How is it not a good idea? It makes money for Prudential.
The "checks" that Cindy Lohman wrote, the ones rejected by retailers, were actually drafts, or IOUs, issued by Prudential. Even though the "checks" had the name of JPMorgan Chase & Co. on them, Lohman's funds weren't in that bank; they were held by Prudential.
WTF
Prudential promises to hold the money in safekeeping for as long as families would like, saying it will pay them 0.5 percent interest. What Prudential doesn't disclose is that it is keeping survivors' money in Prudential's own corporate investment account, where the company is earning five to 10 times as much as it pays to families.
What do these people think is happening to their money when it's in an account at a bank?
2: That thought hadn't occurred to me. On reflection, I'm not sure why it comes off to me as so different or pernicious, but it does. Hrm.
The insurance company is paying less interest than a bank would? I'm not sure that's true, but if so, it would suck.
And the 'checkbook' seems deceptive, if the checks aren't negotiable in the same way a check on a bank account would be (as, from the story, it appears they aren't).
But it doesn't seem like impressively bad behavior, I admit.
It's pernicious because
a) if the next of kin knew the details, they could presumably take the money, stick it in an investment account, and make more interest for themselves;
b) it's not FDIC-guaranteed, so the next of kin are also holding default risk on the insurer, which is probably a few percent, for free. (Would have to check CDS prices to be sure how much.)
Thinking about it some more, it bothers me that their taking advantage of people who are vulnerable. And it seems particularly wrongheaded to pick on the bereaved if you're in the business of selling life insurance.
Isn't it the case that we accept lowish interest rates on savings accounts (and banks making profit thereby) because in return we get FDIC protection?
7: FDIC protection, a guaranteed rate of return, and liquidity.
6: It isn't taking advantage of them much, though. Barring collapse of the insurance company, the money's there, and the difference in interest is either pretty small or zero. It's still tacky, the 'checkbooks' should be prohibited, and the not-FDIC insured nature of the account should be disclosed. But the bereaved aren't really significantly worse off than they would be if the insurance company hadn't been jerks.
I don't think foregone interest income is really an issue. If you're the sort of person who aggressively shops bank interest rates, or would want to invest the money in, say, equities, you could do better than what they're paying, but if you're that type of person, you probably will figure out how to move the funds. If you would have just deposited the money in whatever local bank you already deal with, which sounds more likely here because the premise is that survivors don't want to actively address the money, you probably won't beat 50 bps right now.
That said, the FDIC coverage is a legitimate if minor concern, and probably more so the fact that people think they have an account that they can actually write checks on, in that a lot of them probably are treating it like emergency money, and if/when an emergency comes it will take several days to actually access it.
9: Sure, okay. At any rate, for that reason, I think one can say that making money off the differential while allowing them to believe it was as safe as a savings account is an illegitimate form of profit.
Yeah, when I say it's not significant, I'd think a regulator should clamp down on it nonetheless. No checkbooks, and full disclosure on the FDIC bit.
11: Maybe they haven't foregone money they would have otherwise had, but I don't see lack of FDIC protection as a minor issue. Prudential could have put their money with Allen Stanford, for example.
10: well, it's (probably) not harming any of them individually in a significant sense, but in the aggregate it seems like a very shitty thing to do. Think of it this way: if regulations required the insurers first to send checks to the bereaved for the full amount of the policies, and only after that were insurers free to solicit a return of the money for investment purposes, how much of the money do you think would be invested in accounts like those on offer here? (Which seem to be, objectively, bad deals, even if they're not necessarily terrible deals.) I'd bet: not much. So, my verdict: very shitty.
you probably will figure out how to move the funds.
You mean like writing a check for the full amount using the checks they gave you? Seems pretty simple even if you're not "that type of person."
Now, if they start pulling stuff like monthly maintenance fees or overdraft charges when no one ever agreed to this pseudo-account, then that's bullshit.
Think of it this way: if regulations required the insurers first to send checks to the bereaved for the full amount of the policies, and only after that were insurers free to solicit a return of the money for investment purposes, how much of the money do you think would be invested in accounts like those on offer here? (Which seem to be, objectively, bad deals, even if they're not necessarily terrible deals.) I'd bet: not much. So, my verdict: very shitty.
Huh. I can come up with a very similar situation which would still be good for the insurance company, but wouldn't, I think, be shitty at all. Say the insurance company had an affiliated bank with similar accounts that were FDIC insured, and which gave comparable interest to a conventional account. The insurance company is still better off than if the beneficiaries put the money in different banks, and they're better off because they force the choice onto beneficiaries who are too overwhelmed to make a different decision, but under those circumstances the beneficiaries wouldn't be worse off at all.
That's still profiting off overwhelmed and grieving people, but it doesn't seem like a problem to me.
Even if it were in an FDIC insured bank, it woud only be protected for up to $250k (much less before the financial crisis). Dodgy "checkbook" stuff aside, I don't think what Prudential is doing is all that bad, at least by the low standards of the financial services industry. The MetLife situation described in the Bloomberg story is much worse.
It's also worth noting that the focus on interest in the story is a bit odd - if the bereaved people had invested it in something that yielded more than 1%, it almost certainly would be FDIC guaranteed either, and (if it were liquid) probably wouldn't be guaranteed by the seller either.
When they start sending debit cards with the accounts I'll support the "tacky" view- Hey, your kid just died, go pick up a burrito at Chipotle using this convenient card!
Yeah, the poor non-FDIC disclosure sucks (depending on how poor it really is*), but the rest doesn't seem so unreasonable. I agree with 15, but it strikes me as standard corporations-are-shitty shittiness; taking moderate advantage of people's inertia to retain their business isn't so bad as deceiving them. Prudential did the same thing when my mother died a couple decades ago; once I decided what to do with the little bit of money involved, I wrote a "check" to put it in a different vehicle (my recollection is that the return was comparable to money market accounts at the time).
*I kind of hate what it says about what I've become that I'm thinking this, but I smell a plaintiffs' lawyer setting up a class action with a very sympathetic representative (this practice is certainly not unique to death benefits, much less military death benefits).
20.last: Huh. I wouldn't be surprised.
That's still profiting off overwhelmed and grieving people, but it doesn't seem like a problem to me.
But it doesn't seem like a problem because it's "profiting" off them in the very customary way of simply doing business with them, not by steering them into a product that's of sub-market quality which no one would ever accept (or even be offered) were it not for their overwhelmed and aggreived mental state.
I don't think anyone would call the situation you describe 'shitty', and that alone makes it not seem like a 'very similar situation'.
all that bad, at least by the low standards of the financial services industry
it strikes me as standard corporations-are-shitty shittiness
I don't really disagree with either of these, but talk about setting a low bar...
not by steering them into a product that's of sub-market quality which no one would ever accept (or even be offered) were it not for their overwhelmed and aggreived mental state.
That seems to me to overstate the difference between these accounts and a real bank account. The FDIC insurance thing is real, but it only comes into play if Prudential becomes insolvent (I'd think offhand -- without authorization from the beneficiary to put the money someplace risky, I don't see "We gave your money to someone and he lost it" flying as an argument for Prudential not paying out.) And the interest doesn't really seem to me to be much below market.
So, poor disclosure, regulators should clamp down, but I don't see it making it to particularly evil.
Lots of people profit off overwhelmed and grieving people. It's shitty, but life insurers are by no means unique.
I remember when I covered a securitisation of funeral homes/crematoria, one of its credit positive features was that people don't usually shop around for a deal when a relative dies, so the company consistently made excess profits.
"And it seems particularly wrongheaded to pick on the bereaved if you're in the business of selling life insurance."
Who else are you going to pick on if you're in the business of selling life insurance?
I don't really disagree with either of these, but talk about setting a low bar...
Well, yeah. That's modern capitalism for you. I don't like it, but it is what it is.
LB, Prudential advertises themselves as "A company you can trust." Do you think this behavior is compatible with that slogan?
I'm not saying it's a worse-than-typical business practice, but if my brother did something like this to me, I'd be angry with him (if I had a brother).
This is probably not one of the top 1,000 things anyone should be outraged about, but it's outrageous nonetheless.
And the interest doesn't really seem to me to be much below market.
Is this a function of the program or a function of the fact that interest rates are historically low right now? (I.e., is the interest on these accounts variable and set to climb as bank rates go up? I was under the impression that nothing but Prudential's profits would go up in that event.
Also: not "much" below market? Exactly how much below market do you think it's acceptable to pay people who are in mourning?
f my brother did something like this to me, I'd be angry with him (if I had a brother).
This is, basically, your brother saying "The guy who agreed to buy your car came round. You were out, so I took the money from him. You can't have it - I'm keeping it in my own bank account - but any time you want any of it, just let me know, and I'll let you have it within seven days. If I haven't lost it gambling first."
It's worth distinguishing between "not wrong" and "not worse than many other customary business practices". The latter I'd agree with, but a some of the comments here seem to be shading over into the former, which is crazy.
30: When thinking about business practices, I guess I don't use right and wrong as useful categories. "Practices that make me want to avoid doing business with them", "practices that should be regulated out of existence", "practices that are grounds for legal liability", but worrying about whether a large corporation is acting wrongly seems like it'd take up all of your attention if you let it, without getting you anywhere.
Do you have a catetgory for "practices that in a more just world would make me want to avoid doing business with them, and don't in this world only because all their competitors act equally despicably"?
I'm also not seeing what harm regulation would do here. Regulators have limited time and attention, sure, and this isn't the worst thing in the world, so, but in the abstract: regulate it out of existence is fine with me.
What 30 and 31 said. Let me be clear, banks do a lot of shitty things that I think they shouldn't do. This behaviour isn't significantly worse than that and in some cases is a lot less bad (eg that whole order of overdraft debiting thing).
Is this a function of the program or a function of the fact that interest rates are historically low right now? (I.e., is the interest on these accounts variable and set to climb as bank rates go up?
Hard to to tell in this case, as the article doesn't go into much detail on Pru as opposed to MetLife. It's pretty clear from the article, though, that the MetLife rates are set according to the prevailing rates when the "account" is "opened". They don't seem to be variable rate as such.
Anyway, one question I have is: why on earth is the government giving private companies life insurance for vets to the private sector? Is this not something the VA could be doing without skimming off a profit? And, in actuarial terms, you'd have thought that the government would have a better handle on how likely it is that its soldiers will die (although recent experience doesn't really bear that out).
Delete "private companies" from 33.3.
Regulation presumably wouldn't even have to be very complicated -- there are a bunch of well-defined, familiar, safe-ish ways to keep money, and requiring that death benefit payouts be in one of a set of them would be straightforward.
32: Sure, as I said above, regulate it up to and including out of existence. I guess this one just doesn't hit me as particularly awful, because the damage inflicted is pretty low. (This is one of those five axes of morality things again -- I bet it seems worse to at least some people because messing with the bereaved is an offense on the purity axis.) But it's certainly not good behavior.
33.last: It's privatization, which is always popular both ideologically and because it allows giveaways to private industry.
privatization, which is always popular both ideologically and because it allows giveaways to private industry
I'm actually not especially upset about companies taking advantage of the bereaved; I'm upset about companies taking advantage of anyone. In this particular instance, they're able to take advantage of people because they're bereaved, but that's just the mechanism, and it's no worse than taking advantage of someone because they're poor, or uneducated, or ill, or elderly, or insecure about their body, etc.
24 That seems to me to overstate the difference between these accounts and a real bank account
There are a variety of types of bank accounts. In 2009 the FDIC was providing full coverage (unlimited $) of non-
interest bearing deposit transaction accounts, regardless of dollar amount.
Traditionally (US 1933-1980) savings accounts paid interest but had restrictions on withdrawing funds;
checking accounts paid no interest but offered immediate access.
Clever less regulated bankers invented things like 'negotiable order of withdrawal' and money market
accounts that combined features of checking and savings accounts.
Prudential's product looks a bit like a Reg Q era savings account from 1970. In the NPR story I did
not see who bought these life insurance accounts, but when signing up for a life insurance account, a
good question to ask (and an ideal HR should communicate the answers to beneficiaries for insurance
arranged through an employer) would be, how does or can the policy pay out ?
I'm actually not especially upset about companies taking advantage of the bereaved; I'm upset about companies taking advantage of anyone.
Again, that's what capitalism is.
38: Not your reaction so much, but I think "taking advantage of bereaved military families" is what gives the article its punch for a broad audience, and I think that's about purity.
why on earth is the government giving private companies life insurance for vets to the private sector?
IIRC, SGLI was sold separately as a payroll deduction. This is in addition to the death benefit. As a practical matter, Life Insurance companies are the best ones to handle this, as opposed to yet another government function.
I understand it's different from the death benefit. It's just that I don't understand having separate life insurance for the military and having it be privately run. Either make it a subset of general life insurance (which presumably would be extremely expensive and/or restrictive for policyholders) or have the government run it. Then again, I don't understand the point of having Medicare pay the private sector either.
Life Insurance companies are the best ones to handle this, as opposed to yet another government function.
Why?
They already have everyone on staff and have been doing it for @ 100 years. I remember my Father in law telling how when his grandfather passed Prudential made a big deal about paying the claim. Press release, photo of delivering check, the works. I understand that it was one of the first (non accident) actually paid.
27
This is probably not one of the top 1,000 things anyone should be outraged about, but it's outrageous nonetheless.
New hovertext?
Speaking of which, where does the current hovertext come from, the one beginning "Slightly damaged but recovering..."? I don't normally notice it until I went to check for this quote.
44
They already have everyone on staff and have been doing it for @ 100 years.
"Because it's always been done that way" is usually a stupid answer even when it's true, and this is no exception. And 100 years is definitely no better reason than 50 or 40 or 30. The answer in 37 seems like a much better explanation.
Oh please, reinvent the wheel because someone might make a profit? I would guess that the profit on this particular book of business is slim, and fraught with negative publicity peril.
Oh please, reinvent the wheel because someone might make a profit?
Its not reinventing the wheel. The Social Security Administration makes death payouts all the time, and doesn't skim anything off the top. This is not something government agencies are incapable of.
I would guess that the profit on this particular book of business is slim
This is a defense department contract that covers the entire US military. I would guess the profits are enormous.
46: Yes, pity the poor beleagured executives of Prudential. I'm sure they want their lives back from the small people now that this story has been published. Shed a tear for the poor small businessmen just trying to get by on government contracts.
The Social Security Administration makes death payouts all the time, and doesn't skim anything off the top.
The payout was in two weeks, and as far as I know the beneficiary didn't even file a claim. Try that with SSA. I'm not saying it couldn't be done, only why bother. Plus, no one "skimmed" anything off the top. There was a small difference between what they were paying on the funds vs. what could be had elsewhere had anyone taken the time to reinvest.
Shed a tear for the poor small businessmen just trying to get by on government contracts.
Prudential makes more profit in a week in their other divisions. C'mon, this is small potatoes for them. I would be more worried about graft if it were the Charlie Rangel Fidelity Fiduciary Life Insurance Co.
49
I would be more worried about graft if it were the Charlie Rangel Fidelity Fiduciary Life Insurance Co.
Or ACORN, right?
...There's a (slim) profit-making life insurance branch devoted to serving soldiers? I am convinced that somewhere in this pile there's a pony subsidy.
Again, that's what capitalism is.
Which is why I would still prefer free trade.
Glad that LB said that it didn't didn't seem *so* horrible to her, since that was my first reaction too and I was worried I'm becoming evil.
Really, what should be happening here is that the Veterans Administration or the Pentagon -- which selects the vendors allowed to sell these policies to military families -- should be negotiating on the families behalf and driving as hard a bargain as possible in terms of the benefits the families get.
They already have everyone on staff and have been doing it for @ 100 years.
But they haven't. Almost all life insurance policies have a war get-out clause - the ones that don't are offered by non-profit associations for soldiers.
Plus, no one "skimmed" anything off the top. There was a small difference between what they were paying on the funds vs. what could be had elsewhere had anyone taken the time to reinvest.
The issue with the checkbook is trifling, and I'm not actually offended by that in the least.
But it does seem that Prudential is able to make 4.8% off of the money they hold, plus whatever actuarial profit they can squeeze out. I think that's a rather substantial skim off the top. Better, I think, for the government to collect the money, put it in T-Bills, and have that extra income stream to go toward lowering the cost of the insurance premiums. Instead, that money goes to Prudential's shareholders, because Free Enterprise, Rah Rah Rah!
"I'm shocked," says Lohman, breaking into tears as she learns how the Alliance Account works. "It's a betrayal. It saddens me as an American that a company would stoop so low as to make a profit on the death of a soldier. Is there anything lower than that?"
Does anyone else sense a rehearsal for the lawsuit?
In any event, once the number of $ goes above 100 read the fucking fine print, dummy.
But they haven't. Almost all life insurance policies have a war get-out clause - the ones that don't are offered by non-profit associations for soldiers.
These are death benefit payments, not life insurance from outside vendors. Anyway, I think that they could be clearer that the funds are not in a bank and not FDIC insured. They are probably safer in Prudential's general account anyway. Maybe the spread could be a little tighter, for patriotic reasons. No one has stolen any principal, but there is a loss of potential investment income. I'm sure every beneficiary would rather have their loved one than the money.
||
Grading papers at a flying J in North Carlina does not feature the same display of abdominal muscles you get when you grade papers at the beach.
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Anyway, I think that they could be clearer that the funds are not in a bank and not FDIC insured. They are probably safer in Prudential's general account anyway.
Safer? Prudential may be a stable company, but you think it's more reliable than the US Treasury?
||
If a co-worker asks you to translate something from French to English, and it's by an author you've never heard of, read up on him on Wikipedia before you say anything. If you read up on him and it turns out that critics have called him unreadable, don't say yes, no matter how much she begs or how much money she offers.
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One more thing, this reporter is trying to create a sense of outrage because it involves soldier's death benefits, but in fact Prudential does this with every benefit payout. The numbers do add up to a tidy profit for them, but then again they are in the business of investing money.
56
No one has stolen any principal, but there is a loss of potential investment income.
No, don't be all weasely, don't use the passive voice, say what you mean, this is your editor speaking: they are skimming the investment income. Like making lemonade out of lemons, Prudential is turning soldiers' deaths into government pork. And what could be more American than that? Go private industry!
Biohazard: And? There's no goddamn recourse for predatory practices other than lawsuits; that's the fine libertarian world.
Prudential may be a stable company, but you think it's more reliable than the US Treasury?
No, just safer than some random bank. If the bank goes under, the FDIC would step in, but only up to $250K, which means two banks to be fully insured. Frankly that's a hassle when you need to worry about other things. I think that the "checkbook" is a convenience, short term only. And I think that the insurance companies are counting on the beneficiaries to not withdraw the money for at least a year.
Almost all life insurance policies have a war get-out clause
If this isn't true, is it? I can understand why the insurers would want it to be that way, but it seems.... wrong. (With apologies to 31.)
63
I think that the "checkbook" is a convenience, short term only. And I think that the insurance companies are counting on the beneficiaries to not withdraw the money for at least a year.
I think these contradict each other. I mean, don't get me wrong, both of them make decent explanations for this conduct individually, but put them next to each other and it looks weird.
62: When did the idea that money parked anywhere except in a mattress accrues interest become new again? She's getting what she was promised. If there's a problem it's with the gummint rules and regs, not Prudential.
The insurance companies came up with this plan so as to keep the money in their investment pool. The principal changes from one side of the ledger to the other, but the investment income remains, absent what they choose to pay out to the client. Even if this were spelled out in boldface type at the time of the delivery of the check, I would bet that most people would remain in the program for around a year until things settle down. Is it deceptive? Probably not. Are the insurance companies going out of their way to make sure the beneficiary understands all the implications of this large sum of money? No.
64: It's pretty standard on insurance policies of any type, like acts of God.
like acts of God
Wait, so if I die in an earthquake my life insurance won't pay out either?
I'd honestly believed that life insurance policies paid out for any death that wasn't the intentional doing of the insured (i.e., suicide).
I'd honestly believed that life insurance policies paid out for any death that wasn't the intentional doing of the insured (i.e., suicide).
Depends on the policy. Some even pay off in a suicide, after an exclusion period. Life insurance is a big Ponzi scheme anyway, just with actuaries.
life insurance policies paid out for any death that wasn't the intentional doing of the insured
It depends how much you're willing to pay. They generally will cover risks that are calculable and exclude those that aren't; most insurance companies aren't eager to get into the earthquake-prediction business. You get what you pay for, minus their cut.
By the way it looks like I wasn't entirely accurate. USAA doesn't have a war exclusion clause in its policies, understandably enough. it's technically for profit, although it is a mutual.
it's technically for profit, although it is a mutual.
It is nice getting that check. Always a surprise, and found money.
They generally will cover risks that are calculable and exclude those that aren't; most insurance companies aren't eager to get into the earthquake-prediction business.
They're underwriting the risk of dying. That's not really calculable at a fine-grain level (I know they require health exams for older applicants, but at my age they don't even do that; nor do they ask how often I drive in a car (relatively rarely), or how often I ride a bike without a helmet (too often).) But I'd have thought "risk of death" was about the easiest possible thing to calculate on a population-wide basis (especially with adjustments for age and medical exam results), and I thought they were underwriting the risk that they were slightly off in their calculations, not me. So yes, if there's a plague or an earthquake or a goddamn war or an act of terrorism or a drunk driver or anything else of the sort, I'd expect them to pay. Maybe I'll ultimately be disappointed in that.
Yeah, on the continuum of "business practices that should be regulated out of existence", while this one does not pass the grandmother test (i.e. "if this client was your grandmother, would you recommend this product to her?") it's certainly substantially less awful than say, the companies that try to cheat people out of their structured settlement money by charging usurious rates & fees for a lump-sum payout. THAT'S predatory.
Yeah, on the continuum of "business practices that should be regulated out of existence", while this one does not pass the grandmother test (i.e. "if this client was your grandmother, would you recommend this product to her?") it's certainly substantially less awful than say, life insurance companies with policy exclusions for war or acts of god.
I can actually see the argument for earthquake and war exceptions -- the idea would be that a large number of simultaneous deaths would be something the company wouldn't be big enough to handle. Admittedly, not that I really understand this, I believe that's what the reinsurance market is for. But it still makes some kind of non-predatory sense as an exclusion.
the grandmother test (i.e. "if this client was your grandmother, would you recommend this product to her?")
I've been hearing more and more about "reverse mortgages" lately. The phrase itself wrinkled my nose so much that I was kind of surprised people were really going for it.
77: Yes, reinsurance and geographic diversity. (Admittedly, geographic diversity might not solve the issue with war, but it certainly would with an earthquake.) The whole point of the policy is that if the insured unexpectedly goes down, there's assurance that surviving dependants will still be provided for. That assurance goes right out the window if you throw in a bunch of exclusions on the policy.
Your rationale would also support an exclusion for epidemics.
a large number of simultaneous deaths would be something the company wouldn't be big enough to handle.
There was a medium sized casualty insurer wiped out by the Northridge quake. All the policies were in the quake zone. The policies paid because the insurer was bought by another company.
Maybe I'll ultimately be disappointed in that
On the bright side if it is your policy, you never will be.
I've been hearing more and more about "reverse mortgages" lately. The phrase itself wrinkled my nose so much that I was kind of surprised people were really going for it.
Charities are doing this as well. Donate your house, take the charitable deduction on your income tax for the present value of the house. Live in it until you die. Then the charity will sell the house and keep the proceeds.
79: The point isn't that insurance with exclusions is a good idea, it's that a small enough/undiverse enough/not reinsured enough has a reasonable chance of simply being unable to pay under those circumstances, so it makes sense to sell the insurance for what it's worth, rather than telling people they're covered without exclusions and then becoming insolvent when the Canary Islands blow and a tsunami wipes out the East Coast.
Of course, maybe it would help if I come clean and say that I strongly believe that nearly all exclusions on nearly all insurance policies of any type should be outlawed. I'm fine with a few very simple and very clear exclusions (when they don't obviate the point of the insurance)--the suicide exclusion on the life insurance is fine by me--but not many. The earthquake exclusion on many homeowners policies? Ban. Nearly any exclusion whatsoever on health insurance policies? Ban. I could probably be talked into allowed exlcusions for flood damage for people who live in a flood plane (but not for anyone else).
The whole point of the policy is that if the insured unexpectedly goes down, there's assurance that surviving dependants will still be provided for. That assurance goes right out the window if you throw in a bunch of exclusions on the policy.
See also: health "insurance".
The earthquake exclusion on many homeowners policies? Ban.
Be prepared to pay a higher premium. A much higher premium.
it's that a small enough/undiverse enough/not reinsured enough has a reasonable chance of simply being unable to pay under those circumstances
This is one of very many reasons why the insurance industry needs heavy regulation. Require adequate reinsurance. Problem solved!
Donate your house, take the charitable deduction on your income tax for the present value of the house. Live in it until you die.
If you take a deduction for the present value of the home this year, do you have to include the imputed rent as income on your taxes each year while you live there for the rest of your life? That would seem like a bad deal.
84: What about the shot-by-a-spouse exclusion? (No, I'm not watching Law & Order right now. Why do you ask?)
If you take a deduction for the present value of the home this year, do you have to include the imputed rent as income on your taxes each year while you live there for the rest of your life? That would seem like a bad deal.
I don't believe so, as I have never heard that mentioned in the pitch. Good thing you don't work for the IRS.
88: okay if the spouse is the sole beneficiary of the policy. Otherwise, no. (Basically, in that circumstance a policy that struck the murderous spouse from the list of beneficiaries would be okay.)
Brock- you can even be paid through a Charitable remained trust. Live rent free and get paid, too!
Be prepared to pay a higher premium. A much higher premium.
For earthquake coverage? I have it, and I don't pay a much higher premium (nor should I, on an actuarial basis). People near fault lines would pay much higher premiums, as they should to cover the risk.
90: I see, but, honestly, I was just making fun of Law & Order. BOMBOM.
People near fault lines would pay much higher premiums, as they should to cover the risk.
Unless of course their houses were build to stringent earthquake-safe codes, in which case maybe they wouldn't (and shouldn't).
56: No one has stolen any principal, but there is a loss of potential investment income. I'm sure every beneficiary would rather have their loved one than the money.
I know the thread's moved on, but... wow. I mean, well, yes, of course, these things just happen. And only a sociopath would think to find fault with such an occurrence.
And I'm still curious along with Cyrus in 45 about the hovertext.
Best reverse mortgage deal EVAR:
In 1965, aged 90 years and with no heirs, Calment signed a deal to sell her former apartment to lawyer André-François Raffray, on a contingency contract. Raffray, then aged 47 years, agreed to pay her a monthly sum of 2,500 francs until she died. Raffray ended up paying Calment the equivalent of more than $180,000, which was more than double the apartment's value. After Raffray's death from cancer at the age of 77, in 1995, his widow continued the payments until Calment's death.
84: Negotiating insurance policies can be interesting, but the unpredictability of what can be obtained in what insurance agents call with reverence "the market" can take one a little aback. I recall a client being refused a non-vitiation clause* less than two years after the same insurer had agreed to provide one for a very similar asset.
I don't believe so, as I have never heard that mentioned in the pitch.
I really don't think "downside not mentioned in a pitch" is a good basis to conclude much. In general of course you have to offset a charitable deduction by the value of any benefit you receive in return. I'd be astounded if that didn't apply here, although who knows, maybe there's a way to structure it that would work.
From IRS Publication 526:
Example 2. At a fund-raising auction conducted by a charity, you pay $600 for a week's stay at a beach house. The amount you pay is no more than the fair rental value. You have not made a deductible charitably contribution.
99 is right. I'm not an expert on this area of tax law, but I think it's pretty clear you couldn't donate your house to a charity and take a full deduction for its value while the charity let you live somewhere *else* rent free for the rest of your life. I'm not sure why the outcome would be different if they let you live in what was formerly your house. But I'm sure someone's come up with a creative structure...
99. The amount of the charitable deduction is reduced by the imputed income stream based on an actuarial formula. As indicated by 97, sometimes the actuary is wrong.
I'm too busy to do anything more than skim the beginning of the thread, but life insurance is one of the easier businesses in the world. Well established actuarial tables, nice rate of profit, etc. I can't imagine it's that hard to write a life insurance policy for a soldier, either.
I'm pretty sure that deliberately manipulating folks into earning a lower rate of interest on their life insurance policies would be a violation of the insurer's good faith duty, which is something that makes insurers different than banks. Also, I'm fairly certain that doing this allows the insurers to evade some capital/investment requirements about what they can do with the money. Maybe someone has said this already.
roberto, the lower interest is being paid on the payout, not the policy. They are "investing" the proceeds as a courtesy.
They are "investing" the proceeds as a courtesy.
I'd have put the scare quotes around "courtesy", not "investing".
I thought about doing both, but ruled it out as too busy. I tend to use too many scare quotes as it is.
I really don't believe you can go too wrong in life just assuming that anything done by a large player in the consumer insurance market (life/health/auto/home) is evil. If it looks like it might be evil, it's evil. If it looks innocent, it's probably evil. You'll probably be wrong 5-10% of the time, but that's a margin of error I'm willing to live with.
@97: Jeanne Calment also became the world's oldest rapper
I really don't believe you can go too wrong in life just assuming that anything done by a large player in the consumer insurance market (life/health/auto/home) is evil
This is one reason why I hate mandatory coverage. It would be nice if they had to try to get my business, either through lower premiums or better service. Now it's who has the best ads. Do you prefer the Voice Of Authority or the Cute Chick?
108: What? Why would mandatory coverage mean no competition on price and service? People don't compare premiums when you go to buy car insurance (which is what I assume you're talking about)? I don't get this at all.
Though of course all these years of non-mandatory health coverage sure has led to low premiums and top-notch service!
I'm fond of cute chicks who speak in the voice of authority. Failing that, I'll settle for lizards who speak with foreign accents. (Actually, USAA is our insurer, and we've had nothing but great experiences. So there.)
108: They still do have to try to get your business, since you can always choose another company to meet the mandate. The difference is that now they have to compete based on factors other than luring you in with a good rate and then retroactively canceling your coverage when you get an expensive disease, or misleading framing of what is and isn't covered, among other things. They can still compete based on quality of service and price, too.
The difference is that now they have to compete based on factors other than luring you in with a good rate and then retroactively canceling your coverage when you get an expensive disease, or misleading framing of what is and isn't covered, among other things.
If you guys keep this kind of thing up, I'll have to call for a kitten. Just saying.
Heck, I have USAA for all my stuff, too. Wouldn't dream of changing. I wonder how different their loss ratio is because of their niche clients.
The Scottish Widow speaking in a voice of authority would be pretty smokin'.
I don't see what the problem is here... banks and insurance companies are businesses, not charities, and they care about themselves, not you. You should manage your money (whether or not it's a life insurance payout) and not expect them to manage it for you.
This of course is also exactly why we shouldn't bail their sorry asses out. Just let them fail, if that's what they're going to do.
The FDIC thing is even less outrageous since it wouldn't even protect the entire amount. Why would anyone feel safe with 400k in an FDIC-insured account?
I don't see what the problem is here
The problem that I see here is that this woman's son died gruesomely, and in vain, in a futile and immoral war.
I don't know about the insurance. The not-FDIC-guaranteed aspect sounds troubling to me.
Yeah, we probably shouldn't bail out these profit-maximizing entities at taxpayers' expense, but the fact is that we do. There is no free lunch market, and the state is not a neutral arbiter. Which is why libertarian anti-financial-regulation arguments sound either hopelessly naive, or just dishonest.
87
This is one of very many reasons why the insurance industry needs heavy regulation. Require adequate reinsurance. Problem solved!
Bought from who?
Bought from who?
Reinsurers. Or the government, if necessary. (Since the government will be bailing out the insurance industry in such an event anyway, it would be nice if they were collecting actuarily-fair premiums in advance.)
118
... it would be nice if they were collecting actuarily-fair premiums in advance.)
Does any government insurance program collect actuarily fair premiums?
I've paid more attention to market share in some business lately. While i knew Sprint was yellow, and verizon was red, i never really could say 'there are four major phone companies, plus some smaller regional ones'. or realized "geicko" was an insurance company; i didn't connect the 'caveman ads' 'gekco ads' and 'that one overly dramtic guy with italian greasy hair' were all from the same company.
I like the 'mayhem' ad campaing a lot though, maybe because of its androgyny
the one with the phyllis chick creep me out tho(red lipstick ew)
I think i would be ok if the only thing insurance ocmpanys competed on was their ads. set loss ratio/max profit, tho i don't think i know whether i'd prefer consumer advocates or the insurance cos to set the actual policy terms
oh, speaking (or not, as it were) of 'now that we've done the slave wages and millions of people in jail, how else could we increase hte amount of pain people have to go through?' category, http://www.nytimes.com/2010/07/29/business/29pain.html?_r=1&src=me&ref=business
Here's the worst part:
"Under a 2008 law, survivors covered by Prudential's VA policy are allowed one year to put death benefits into a Roth IRA, allowing them to earn investment gains for the rest of their lives tax-free. Prudential never informed Lohman, she says. "
Would anybody who knew about the IRA law NOT take that option? Highly doubtful. Of course it wouldn't be good business for Prudential to imform her....
...but what about the FUCKING GOVERNMENT OF THE UNITED STATES?
Life insurance is a big Ponzi scheme anyway, just with actuaries.
TLL, it's more difficult to take your comments on finance seriously when you inadvertently reveal that you have no idea what a Ponzi scheme is.
123: He's using the loose definition of Ponzi scheme as "Any institution that must take in more money than it gives out to stay afloat."
Is there a tax advantage to the recipient by allowing them to spread receipt of the money out over several years?
Giving people "checkbooks" smacks of deceit - but the banks are paying about 1% on savings accounts just not - and only the first $250K or so is insured by the FDIC. The banks lend that money to credit card holders at 12%-18% interest
124
TLL, it's more difficult to take your comments on finance seriously when you inadvertently reveal that you have no idea what a Ponzi scheme is.
Since insurance companies generally collect premiums in advance (sometimes far in advance) of paying claims an insolvent insurance company can often continue in business for some time by paying old claims with new premiums. The analogy to a Ponzi scheme is obvious. This is one reason insurance is heavily regulated. So while TLL's comment may not be correct I don't think it is nonsensical.
125: actually it may be the even looser one of "an institution that takes in money and then pays it out again". Cf "Social Security is a giant Ponzi scheme" (wingnuts, passim).
127: I agree that, when an insolvent insurance company turns into a Ponzi scheme, it is analogous to a Ponzi scheme. The East India Company turned into the government of a sizeable chunk of the human race. I don't think this says anything helpful about the hot drinks industry generally, though.
(116)The problem that I see here is that this woman's son died gruesomely, and in vain, in a futile and immoral war.
I assume this would be true even if they gave her 15% interest? Seems like the thrust of the thread was about Prudential, not Pentagon.
Which is why libertarian anti-financial-regulation arguments sound either hopelessly naive, or just dishonest.
I'm suspicious... can you something that you strenuously disagree with that does not sound naive or dishonest? i.e, what reasonable things do you disagree with?
Oh, I see.
But it's fun to be so certain, isn't it?
can you something that you strenuously disagree with that does not sound naive or dishonest?
Portobello mushrooms are a feasible replacement for meat. The Beach Boys had more than one good song. These jeans make my ass look fat.
Which Beach Boys song is the good one?
Portobello mushrooms are a feasible replacement for meat.
In a heavily topped burger, this actually works. Especially with bacon. I've eaten bacon-cheeseburgers with a portobello "patty" that I bet you'd find acceptable.
"It's like you're paying me off because my child was killed," she says. "It was a consolation prize that I didn't want."
This is a strange attitude for someone whose son took out a life insurance policy to take.
These jeans make my ass look fat.
It's probably just that back pocket, bulging with all the internet in it.
The Ponzi scheme comment was a joke, people. the actuary part is what makes it funny.
Brock is right all the way through this thread, AFAICT.
The payout was in two weeks, and as far as I know the beneficiary didn't even file a claim. Try that with SSA
Data conterpoint: the one time I had to deal with SSA death benefits it was the easiest government interaction I've ever had. Check came in less than 10 days.