fall of 1999, although he had made inappropriate comments before then.


Evanston argued that the continuing violation doctrine made Manganella's acts before the policy period part of a continuing pattern of harassment, so that even if Burgess did not feel threatened prior to the policy period the harassment began prior to the policy period, precluding coverage.


In Manganella v. Evanston Ins. Co., 2011 WL 5118898 (D. Mass. 2011), the court rejected the argument, noting that the continuing violation doctrine is intended to ameliorate the potentially draconian effects of the relatively short statute of limitations that governs discrimination claims. The court held that the doctrine should not be applied to shrink relief available to an insured.

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Cavalcade of Risk #145 is up

Take a look here for an excellent compilation of blog posts about risk.

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Massachusetts now bans personal auto insurers from using credit scores in setting rates

Property Casualty 360 discusses the development in this article.

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U.S. District Court holds that mortgagee can require flood insurance higher than the amount of the mortgage

In 1994 Susan Lass took out a mortgage on her house, which is an area that is designated under the National Flood Insurance Act as a special flood hazard area. (For older posts on flood insurance legislation, see here and then scroll down.)

As a named plaintiff in a class action lawsuit Lass alleged that Bank of America, the mortgagee, breached her mortgage contract by requiring her to have more flood insurance than was required under the terms of her mortgage and more than BOA's financial interest in the property.

In Lass v. Bank of America, N.A., 2011 WL 3567280 (D. Mass. 2011), the United States District Court for the District of Massachusetts noted that the NFIA prohibits federally-regulated lenders from giving loans secured by real estate in a special flood hazard area in which flood insurance is available unless the property is covered by flood insurance "in an amount at least equal to the outstanding principal balance of the loan or the maximum limit of coverage made available . . . , whichever is less."

Lass's original lender, RMC, required her to maintain insurance in the amount of her loan balance. In 2007 she chose to increase her coverage to $100,000.

RMC transferred the loan to BOA, which required her to increase her flood insurance to $145,086, the replacement value of the improvements to her property. When she did not purchase the additional insurance, BOA purchased it for her and paid for it out of her escrow account.

The court held that BOA did not breach the mortgage contract, because the contract requires Lass to maintain flood insurance "in the amounts and for the periods that Lender requires."

The real question is: Why would a homeowner with property in a flood zone not insure the property to replacement value? Weather patterns are getting more extreme. Insurance protects your investment. We quibble over exclusions and exceptions, but overall: Insurance is good. Make sure you have enough of it.

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How to Choose Fleet Insurance

Currently many companies that offer fleet insurance. If you require fleet insurance, you should consider a few things below.

When you are running a company that transports items back and forth it can be expensive. However, if you know what to find in fleet insurance it will be easy to locate the plan which can help save you quite a bit of money. Some of the items you should be looking for includes the amount of money you have to pay for the coverage, what kind of coverage is present for you to have, and even the reputation of the company when it comes to handling the accidents your company can have.

Reputation the company has in the industry is something you should be looking at as well. When you are able to review the reputation, it will be easy for you to determine if the company is the best one for representing your company properly should an accident happen. Without this type of review on the reputation it is easy to select a company which may not represent your company or industry properly.

Amount you need to pay for the coverage can be important to view. When you have this information it will be easy for you to get the best deal possible, but also know how much money you have to factor into the cost you process to your clients to guarantee you have the proper payment in place. Without knowing this, it is easy for you to lose more than what you are making.

Types of coverage which is present is important for you to know about. When you know about this, it will make it easy for you to determine if the coverage will be enough for your fleet or not. Without having this information it will be nearly impossible for you to guarantee if the coverage is enough to pay for any of the bills you have.

Being able to have the best company possible can be a great thing to do. However, you will need to know this type of company can be expensive to run at times. Once you know about what to find in the fleet insurance it will be easy for you to select the proper company to help you with your insurance needs. A few of the things you should be looking for will be how much you have to pay for the coverage, know what type of coverage is present for you to use, and the type of reputation the company has in relation to the industry in general.

Hopefully this information can assist you in determining fleet insurance options you'll use.

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How to Choose Fleet Insurance

Currently many companies that offer fleet insurance. If you require fleet insurance, you should consider a few things below.

When you are running a company that transports items back and forth it can be expensive. However, if you know what to find in fleet insurance it will be easy to locate the plan which can help save you quite a bit of money. Some of the items you should be looking for includes the amount of money you have to pay for the coverage, what kind of coverage is present for you to have, and even the reputation of the company when it comes to handling the accidents your company can have.

Reputation the company has in the industry is something you should be looking at as well. When you are able to review the reputation, it will be easy for you to determine if the company is the best one for representing your company properly should an accident happen. Without this type of review on the reputation it is easy to select a company which may not represent your company or industry properly.

Amount you need to pay for the coverage can be important to view. When you have this information it will be easy for you to get the best deal possible, but also know how much money you have to factor into the cost you process to your clients to guarantee you have the proper payment in place. Without knowing this, it is easy for you to lose more than what you are making.

Types of coverage which is present is important for you to know about. When you know about this, it will make it easy for you to determine if the coverage will be enough for your fleet or not. Without having this information it will be nearly impossible for you to guarantee if the coverage is enough to pay for any of the bills you have.

Being able to have the best company possible can be a great thing to do. However, you will need to know this type of company can be expensive to run at times. Once you know about what to find in the fleet insurance it will be easy for you to select the proper company to help you with your insurance needs. A few of the things you should be looking for will be how much you have to pay for the coverage, know what type of coverage is present for you to use, and the type of reputation the company has in relation to the industry in general.

Hopefully this information can assist you in determining fleet insurance options you'll use.

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Fraud on pet insurance increasing in England

Read all about it here.  But only if you want to be outraged and saddened.

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Okay -- an insurer should be bound by a mutual mistake over the terms of the policy . . . sometimes

Last week I wrote a somewhat snide post about a Superior Court decision in Caron v. Horace Mann Ins. Co., a decision that was reported in Massachusetts Lawyers Weekly but that I have not seen. The judge apparently held that an insurance company is bound by a mutual mistake between an insured and an agent over the terms of the policy.

My knee-jerk reaction was that the terms of the policy always trump, and that an insured is presumed to have read and understood the policy. But I can certainly see how a case could be made that if an insured believes that he or she is purchasing certain coverage, and the insurance agent, acting on behalf of the insurer, believes that he or she is selling that coverage, such coverage should be read into the policy.

Such a result could only apply in specific circumstances. Take, for example, Welch Foods, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, __ F.3d __, 2011WL 5027445 (1st Cir.), the other case I discussed in last week's post.

If the insured had said to the agent prior to purchasing the policy, "I want to make sure that there is coverage for claims of deceptive trade practices," and the agent, speaking on behalf of the insurer, had looked at the policy and said, "Yep, there's no exclusion for that," but there actually was such an exclusion hidden under a label "AntiTrust Exclusion," then it would be fair that the insurer be bound by the mutual mistake. And maybe as the insurer is suing the agent for negligence, it could send a memo to its underwriting department to label the policy provisions more accurately.

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New Federal Insurance Office to compile financial data on insurers

Here's a detailed article that explains upcoming changes in the public availability of financial data on insurers.

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Keep your policies forever

I can't say it too often: Keep copies of your insurance policies, forever, in a place you can find them. If at the beginning of your policy year your insurer or agent sends you only the coverage selection (or "declarations") page -- the page that summarizes your coverages -- ask for a copy of the entire policy. Do it immediately or you may never get it. And when you get it, make sure that the policy forms and endorsements provided match the forms and endorsements listed on the coverage selection page.

In almost every insurance coverage dispute I have ever been involved with, whether on the side of the insurer or the insured, the first challenge is obtaining a copy, preferably certified, of the policy. Whichever side I'm representing, it generally takes months.

Don't just keep your most recent policy. Keep all of them. For decades. Forever. If you have an occurrence-based policy and get hit with a Superfund suit -- say a property you owned for five years in the early 1990's has been discovered to be a site of toxic waste -- there might or might not be coverage under policies issued for each year that you owned the property. If the policies differed from one year to another, even if issued by the same insurer, there may be coverage under one year but not others.

Chances are that if the policies were issued not too long ago the insurer can, eventually, provide or recreate a copy. But at some point old documentation, especially but not exclusively from before the advent of computers, is lost. Insureds have the burden of proving coverage under a policy. The easiest way to do that is to provide the court with a copy of the policy, not to guess, "When my grandfather owned the company he was friends with an adjuster at Acme Insurance, so . . ."

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Disagreement between First Circuit and Superior Court on whether terms of insurance policy control coverage

Welch Foods was sued by a competitor and by consumers for placing a label on a three juice blend bottle that pictured mainly pomegranates, even though the juice blend consisted primarily of apple and grape juice. A jury in California found that the label had a tendency to deceive a substantial number of customers. (Really? You really think that a three juice blend will consist primarily of pomegranate juice?)

Welch requested insurance coverage from National Union Fire Insurance Co. of Pittsburgh, PA. National Union denied the claim on the basis of an exclusion labeled "Antitrust Exclusion," which, in addition to excluding antitrust claims, also excluded coverage for unfair competition and deceptive trade practices.

In Welch Foods, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, __ F.3d __, 2011WL 5027445 (1st Cir.), the United States Court of Appeals for the First Circuit found that although the exclusions for unfair competition and deceptive trade practices were listed under the antitrust exclusion, the claims were effectively excluded. The court noted that the policy provided, "the description in the headings of this policy are solely for convenience, and form no part of the terms and conditions of coverage."

The court quoted the familiar language, "an insurance contract is to be interpreted according to the fair and reasonable meaning of the words in which the agreement of the parties is expressed. . . . Every word in an insurance contract must be presumed to have been employed with a purpose and must be given meaning and effect whenever practical."

By contrast, this week's Massachusetts Lawyers Weekly has a cover story on a Superior Court decision drafted by Judge Cornetta, Caron v. Horace Mann Ins. Co., which apparently held that an insurance company is bound by a mutual mistake between an insured and an agent over the terms of the policy, even if -- quoting Eric Parker, who represented the plaintiffs -- "some 50- or 75- page boilerplate policy they've been printing for years says [that different terms apply]. It's going to be changed to reflect the understanding of the parties."

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Wedding Insurance?

This article at Canadian Finance Blog says it all.

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Retirement Plan Limits for 2012

by Richard F. O'Boyle, Jr., LUTCF, MBA

The Internal Revenue Service is boosting the maximum contribution that workers can make to their 401(k), 403(b) and most 457 retirement plans without paying upfront taxes. The limit will rise by $500 to $17,000 for 2012. Workers over 50 can add another $5,500 to that. Individuals may still contribute $5,000 to traditional IRAs or Roth IRAs, or $6,000 if older than 50.

The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.

The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011. For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.

The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and for singles, up from $28,250.

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Should I Replace My Life Insurance or Annuity Policy?

by Richard F. O'Boyle, Jr., LUTCF, MBA

Life insurance and annuity contracts are intended to be medium- to long-term agreements. Term life insurance policies often have 20-year durations, and many annuity contracts have 8-year surrender periods. But in some cases, it makes sense to cancel or replace a contract with a new one. When should you cancel or replace your life insurance or annuity policy?

You may consider making the change if:
- The term is expiring on your old policy and the rate is sky-rocketing;
- Your health has improved from the time when you originally applied for your policy, for example, you may have quit smoking, lost a lot of weight, controlled diabetes, or passed five years after cancer. Many companies will allow you to take a new medical and keep the existing policy with a new lower rate;
- The rate on a permanent policy may have become unaffordable and it is at risk of lapse. Consider reducing the death benefit (and thus the premium) or using cash values and dividends to pay the premium over the short term;
- Companies change the contract terms on newer policies for Universal Life from time to time. Consider switching to a different UL policy if the crediting interest rate or guaranteed minimum are better or if the monthly costs of insurance are lower. Keep in mind that as you get older your underlying costs get higher;
- A 1035 exchange allows you to transfer the cash values of a life insurance policy or annuity contract directly into a new contract without exposing the cash to taxation. Again, make sure that the terms of the new contract are more favorable. With an annuity, you should check the guaranteed minimum interest rate, since on older contracts it may be much higher.

New York requires a lengthy process to replace a life insurance or annuity contract. This is designed to ensure that both you and your agent “do the math” to make sure the new policy costs are fully disclosed, that the new policy is suitable for your needs and you both quantify the costs and benefits before changing plans.

When considering replacing or cancelling your life insurance policy, keep in mind that by starting a new policy, you have a new two-year “contestability” period where there might be limits on the payout of the death benefit. Never cancel a policy until the new policy is in force, even if it means paying premiums for both policies for one month.

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Book Review: “Buckets of Money: How to Retire in Comfort and Safety,” by Raymond J. Lucia, CFP

Book Review: “Buckets of Money: How to Retire in Comfort and Safety,” by Raymond J. Lucia, CFP (John Wiley & Sons, Inc., 2004)
by Richard F. O’Boyle, Jr., LUTCF, MBA
“The Insider’s Guide to Retirement and Insurance Planning”
http://www.retirementandinsurance.com


We’re taught to save throughout our working years to fund our retirement – diligently socking money into our 401(k)s and paying down our debt. But once we flip the switch and settle into a presumably worry-free retirement, how do we effectively and efficiently spend down our assets in those golden years? Ray Lucia, a Certified Financial Planner with a celebrity’s flair, helps us to answer this tough question with his “buckets of money” planning strategy.

The gist of “Buckets of Money” is that our nest eggs should be separated into three “buckets” of ultra-safe income streams, conservative medium-term assets and aggressive stock funds. Over seven-year cycles, the funds are depleted and shifted into the next immediate bucket to be used for current income. The buckets strategy leaps the key retirement planning hurdle by providing safety, growth, diversification, tax-efficiency and lifetime income. The book identifies which investments are appropriate for which buckets, along with guidelines for the proportions of each.

The book reads like a infomercial, but don’t let that turn you off. The general discussion of asset classes and products (stocks, bonds, annuities, etc.) is valuable for the novice and experienced investor alike. His comprehensive perspective honestly allows him to cover all potential investment classes. Mr. Lucia isn’t trying to sell you on anything other than his planning strategy (and he does that well).

Mr. Lucia’s website contains some notes on changes, but I’d like to see a fully updated edition of the book. For example, the buckets strategy recommends real estate holdings of as much as 20% of a portfolio in the form of real estate investment trusts. Given the 2008 mortgage meltdown, perhaps that should be reconsidered. Mr. Lucia only skims past the important backstop that life, disability and long-term care insurance provide as we switch our retirement portfolio from accumulation mode to distribution mode. Fortunately, the author takes into account the complexities of the tax code since intelligent tax planning can make or break a retirement plan. The book’s numerous statistical examples remain useful today.

The worksheets included in the book are quite easy to use. While the potential to “do it yourself” is there for the experienced investor who has a trusted advisor, I wouldn’t recommend that an individual adjust her portfolio without consulting a professional. I’m not sure if the buckets strategy is an “all or nothing” approach to investing. Any retirement plan can benefit from the non-controversial concepts presented here.

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Fee-based vs. Commission-based Financial Planners: The Pros and Cons

by Richard F. O’Boyle, Jr., LUTCF, MBA
“The Insider’s Guide to Retirement and Insurance Planning”
http://www.retirementandinsurance.com

Throughout this article, I have referred to “financial planner” in the general sense to indicate advisors who work with life insurance, annuities, disability coverage and retirement planning. A “Certified Financial Planner” is a specific professional designation.

It’s common knowledge that you have to spend money to make money and having a professional financial planner in your court is a smart investment, but should you go with an advisor who charges you a flat fee or one who works on commission?

There are certainly pros and cons to each type and it may boil down to the financial planner you feel most comfortable with, regardless of how they make their living. When looking for any type of professional help, it’s always a good idea to seek out recommendations. Ask friends, family or co-workers what their experiences have been with financial planners and see if they think highly enough of theirs to give a good review. Reputation is everything in this field, so try to avoid inexperienced, poorly reviewed investment advisors.

Fee-based financial planners work by the hour, which may sound simple enough. They charge a set hourly fee or, in some cases, a flat fee for their services. The catch is, most fee-based planners also earn commission based on the financial products they sell. This can cause a conflict between your interests and theirs and your portfolio may end up suffering for it.

There are several different ways that fee-based planners charge:
- A percentage of assets under management
- Flat fees in the form of an annual retainer
- Hourly fees with a cap on the total amount
- Any combination of the above

It should be noted that “fee-based” is not the same thing as “fee-only.” Investment advisors who only charge a fee may be more impartial because they only work for the fees charged to clients, whether that is an hourly fee or an a la carte rate. Generally, fee-only financial planners focus on analyzing portfolios as a whole, so they have to be well versed in all areas. These include college financial aid, real estate, retirement and much more. With no commission to worry about, they might not pressure you into any products or investments. It’s in their best interest to grow your assets, since they may be paid more over time.

Commission-based financial planners are the opposite of fee-only advisors in that they earn money solely on the investments they sell. Most life insurance agents are paid commissions by the insurance company when they place a case. Remember, the insurance company pays the advisor the commission, not the client. When working with a commission-based advisor, you need to be sure that they respect your choices and share with you the available options. If it feels like the advisor is being overly forceful with a certain type of investment, especially one that you are not comfortable with, that’s a sure sign that they are thinking more of themselves than your portfolio.

New York requires life insurance agents to disclose when they are paid by commission. Commission rates on fixed annuities, term life insurance or whole life insurance are generally consistent across all insurance companies. It’s rare to have a company pay much higher than average commissions, unless it’s a product like a variable annuity, indexed annuity or life insurance contract.

Some investors may be best suited to having a good commission-based advisor:
- Investors with small portfolios that require much less management
- Clients who needs a basic review or analysis of their portfolio
- People looking for a specific product such as life insurance

Commission-based advisors may have access to better facilities and other financial professionals such as analysts and traders etc. They may also have the backing of a respected and renowned firm. Most fee-based advisors work independently, although they may have past experience as a commission-based advisor.

Regardless of how your advisor gets paid, remember that they are the financial professional and have the experience, education and drive to see your investments succeed, so take any advice to heart, even if you don’t act on it. If your commission-based advisor pressures you into active trading, because this is one way they receive bigger commissions, remind them that they are working for you, not the other way around. Always clarify how your advisor is being paid, if they don’t come right out and tell you at the outset.

No matter how you pay your financial planner, saving money and increasing your investments should be their top priority. The commission vs. fees debate is a hot topic in the world of financial planning, but it’s always best to work with someone you can personally trust, regardless of how they come by their paycheck.

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NAIC Provides Forum for Ivory Tower Attack on Self-Insurance

The National Association of Insurance Commissioners (NAIC) has never been known as an organization where the self-insurance/alternative risk transfer industry is treated fairly, but its penchant for bias became even more visible this past week. Worse yet, this bias is now being fomented by an “ivory tower” expert.

Professor Timothy Stoltzfus Jost is the designated “consumer representative” on the NAIC’s ERISA (B) Subgroup , which is tasked with developing various policy recommendations related to how states should adapt their insurance regulations to better coordinate with PPACA implementation. The esteemed professor is not shy in sharing his opinion that smaller self-insured group health plans, facilitated by stop-loss insurance, should be made extinct.

During the Workgroup’s last conference call, Professor Jost presented a formal statement entitled The Affordable Care Act and Stop-Loss Insurance. This scholarly work was quite the hit piece on self-insurance disguised with big words, extensive footnoting and misleading legal references.

His central thesis is that smaller employers should not be allowed to self-insure because they do so primarily to escape state regulation, and going forward to sidestep new PPACA regulation. He also pushes the dubious argument that self-insured plans contribute to adverse selection (see my earlier blog post on this subject).

Virtually all of Professor Jost’s points can and will be rebutted privately and publicly as this NAIC policy development process moves forward, but first let’s take some time to consider the source.

He is currently a law professor at the Washington and Lee University of Law, with multiple other academic appointments dating back to 1979. Along the way, he has written several books and academic papers on the subject of health care with titles such as The Threats Facing our Public Health Care Programs and a Rights-Based Response; and Health Care at Risk: a Critique of the Consumer-Driven Movement.

And by the way, he is a graduate of the University of California at Santa Cruz. In case you are not familiar with this school, it makes U.C. Berkley look like a bastion of conservatism.

So what about private sector experience over his 35 year career? You guessed it, zero. How about past experience as a regulator who at least could interact with the private sector? No again. What we have here is the classic liberal elite academic who looks at the world through prisms of theory and ideology.

Professor Jost holds himself out to be a patient’s rights advocate and clearly views the NAIC as a forum to present his “ivory tower” perspective. OK fine, there’s certainly room for a diversity of qualified opinions as part of the policy development process.

The problem is that while Professor Jost may well have valid perspectives to contribute on true consumer (patient) protection issues, he’s out of his league in commenting on how health care delivery should be financed.

Moreover, if he was truly concerned about the ability of individuals to receive quality, affordable health care, Professor Jost should actually be a proponent of self-insured health plans (regardless of size) because these plans generally do a better job on both counts as compared to the fully-insured marketplace.

It appears the professor is in need of some timely continuing education.

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RRG Legislation Snagged by Dodd-Frank Creation

After some initial good progress in moving federal legislation to modernize the Liability Risk Retention Act (LRRA), a new rhetorical roadblock has been raised.

The Risk Retention Modernization Act (H.R. 2126) includes a dispute resolution provision whereby RRGs who believe they are being illegally regulated in non-domiciliary states can access the equivalent of a federal arbitration process as an alternative to initiating costly legal action.

An earlier version of the legislation provided that this dispute resolution mechanism would be administered within the Treasury Department due to technical jurisdiction requirements, but left discretion Treasury to fit this function in as part their exiting organizational chart.

Fast forward to the recent passage of the Dodd-Frank financial reform legislation, which among other things created a new Federal Insurance Office (FIO) to be housed within the Treasury Department. As a result of this development, the current version of the legislation specifically designates FIO as the entity responsible to arbitrate RRG disputes with state regulators.

Supporters of the legislation have always known that there would be some push back in Congress from members concerned that such a dispute resolution would infringe on the authority of state insurance regulators. Of course, the opposite is actually true and this position has gained traction in recent months.

But just as the policy argument has largely been settled, at least one member of Congress key to the legislation’s eventual message has raised a new concern. In a meeting earlier this week to discuss the legislation, Rep. Judy Biggert (R-IL), chairwoman of the House Subcommittee of Capital Markets within the House Financial Services Committee, voiced strong concerns about this new responsibility assigned to the FIO.

Her objection was not really specific to RRG regulation, but rather reflects a broader view held by many Republicans that the FIO is being given too much authority. In hindsight, this objection was not particularly surprising.

While PPACA has garnered the lion share of public attention for those critical of government expanding its regulatory reach, the distaste for Dodd-Frank is significant among most Republican members of Congress. As a result, any manifestation of this law, such as the FIO, can spark a reflexive push back as demonstrated by Rep. Biggert’s comments.

It is important to note that this new wrinkle does not mean that H.R. 2126 cannot pass. The lobbying process on Capitol Hill is inherently complicated and this is just the latest example.

In the end, if the case can be made that the practical advantages this legislation offers to small and mid-sized companies trump more abstract political concerns, the LRRA will be successfully modernized.

Stay tuned for additional inside reports on how this legislation is progressing on Capitol Hill.

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Regulatory Overreach Compromises Workplace Safety Initiatives

In case you had any doubt that the current public debate over the scope of federal regulation is more about political ideology rather than practical reality, look no further than OSHA’s ramped up oversight of workplace safety issues.

Now on the surface, this may sound like a laudable focus because almost everyone agrees that there is a role for government in making sure that sensible workplace safety standards are established and adhered to. But of course, in this current political climate Obama regulators just don’t know when to say when.

Specifically, OSHA has recently started to subpoena workplace safety audits prepared by workers’ compensation self-insurers and insurance carriers. Keep in mind that that these audits are prepared on voluntary basis so that employers/insurers are better able to proactively address any safety deficiencies that may exist. Such audits are particularly important tools for workers’ compensation self-insurers because they “own” every dollar saved on payments to injured workers.

Historically, OSHA has not attempted to access such audits because everyone understood that employers would likely stop preparing these risk management tools if they could be used against them in regulatory enforcement and/or legal proceedings.

This precedence has been overturned by a recent federal district court ruling stating that OSHA does have the right to subpoena safety audits and related documentation. Specifically, the ruling in the case of Solis v. Grinnell Mutual Reinsurance Company concluded that audit subpoena are generally enforceable if:

1) They reasonably relate to an investigation within OSHA’s authority;
2) The requested documents are relevant to OSHA’s investigation;
3) The request is not too vague
4) Proper administrative procedures have been followed; and
5) The subpoena does not demand information for an “illegitimate purpose”

According to OSHA’s internal policy regarding voluntary self-audits, the agency will not “routinely” request such audits at the beginning of an inspection, or use the audits to identify hazards to inspect.
But now with a favorable court ruling in their back pocket, it’s very reasonable to expect that OSHA regulators will, in fact, make safety audit subpoenas a routine part of their investigative process.

Of course, and ironically, the real victims are the workers as many employers are likely to curtail such formal audits in response to OSHA’s invasive zeal. Another classic example of “no good deed goes unpunished” apparently embraced by this administration.

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Inside Politics in Michigan Demonstrate That Self-Insurance Priorities Are Too Easiliy Dealt Away

Michigan Governor Rick Snyder is poised to sign legislation that would impose a one percent tax on medical claims paid by health plans, including self-insured group health plans. This is big news and is certainly a disturbing development for those concerned about the erosion of ERISA preemption. But there is a more interesting story behind the headlines that is instructive for self-insured employers in other states as well.

In anticipation of this legislative development, I spoke with senior representatives from a leading Michigan employer organization to explore possible response options, including litigation coordination if necessary. When asked specifically what their appetite was for legal action assuming the legislation is signed into law, their answer was pretty clear – “zero.”

Given that this association represents many self-insured employers such strong push back was surprising to say the least. Then the “off the record” discussion began.

It turns out that there had been some significant wheeling and dealing between the Legislature, the governor and the business community in order to craft various budget reform initiatives designed to head off a projected deficit.

My contacts confided in me that their organization is privately opposed to the health plan tax proposal but will not go on record to say so, much less getting involved in possible litigation. They cite two reasons for this seemingly contradictory stance.

First, their membership includes health insurance companies in addition to self-insured employers and they believe an outspoken defense of self-insurers would alienate this other membership constituency. The other rationale is if the boat was rocked on this issue, then some of the other “deals” presumed to be favorable to the employer community could fall apart.

Of course, the big picture was not taken into account. They acknowledge that the immediate negative financial impact for self-insured employers is bad but manageable. Not considered was that if state efforts to tax and/or regulate self-insured health plans are left unchecked, self-insurance may cease to be an attractive option for employers in Michigan and elsewhere, which would effectively trap employers in the traditional health insurance marketplace – a much more ominous situation than being subject to a one percent tax as problematic as that may be.

My contacts appreciated this analysis and agreed that there are, in fact, bigger issues at play. That said, the bottom line is that many within the leadership of their very influential organization would likely applaud an effort to push back against the health plan tax, but this would be private support with no organizational fingerprints.

So there you have it. The very important fight over ERISA preemption has been dealt away in Michigan in favor of other business community priorities that likely are less important to employers from a P&L perspective. It’s uncertain how things will eventually play out in Michigan, but this look behind the curtain on the relationship between state employer organizations and government exemplifies why the self-insurance industry has an ongoing challenge at the state level.

While the ability of employers to self-insure is more significant than most tax and regulatory initiatives (again from a P&L perspective), self-insurance issues simply do not get much attention for state organizations, which tend to have more broad-based legislative agendas. To be fair, this is understandable because these groups generally have diverse membership constituencies and not have the resources to focus on issues that only a single constituency. Moreover, the member representatives do not generally insist that their organization put self-insurance issues front and center.

To the extent that employers can be mobilized to rattle the cages of state business associations to pay more attention to self-insurance issues we may be able to turn “private support” to visible public advocacy on the future threats that are almost certain to arise.

Let the cage rattling begin.

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Understanding Insurance Company Financial Ratings

Understanding Insurance Company Financial Ratings
by Richard F. O’Boyle, Jr., LUTCF, MBA

Triple A, Gone Away

Well, it’s official: The United States Government no longer has a perfect credit score. On August 5, 2011 its credit rating was lowered by Standard & Poor’s to AA+ from AAA. The rating on the debt of the federal government and some specific agencies such as mortgage giants Fannie Mae and Freddie Mac was lowered because S&P deemed it more risky due to the ballooning federal debt and the inability of the political process to reform entitlement programs.

In theory the four top rating agencies – Standard & Poor’s, Moody’s, A.M. Best and Fitch’s – are the arbiters of the Country’s credit score. Despite all the sound and fury from the politicians in Washington, there are some real-life implications for people on Main Street. The lowering by S&P by one notch effectively brings the country’s FICO score down to something like 775 from 800.

It’s not that dramatic since only one of the top four rating agencies took such a drastic approach (the others said the Government’s problems are long-term and would not immediately affect their ratings). I’d like to note that some smaller agencies had already taken the politically unpalatable step of lowering the country’s rating. Let’s also keep in mind that S&P has been under serious political pressure to “get real” about its rating since it did such a pathetic job of rating all of those toxic mortgage-backed securities (see “The Big Short”).

Given all of the political pressure from Congress regarding the mortgage securities fiasco of the last three years, it’s ironic that they should come to downgrade the U.S. Government’s rating. Expect to see “show trials” (i.e., Congressional hearings) in Washington demonizing the rating agencies. Again, it’s ironic since the U.S. has been less than reliable when accounting for future liabilities such as Social Security and Medicare.

But, again, let’s put politics aside and investigate the “real life” implications of the aforementioned “downgrade:”

Insurance Company Ratings: What Do They Mean?

In tandem with the downgrade of the Government’s credit rating, S&P also lowered the AAA rating of a handful of the most stellar insurance companies. They also put the rest of the insurance industry on a “Negative” outlook (downgraded from “Stable”), mainly because of the heavy exposure they all have to U.S. securities in their reserve portfolios.

Companies downgraded to AA+ (Negative Outlook) from AAA (Stable Outlook):
New York Life
Northwestern Mutual
Teachers Insurance & Annuity Association (TIAA-CREF)
Knights of Columbus
United Services Automobile Association (USAA)

Companies rated AA+ with “Stable Outlook” reduced to “Negative Outlook:”
Guardian Life Insurance Company of America
Berkshire Hathaway, Inc.
Assured Guaranty Corp.
Massachusetts Mutual Life Insurance Co.
Western & Southern Financial Group, Inc.

Does this mean that your life insurance company is about to go bankrupt ? Most likely, not. What it does mean is that S&P has decided that insurance companies that invest heavily in one country’s bonds can not have a higher credit rating than the actual bonds that they hold. So, in lockstep, if the U.S. rating goes down, so must the companies that hold a lot of U.S. debt. Needless to say, the affected insurance companies say they are unfairly being hit due to Washington’s political gridlock and that they still merit AAA ratings.

Going forward, the insurance companies will bolster their overall credit ratings by selling off their lower quality assets and buying higher quality ones. This may effectively improve their balance sheets over the long term and even increase their exposure to U.S. debt instruments. S&P maintained AAA ratings on many municipal bonds, so there still are high-quality assets for the insurance companies to put into their reserves. The reason the top handful of companies actually had the best ratings is that often they are better judges of quality than even the rating agencies.

The lowering of the U.S.’ credit rating, in the immediate term, has not led to a sell-off in U.S. Treasury assets. But indeed, we have seen a “flight to quality” as many investors see the U.S. Treasury Bonds as the “cleanest shirt in a hamper full of dirty shirts.” (I believe I can credit economics guru Nouriel Roubini for this analogy on Bloomberg Radio). In effect, U.S. assets at AA+ are still better quality than many European bonds.

Ultimately, the jury is still on whether interest rates on mortgages and credit cards will spike up. Longer term interest rates will be affected more by the strength or weakness of the overall economy and the amount of stimulus provided by the Federal Reserve and Congressional budget committees.

Why Ratings Still Matter

So why do we even care about ratings attributed to countries or businesses or individual financial products? Haven’t the rating agencies done an awful job to date? Are the folks with the green eyeshades who are crunching the numbers and giving their seal of approval so corrupted by the profit motive or fearful of political retaliation that they can’t “do the math” objectively?

In short, there are two reasons: First, we need some type of financial yardstick to compare countries, companies and bonds. There really are no guarantees associated with a rating of “AAA,” for example. It’s just a relative measure and only useful when compared to something with a “B+,” for example. Secondly, a rating gives us the assurance that someone who is somewhat objective with some kind of sophisticated financial education has looked at all the footnotes and read all the fine print… because G-d knows nobody else has (sometimes not even the salespeople). Of course, recent events have dramatically shown that the current system has failed. Unfortunately, it’s the only system we have.

So let’s take a look what the ratings of life insurance companies really mean. Given the hundreds of life insurance companies offering policies in the U.S. it can be a challenge to compare their relative financial strengths and ability to pay claims. The top rating agencies review in detail the accounting statements of publicly traded companies as well as private or mutual life insurance companies. Based on their reviews and further research into competitive intelligence and other sources, they will give an opinion on the credit-worthiness of the life insurance company and assign letter grades to each company and its subsidiaries. Furthermore, agencies will often note what direction they think future rating will head in their “outlook” for the company or industry.

Keep in mind that while the core attribute the rating agencies look at is “financial strength,” they also take into account how well the company operates as a business, the size of their market share, exposure to other businesses (such as investment management advice or property & casualty lines) and overall business mix. For example, every year, S&P positively noted New York Life “outstanding field sales force” as a competitive advantage.

How to Compare Life Insurance Company Ratings From Different Agencies

I’m a big fan of the old adage, “Life is too short to drink bad wine.” With the hundreds of available life insurance companies out there, does it make sense to go with a middle-tier company when there are already so many top-notch ones? Similarly, with all the five star mutual funds rated by Morningstar, why would you invest in a three star fund? A life insurance company’s rating is effectively a guide to its underlying financial strength and its ability to pay its claims when the time comes for you to collect the death benefit.

Keep in mind that many companies have subsidiaries that have similar sounding names (often due to state regulations or their own business strategies). When researching your specific company make sure that you are looking at the actual company that is underwriting the life insurance contract. For example, “MetLife” may actually be “MetLife Investors” if it is the 30-year term plan in New York. Your agent should be able to give you the exact company name. Your state insurance commission will have regular filings from each company that sells life insurance it that state.

Each rating agency uses its own proprietary methodology and mathematical model to assess the strength of the insurance companies they review. They look at factors such as the quality of the insurer’s assets and reserves; their source(s) of funding; profitability based on a review of public financial records and filings; market share in different product categories; management talent; and competitive market analysis compared to other insurers.

Here’s how the various rating agency “grades” match up:

Rank	A. M. Best	Standard & Poor's	Moody's	Fitch	Numerical Grade (*)	Comdex Score (#)
1	A++ Superior	AAA Extremely Strong	Aaa Exceptional	AAA	9.0	100
2	A+ Superior	AA+ Very Strong	Aa1 Excellent	AA+	8.3
3	A Excellent	AA Very Strong	Aa2 Excellent	AA	8.0	90
4	A- Excellent	AA- Very Strong	Aa3 Excellent	AA-	7.7
5	B++ Good	A+ Strong	A1 Good	A+	7.3
6	B+ Good	A Strong	A2 Good	A	7.0	80
7	B Fair	A- Strong	A3 Good	A-	6.7
8	B- Fair	BBB+ Good	Baa1 Adequate	BBB+	6.3	70
9	C++ Marginal	BBB Good	Baa2 Adequate	BBB	6.0
10	C+ Marginal	BBB- Good	Baa3 Adequate	BBB-	5.7
11	C Weak	BB+ Marginal	Ba1 Questionable	BB+	5.3
12	C- Weak	BB Marginal	Ba2 Questionable	BB	5.0	40
13	D Poor	BB- Marginal	Ba3 Questionable	BB-	4.7
14	E Under Regulatory Supervision	B+ Weak	B1 Poor	B+	4.3	20
15	F In Liquidation	B Weak	B2 Poor	B	4.0
16	S Suspended	B- Weak	B3 Poor	B-	3.7
17		CCC+ Very Weak	Caa1 Very Poor	CCC+	3.3
18		CCC Very Weak	Caa2 Very Poor	CCC	3.0
19		CCC- Very Weak	Caa3 Very Poor	CCC-	2.7
20		CC Extremely Weak	Ca Extremely Poor	CC	2.0
21		R Regulatory Action	C Lowest	C

(*) Numerical Grade conversions courtesy of The New York Times
(#) Comdex ranks insurance companies based on what other rating agencies have given them. The companies are then graded on a percentile system with only the top five companies in the 100th percentile, and others falling into the scale below that. The placement of the numerical rankings in the chart is my approximation.

Links to Rating Agencies
AM Best
Fitch
Moody’s
Standard & Poor's
Weiss
Comdex Score

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Three Simple Steps to Avoid Probate

Tricks of the Trade: Three Simple Steps to Avoid Probate
by Richard F. O'Boyle, Jr., LUTCF, MBA

Much is said about the value of avoiding probate, the legal process where your will (if you have one) is validated and its provisions carried out. Complicated estates can be tied up for years with legal maneuvering and family wrangling. Most cases are straight-forward and uncomplicated – but they can still be time-consuming and emotionally draining.

First, you can free up some resources for your heirs by carefully naming them as beneficiaries on savings and checking accounts, adding them to the title of a car or boat, or including them on the deed of a piece of real estate. Designating some assets as “payable on death,” “transfer on death” or “in trust for” can accelerate the transfer of these assets to your intended beneficiaries. They just need to show copies of their identification and your death certificate to the bank or motor vehicles department.

If you are concerned that your heirs will have trouble paying taxes or expenses immediately after your death, carefully take stock of your smaller assets. This is particularly helpful for people who do not have a will or are not legally married to their spouses. You can free up these resources for them while the estate works itself through the probate process.

Second, most of your big assets such as your house, life insurance, pension, retirement plan or investment account should already have named beneficiaries or joint owners, which means they pass to the intended person (or trust) immediately upon death and avoid probate. Make copies of the signed and dated beneficiary designation forms and keep them in a safe place with your other financial records. Banks and insurance companies are not infallible – they lose these documents all the time! Make sure that you name contingent beneficiaries and tertiary beneficiries. The last thing you want is for these important assets to wind up in your estate. They will be subject to death taxes, the vagaries of the probate process and (in the case of IRAs) immediate taxation.

Finally – but most importantly – make sure that you have a will. While this doesn’t “avoid” probate, it simplifies the process dramatically. If you have minor children, an unmarried spouse or even remotely complicated family affairs, at a minimum you should have a simple will. Attorneys can prepare a simple will for a few hundred dollars or you can use a software product or online service for a fraction of that cost. If you don’t already have a will, or it hasn’t been updated since you have had major changes in your life, make it a point to get one signed before the end of the year.

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