A Universal Life Insurance Can Hold a Dire Problem

A Universal Life Insurance Can Hold a Dire Problem

If you are involved at present in a tussle with your life insurer over the escalating costs of their universal life premiums, you may need this article like a shot in the arm.

Within the past couple of years, scores of universal life insurance policyholders have been adversely affected by the double-digit premium increases from firms such as Axa Equitable, Transamerica and Voya Financial. And more premium increases, particularly to long-time policyholders, are still coming.

Universal life was developed in the 1970s and accounted for one-fourth of all of life insurance policies bought from the ‘80s to the ‘90s. This development will affect tens of millions of people who will have to eventually deal with huge premium increases.

What is Universal Life Insurance?

What is happening? To fully understand, let us start from the beginning.

If you are not familiar with universal life, it is a permanent (for as long as you pay the premiums promptly) and rather flexible, crossbreed life insurance policy that mixes the sensibly affordable properties of term insurance with a savings component similar to whole life insurance.

A universal life insurance policy provides holders a “cash value” savings account that brings them tax-free interest, including the flexibility to modify premiums and to raise or reduce death benefits. The policy’s investment account earns cash when interest rates rise but can also deplete it when rates dip low, as in the present. During the ‘80s and the '90s, the most accepted guaranteed rate in universal life policies was 4%; although some insurers offered more, says James Hunt of Consumer Federation of America.

Premium Increases of More than 200%

In the past two years, numerous universal life policyholders have been warned that their insurers are hiding in the fine print of their contracts their option to substantially raise their long-steady monthly premiums. And so, more than a few customers have suffered hikes of more than 200%.

It means that some people who are aged from 60 to 80 or more, many of whom receive fixed salaries, are being told to pay up amounts ranging from a few hundred dollars to thousands of additional dollars monthly for policies they bought many, many years back. The consequence of not doing so will be the lapse of their policy or the surrender of the policy and withdrawing any cash value remaining (with some possible taxes on that value). In any case, no death-benefit will be in sight.

An 82-year-old retiree, Nicholas Vertullo of Long-Island, told The Wall Street Journal last August that his premiums for 3 universal life policies more than 200% hikes, reaching a staggering $30,000 yearly premiums (for a death-benefit of $500,000). And he had promptly paid premiums for about 3 decades. We wonder where all the goodwill in return for all the years of loyalty shown went.

Why the Unimaginable Rise of Universal Life Premiums?

How could this thing happen -- and why is it happening at all?

It is because of the economy, according to life insurers. In the 1980s, interest rates gradually declined and suddenly plunged during the 2008 recession as the Federal Reserve took some measures to enhance the economic situation by providing easy access to borrowed money. However, low interest rates adversely affected majority of investors, life insurers included. This led to minimal returns for insurers who invested their money heavily.

As a result, life insurers started protecting their investments and hiked premiums on policies bought in the not-so-recent past. (Many of the policies offered in recent years are tied to the stock market and offer no guaranteed returns of a minimum of 4%.)

How Policyholders and Insurers Respond

Justifiably, many universal life policyholders who got assurance that their premiums would remain fixed are not happy about all this development. According to The New York Times, a dozen lawsuits have been filed against insurers who had sold such policies.

Feeling some pressure from public opinion, some insurers are said to have reimbursed, in part, some determined holders who had complained after they were being required to drop their policies. From the looks of it, there seems to be no positive outcome to this trend in the insurance sector.

Safeguarding the Rights of Universal Life Policyholders

Steps are being made by several regulators and consumer advocates to seek protection for universal life policyholders.

A recent by the New York Department of Financial Services seeks to require insurers to inform the agency not more than 120 days before instituting any “adverse change” in “non-guaranteed elements of an in-force life insurance or annuity policy.” The rule likewise requires insurers to inform policyholders not more than 60 days before any change. The regulation may serve as a precedent regulation for other state insurance agencies.

Moreover, in 2016, the Consumer Federation of America sent a letter to all state insurance commissioners requiring them to evaluate and prevent any unjust price hikes being implemented on holders of universal life policies.

In case you are one of those who has an older universal life policy and have not experienced any premium hike, expect it to come soon. The better approach is to become proactive and find out ways to avoid being hit by an adverse increase.

Recommendations for Longtime Universal Life Customers

Be prepared by taking the following steps:

  • Get in touch with your insurer and ask the exact value of your policy’s cash reserves. Based on the amount you have accumulated from the start, you might be in a position to weather any premium hikes in the future.

  • As an alternative, try asking your insurer to reduce the policy’s death benefit, and subsequently, your premiums.

  • Ask if you can change your policies. Perhaps, they have other policies they can offer you. If you are in your 60s or more, however, it might be quite difficult to get approval for a life insurance policy.

  • Failing all else, find a life insurance firm or agent who could purchase your policy in exchange for getting the death benefit in the future.

tag : Southbourne Group Singapore, Tokyo Japan

The Latest from Warren Buffet on Low-Cost Funds Investing

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Warren Buffett recently gave his best investment advice, and criticized the 'elite' for having thrown away $100 billion by snubbing it. Berkshire Hathaway came out with Buffet’s yearly letter to shareholders, covering an assortment of topics, speaking on everything from stock buyouts to his favorite book last year and dishing our expert investment advice.

"For many years, people have often sought investment advice from me; and in providing such advice, I’ve learned to comprehend human behavior more and more," Buffett’s letter said.

Buffet further said, "My constant advice has been a low-cost S&P 500 index fund. Fortunately for my friends of modest means, they have often heeded my recommendation."

In the annual letter, Buffet refers to Jack Bogle, who revolutionized investing through the introduction of the index fund, as a "hero”.

But not all people listen to Buffett's advice. "However, none of the super-rich individuals, pension funds and institutions has taken that same advice I gave to them," he said.

Buffet further said: "These investors, nevertheless, routinely thank me for my advice and then leave to follow the advice of a high-commission manager or, for a lot of institutions, to look for another class of high-priced adviser called a consultant.

"That professional, however, carries a problem. Imagine an investment consultant recommending to his clients every single year to continue adding to an index fund replicating the S&P 500. That is committing career suicide. But those hyper-helpers charge high fees, while they suggest small managerial shifts each year or so. That recommendation is usually served in mysterious language illustrating why trendy investment “fads” or present economic patterns justify the shifts.

"The rich have learned the habit for wanting the best cuisine, education, recreation, residences, sports ticket, plastic surgery, anything you can think of. They somehow feel their money should afford them something better than what the masses get.

"In certain instances, wealth can indeed bring the best services or products. As such, the financial “elites” – rich people, pension funds, college endowments and others – have difficulty signing up humbly along with people of modest means for a financial product or service. This hesitation of the wealthy ordinarily applies although the product concerned is – based on expectations – the obvious choice. In my crude estimation, the search by the wealthy for better investment advice has caused it, all in all, to squander over $100 billion in the last ten years. That is: A one percent fee alone on a few trillion dollars can accumulate. Certainly, not all investor who invested in hedge funds a decade ago lagged S&P gains. My calculation of the total shortfall, I believe, is conservative.

"Public employees suffered more from the financial damage that affected pension funds. Many of such funds are sadly insufficiently funded, partly because they have endured a double whammy: poor investment performance along with large fees. The shortfalls coming from their assets will be made up for by local taxpayers for decades.

"Human behavior will remain as is. Rich people, endowments, pension funds and the like will always feel they have earned the right to get something “special” in investment advice. And as a result, the consultants who are smart enough to take advantage of this expectation will reap a bountiful harvest. The favored investment this year could be hedge funds -- and something else next year. The expected end to this string of sweet promises is contained in a saying: “When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience.”

tag : Southbourne Group Singapore, Tokyo Japan

How Earn Thousands with these 8 Dividend Investing Tips

Look over these valuable guidelines before you invest in anything else.

Although dividend stocks do not seem to be as attractive as high-growth stocks, acquiring and holding them can produce high returns for investors who have the patience to wait. However, with the market staying at unprecedented peaks and interest rates poised to increase, investors need to be extremely discriminating when it comes to dividend stocks. The following eight useful tips will guide you into the most efficient strategies for your portfolio.

1. High yields are not enough. High yields are fine; however, focusing on them can lead you to miss the issues that might undermine or suspend the dividend. Likewise, you could lose your way around strange sectors and strange companies, bringing us to the next related tip.

2. Avoid sectors unfamiliar to you. Last year, an investor bought stocks of the shipping container company Textainer because he was attracted to the company's high dividend yield (more than 6% then) and low valuations dividend yield; however, he did not realize that the seasonal shipping container industry experienced an extreme dip as a result of the glut of containers worldwide, inexpensive steel and China’s economic decline. Textainer suffered from those factors and had to reduce its dividend twice, leading to the stock’s drop.

3. Evaluate the payout ratios from the start. Look beyond a stock's projected yield and take the dividend as a percentage of the company's earnings and free cash flow to find out if its payouts can be sustained. For instance, Casino giant Las Vegas Sands paid 137% of its earnings and 126% of its free cash flow on dividends for the last year -- suggesting a reduction of their 5.1% yield in the coming months ahead.

4. Measure valuations according to comparable peers in the industry. The recent years saw many dividend stocks catching up as a result of a low-interest rate condition, making bond yields not so appealing. However, as interest rates and bond yields increase, many investors will begin selling their income stocks -- especially those that have much higher valuations – in favor of bonds. Tobacco big-player Altria was a popular and secure market choice; yet it now trades at a level of 26 times its earnings, a level way above the average of 21 in the industry.

5. Aim for stable earnings and growing free cash flow. When a firm regularly has both figures on the rise, it can give out dividends consistently. However, if the two sink to the bottom, expect a cut in dividends. As a prime case, Las Vegas Sands gave out $2.9 billion in dividends in the past year. Checking out its unstable net income and FCF growth in the last three years, however, shows how undependable its dividend really is:

6. Evaluate its track record of dividend increases. Firms that aggressively promote their stocks as income investments tend to raise their dividends yearly. Those that have done this for more than 25 years enter the list of elite "dividend aristocrats", such as AT&T, which has increased its dividend yearly for more than 30 years. Companies such as these tend not to cut or stop paying dividends in spite of a severe financial meltdown worldwide.

7. Get a DRIP (dividend reinvestment plan) to reinvest your dividends. If you can afford to reinvest dividend income immediately, enroll our stocks in a DRIP, allowing you to automatically acquire additional shares of the stock while getting a little price discount in the market. You will benefit from: savings in commission charges, averaged purchase price over time and automatic increase of your position due to the compounding effect.

8. Consider your effective yield. As a stock’s price rises and its yield dips, investors usually sell the stock to acquire one with more returns. In that case, the investor has not considered his or her "effective" yield, which is the percentage the stock effectively yields based on the price of the principal.

For instance, AT&T presently has a forward yield of 4.8%. But an average AT&T purchase price of $33.74 will grant an "effective" forward yield of 5.8%. Hence, one will hesitate to trade his AT&T shares for another stock with a 6% yield.

The key takeaway

There are no foolproof steps for selecting the winning dividend stocks. However, putting your trust on those stocks you are familiar with, monitoring their valuations and payout ratios instead of yields, and putting back your dividends into the investment will go a long way toward gradually building wealth for you though the going gets rough.

tag : Southbourne Group Singapore, Tokyo Japan

How to Balance your Finances

Establishing a good financial budget and sticking into it isn't easy. Not everyone wants to keep track every single penny they spend. It can be a bit arduous but it is a matter that needs to be done.

With the rapid growth of technology, online banking and financial software can now help lessen this tedious task. Using a computer with an internet connection, you can now view your bank or credit card statements anywhere you are. This type of service offered by banking companies can help you to track what you spent, where you spent and the amount of money you spent using your credit or debit card. You can even download your account statement reports and save it on your computer. Moreover, financial management software features budgeting tool which enables you to clearly observe where and how you’re spending your money.

These solutions are perfect to effectively manage your finances. They are very beneficial for those who don’t want the old paper-based manual budgeting where you need to stack a bunch of receipts and expenses you made.

But these applications won’t be as effective and accurate as you want it to be because it only processes the data it receives. Sometimes, what greatly affect our finances are the small cash purchases we often overlook that gathers up to a significant amount. If you don’t bother entering those small details manually on your budget app then it will not provide accurate reports.

To plan an effective financial budget, you must have a solid understanding of your income and expenses, try not to miss anything and enter as much detailed information as you can. Budgeting is really difficult to achieve. Try this few tips if you’re having a dilemma in achieving your financial goals.

The All Cash System

For every financial transaction, use cash. This is the simplest way to budget.

How? Here are the ways to do it:

  • Once you receive your paycheck, cash it right away. Pay cash for all your expenses rather than using credit cards or checks. Carrying large amounts of money may be a bit risky, but everything is much simpler this way.

  • One safer way is to deposit your paychecks. Withdraw a certain amount of cash enough to your needs for a week.

This may be a bit impossible because certain payments require automatic withdrawal from a bank account, such as mortgages and utilities. Clearly this is unavoidable, however, try to use cash for everything else. By the end of the month, you can see how much cash have left if there’s any. This will tell you whether your expenses match your income.

The Envelope System

This type of budgeting plan requires consumers to divide their money into categories, put it in their designated envelopes and spend it as they need it. Envelopes can be labeled and used for food, mortgage/rent, gasoline, utilities, entertainment and any other expense. If you spend all the money in a particular envelope, then you have to stop spending, so make sure that you don’t use it up too quickly. This method can easily point out weak areas in your finances you have to strengthen.

The Hybrid System

Why not try both? This will help you better manage your finances and money. Using the envelope system or all cash mode system along with the budgeting app you prefer will effectively help you to budget better and spend more wisely. There are some expenses that cannot be tracked down by an application, and using various methods be it all cash system or envelope system will help fill the gaps that most software misses out.

Following a budget or spending plan requires a lot of time and effort. But it has a great benefit as it helps you to ensure that you will always have enough money for the things you mostly need and important to you. Moreover, following a spending plan will help you keep out of debt if you are currently in debt.

Financial Review: How to Protect Your Finances from Disaster

Like eating a healthy diet, maintaining a well-planned budget is generally more of a wish rather than a reality.

This is because planning and keeping to a strict budget entails a lot of work -- so does counting calories and hunting for and preparing organic and nutritious food. Balancing your checkbook monthly is already a tedious process; consider how much more time you will need to evaluate every purchase you make.

Electronic banking and computer apps can help ease up the task. Whereas before you would need to check every receipt and expense made, now, software programs such as Quicken and tracking websites can make the work much easier with your computer.

With an Internet connection, you can access your bank account and credit card transactions and download them to your computer to just beware of online fraud like phishing. Depending on the services provided, such information may even include type of expense for certain items. Using the data, you can derive a general perspective of your financial situation where you are and what you need to do to improve your lot.

Remember, these applications are only as good as the data they receive and process. Not many individuals have such simple finances as that of using only a credit or debit card for all their purchases. Usually, the small cash purchases you often overlook pile up to a substantial amount that impacts on your finances. Since those cash expenses do not appear on any bank or credit card statement, your budget app will not churn up accurate statements -- unless you input such information yourself.

A solid comprehension of your income and expenses is vital in building a personal financial budget; hence, try to input as much detailed information as you can. Nevertheless, if you find that task above your skills, try these guidelines to help you obtain financial self-awareness.

All-cash Mode

The easiest strategy to budget is to go on all-cash mode in all your financial transactions. There are several ways to do this. First, cash your salary checks and then use the cash on hand for expenses – although having so much cash with you may not be a safe way to do it. Second, you can deposit your checks and take out a certain amount of cash you will need for a few days or a week each time. This is a safer way.

But you cannot avoid using alternative means of transaction other than by cash. Banks, for instance, may demand customers to pay mortgages by automatic withdrawal from a bank account. Utilities and other firms that bill on a regular basis have required clients to transfer to automatic billing as it saves time and expense for all parties concerned. If you cannot avoid those, transferring most of your transactions to cash will help provide you with a better picture of your financial health or un-health.

After every month, check how much cash you have on hand, if any at all. This will give you an idea if your expenses are within your income. While this may not tell you specific information on where exactly your money flows to, it helps you appreciate how you can manage the small cash expenses which are often bypassed by most tracking programs.

Use the envelope method

This is similar to the cash method, although it requires a little more planning. As in the cash method, encash your paycheck; but categorize the cash into several items. For example, if you receive $4,000 monthly, you can put $1,000 in an envelope for your mortgage payment, $300 for gasoline, $350 for dine-out food, $450 for groceries, $500 for utilities, etc. Divide your cash into as many types of payments as you can afford to monitor.

This approach allows you to gain greater awareness of how you dispense with your money. For instance, if your grocery envelope still has cash at the end of the month but your dine-out envelope empties out sooner, it tells you where you spend more time eating out rather than at home. Likewise, based on the number of envelopes you have, this method can easily show you the weak areas in your finances you need to strengthen.

The hybrid method

These various schemes can be effectively utilized even if you do not use an application in your PC. Nevertheless, with an app, they can help fill up the gap which such software programs usually miss out.

For instance, your app may tell you that you earn an average of $700 monthly beyond what you are spending on tracked categories. However, a quick check tells you your checking account has not increased the same amount every month. Most possibly, the difference comes from the cash expenses that are not inputted into the app. Using either the cash or envelope method for that $700 will reveal a clear picture of where that surplus is flowing into, providing a more comprehensive perspective of your total expenses.

Indeed, budgeting requires quite an investment in terms of time and effort. But imagine the huge benefits you will derive from the savings on cost and decrease or removal of unwanted expenses. A solid budget plan can help you raise some money you already have toward making some savings or investments, not to mention the cash you will have for emergency purposes. Such easy-to-do steps will help even the most time-strapped individuals determine their financial situation.

tag : Southbourne Group Singapore, Tokyo Japan

Effective Ways to Invest in Bonds

Effective Ways to Invest in Bonds

The economy has started gaining speed at last! Employees are getting better wages at a more rapid rate since the global economic meltdown. Inflation is making a comeback such that the Federal Reserve is planning to raise interest rates this year for probably three times. Meanwhile, the new administration under Trump is poised to let the economy burgeon with increased spending in infrastructure and tax cuts.

Under such economic prospects, many bonds can wither, leading fixed-income prices to drop recently and raising yields on 10-year Treasuries to over a percentage point since last summer. Consequently, a core bond — meaning intermediate- and longer-term Treasuries and high-value corporate bonds that sustain many retirement portfolios — have experienced loses of over 3% since July.

With increasing rates now, one should expect even extreme jumps. 10-year Treasury returns are predicted to hover between the current 2.5% and about 3%, for this year, alleviating price decreases.

Nevertheless, there are no high prospects from price advantages. "For years, investors have been encouraged with the good yields that bonds have given for many years," according to John Canally, chief economic strategist at LPL Financial. So, it is opportune to consider how to handle your bond portfolio steadily in the emerging environment landscape of increasing rates and risks.

Consider the Short-Term View

With increasing rates, the price of traditional, lower-yielding bonds goes down. However, short-term debt suffers lower loses compared to longer-term securities.

One more motivation to consider shorter-term debt is this: With government priming the economy through federal spending and tax cuts and extending this aging recovery, top-quality companies will be capable of paying their debts sooner. "We can check corporate balance sheets and expect cash flow for one to three years," according to Warren Pierson, senior portfolio manager with Baird. "However, that is not the case for bonds with 10-, 15-, and 20-year maturity dates," he adds.

Vanguard Short-Term Investment Grade (VFSTX) has a maturity of 2.6 years, meaning that a full rate increase will lead to a decline of 2.6% in the fund's holdings. This fund has overtaken over 75% of its peers in the past three, five, 10, and 15 years.

Bank on Higher Income

There is another kind of short-term fund worth considering as rates continue to rise: funds which invest in floating-rate debt, referred to as bank loans. When rates increase, returns on many of these securities follow the market rates. In fact, since July, when rates began going up, this type of funds has gained 5%.

Be reminded, however, that floating-rate securities are normally issued by firms with below-investment level balance sheets. The mean holding in PowerShares Senior Loan ETF (BKLN) has a rating of B -- right there at the "trash" status, making these funds good alternative options to long-term, high-gain bonds.

Get Some Inflation Protection

Why do rates go up in the first place? At present, five-year Treasury Inflation-Protected Securities will beat five-year Treasuries when inflation reaches over 1.86%, which is a bit lower than the 2% or so inflation rate predicted to occur for 2017. Vanguard Treasury Inflation Protected Securities (VIPSX) has the potential to give over 3%.

Be forewarned that TIPS are almost twice as fickle as a core bond fund; hence, keep your investment to a maximum of about 10% of core bonds.

Never Over-Accelerate Your Core

Whereas core funds pose greater risk compared to shorter-dated bonds, "a core bond fund can still provide quite an important function in a diversified portfolio by offsetting equity volatility," says Toms.

Remember, the regular core bond fund has expected five-year duration, more or less. Nevertheless, the main purpose for having bonds is to counterbalance possible losses in the stock market and avoid fraud.  And to achieve a truly sound long-term, diversified portfolio, a bond with a five-year duration can provide a good balancing leverage between rising volatility and runaway rates.

Southbourne Group Singapore, Tokyo Japan

Author:Southbourne Group Singapore, Tokyo Japan
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