Guaranteed Life Insurance Policies

May 27, 2016 at 8:52 AMKyle Shepard

Guaranteed Life Insurance Policies- solid option or a time bomb

The ever evolving selection of permanent life insurance policies now include the option to select a permanent life policy with a guaranteed death benefit from the insurer, sometimes called a “secondary guarantee”.   In most cases these “guaranteed” policies are issued at a lower premium for the coverage

Is this type of policy a good choice?

In our opinion, probably not!!   
The life insurance industry, other than term insurance, has continually searched for the holy grail of product to satisfy the buyer.  The guaranteed product is just one version of the search.  But it has some significant components that are contrary to long term commitments.

First, the premiums must be paid within the grace, no exceptions, or you lose the guarantee.  That might be a challenge for a 90 year old to be so precise.

Second,  the guaranteed products do not build cash value of any significance, so at some point in the future 75, 85 years old the policy is simply an unsecured promise by the insurer.

Third,  in a policy lifespan of sometimes 40 years, things change, but these guaranteed policies are not “changeable”   Your options are limited or you lose the guarantee

Fourth and most important- these Guaranteed  policies are built on a Lapse rate actuarial model.  Assume that a company expects overtime a 25% lapse rate for the policies issued, but they only experience a 15% lapse rate.  This is a problem!
This is the time bomb scenario where insurers have massive unfunded liabilities.   Some advisors won’t care that the bomb explodes in the 30th year, they will be retired.   Your client will.

In that we have been advised by industry analysts that the lapse rate model for some companies may already be failing, we would urge significant caution in using a Guaranteed product. There are more secure policies available!

Posted in: Beneficiary | General | Insurance | Life Insurance


ACE bought Chubb

May 24, 2016 at 11:33 AMKyle Shepard

ACE bought Chubb - what does it mean to you?

In January ACE completed the acquisition of Chubb Insurance, a little unusual when one company acquires a competitor that is 2X the size. So now one company holds a majority of the High Net Worth insurance world across the USA.

I guess the big question is

What does this mean to you?

In a word “Disruption

Prior to ACE buying Chubb, they bought Fireman’s Fund, which turned out to be a very difficult integration.  In our opinion ACE found out really early on that Fireman’s did not have adequate rates, were top heavy in high catastrophe areas, and the combined infrastructure was lacking.

The acquisition of Chubb’s business model proved to be the solution.

But now the combined ACE/Fireman’s/Chubb, working under the Chubb name holds the majority of all high net worth business.

So back to Disruption.

The disruption is not a problem with the new Chubb company, that transition seems to be going well. But the disruption is more a result of a few Chubb competitors, and some new upstarts to the High Net Worth arena, who are trying to buy into the game with under market costs, especially for the ultra-high net worth client.  A very dangerous strategy that is very similar to current insurance company strategies in Florida.  You pray that a catastrophe does not hit, and hope that you survive the damage!

It may be attractive to save a little money on your personal insurance. But a big Nor Easter could eat up your savings quickly, and even more importantly, leave you with few options post storm.

A much better option at this point in the disruption process is review the coverage you have, to be certain it is still right for you.  You may be surprised to find that savings do exist, especially if you are long over-due on a coverage review.

Posted in: General | Home | Insurance | News


TRUSTEES; When Responsibility Leads to Liability

June 16, 2015 at 11:30 AMKyle Shepard

An Irrevocable Life Insurance Trust is still the number one mechanism for high net worth families to address the exposure to estate taxes. However there has been a wave of lawsuits against Trustees for failure to meet their responsibilities, even though many of these responsibilities are outside of their control. This creates cause for concern both for the grantor and for the trustee.

With 30 plus years of being an agent recommending life insurance held in an ILIT, I have been witness to a laundry list of reasons why an individual or a corporate trustee should be wary in taking on this responsibility

Here is the list:

  • There is no roadmap on responsibilities for the trustee
  • Failure to issue Crummy Notices and/or follow the steps in notifying the beneficiaries
  • Failure of the agent in having the ILIT implement the insurance policy 
  • In proper ownership/beneficiary arrangement of the policy 
  • Overwhelming use of Term insurance for what many times is a permanent exposure to estate taxes- this coverage does run out
  • Change in financial situation prompting the grantor to invade the cash values of the trust
  • Replacement of the policies in the trust with bigger and better policies. If the grantor is older, bigger and better may not exist
  • Failure to pay the premium
  • With interest rates at historically low levels permanent policies lapse due to inadequate premium projections
  • Even with the exposure to estate taxes still relevant, the grantor grows tired of paying premiums or fails to pay due to his or her incapacity
  • Some Second to Die policies jump in premium after the first death
  • Bad faith or self-dealing of the Trustee and the Agent 
  • Non Trustee family members at odds with the Trustee and Grantor

Whether the Trustee is an individual (which is 90% of the time), or a corporate trustee, the opportunity to be held legally responsible grows lock step with the years an ILIT has been in place.  The benefits of the insurance are generally significant and warrant a clear, continuing vigilance of first the trustee and the professional advisors that support the trust. 

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Flood Insurance- Back to the future

May 27, 2015 at 3:47 PMKyle Shepard

Just when you felt like their might be some calm on the horizon with flood insurance,  up pops a couple of issues that clearly will be cause for concern.

First, FEMA (Federal Emergency Management Association) who is in charge of all things flood through the NFIP(National Flood Insurance Program), is offering an opportunity to everyone who believes that they were underpaid n their flood insurance claims from Superstorm Sandy. If you submit a request within 90 days to  , you will be assigned a case worker to review your claim. Clearly at the taxpayers expense

And Second, Texas and Oklahoma have become the latest site for a flood disaster in the last week. It appears to be a devastating amount of damage that can only be a launching pad for the day that every home, that is mortgaged will be required to carry flood, even those in a designated flood zone. And yes this will prompt a continued roll-on of the 18% annual rate increases for flood policy holders, searching for eventual break even with claims

Severe weather continues to search for new locations to spread the devastation


Posted in: Excess Liability | Flood | Insurance | News

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Identity Theft… closer than you would imagine!

April 21, 2015 at 8:47 AMKyle Shepard

You may find it surprising that an insurance guy didn’t pay strict attention to the issue of identity theft. Honestly, I thought I was well organized with the steps to take in avoiding my personal information being exposed.  But the most cautious steps crumbled when my health insurer was hacked, exposing all my critical identity detail to an endless list of thieves.

Let the nightmare begin

Recently, while filing my 2014 income taxes, I was startled when my federal return was rejected.  After a solid hour on the phone with the IRS, I was informed by my friendly IRS agent that a tax return had already been filed under my social security number (with refund I suppose).  

My journey since then:

The IRS advised me to submit my return with their Identity Fraud Affidavit, and 2 forms of identification - like my driver’s license and my passport. There was no comment on how this filing would be handled or resolved and in what timeframe. I am in the dark on this.

In my quick investigation I was alarmed to find out that our government gave out $5.3 Billion in fraudulent refunds in 2013. 391,000 fraudulent returns! 

Why isn’t someone screaming about this?!

When my health insurer got hacked, they provided me one year of identity protection with their service.  I have since added my own monitoring for $15 per month. Still, neither of them picked up this event because it had nothing to do with credit, YET!

I have contacted the credit company Equifax to set up a fraud alert, which will be shared with the 2 other companies.  I have also set up a fraud alert with the FCC, and advised my credit monitoring company of the identity fraud.

Further investigation identified that my tax preparation software has no encryption, making the service an easy hack.   

So where does that leave me?  Even with credit monitoring, and $50,000 of coverage on my home insurance policy, I am wondering what else I should be doing to avoid the excessive waste of time this fraud may create.  I guess I will start with new passwords, I have to do something

$5.3 billion in fraudulent refunds- REALLY?


Posted in: General | Insurance | Life Insurance | News


Flood - Should you consider a property in or near a flood hazard area?

March 31, 2015 at 4:45 PMKyle Shepard

Ask yourself - how important is the location to you? It might be an easy answer. But a "to die for" location will come with some heavier costs and some uncertain exposures.

Here is what to expect:

• Flood insurance is an added insurance cost, a required one if you have a mortgage, and it can be pricey.
• Being located in a flood hazard area has a significant impact on your regular home owner’s insurance costs; if the property is coastal there is an additional cost due to wind related surcharges.
• Flood premiums will continue to rise until FEMA gets to a rate they feel is adequate to break even with anticipated claims.

• Flood policies only provide $250,000 of coverage for your building and $100,000 for contents - most homes exceed those numbers. You can buy an Excess Flood policy for an additional cost, or accept the uninsured exposure.
• Flood zones are stable right now with Sandy a fading memory, but another major storm could cause another remapping, and that just means higher costs and larger high risk zones.
• If you are coastal and have had no claims (home or flood), your rates will increase incrementally over time, but a large claim could have a significant impact on your regular insurance costs.
• Finally, flood claims are a major exercise when it comes to getting paid for a loss, who needs the aggravation?

If you are considering a purchase in or near a flood hazard zone, you need to be willing to accept higher costs and a number of uncertainties in added exposures.  Well informed and well protected is well prepared when it comes to a high risk property.

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What Is The Best Asset to Gift to your Children or Grandchildren?

March 24, 2015 at 4:27 PMKyle Shepard

When considering what asset to gift to the children in your life, you could make a case for stocks, bonds, or even your family vacation home. But our recommendation is a Paid-up Life Insurance Policy.

And no, it's not because of the death benefit. Here is why-

A permanent life insurance policy is a unique asset:

1) It builds cash value that grows on a tax-deferred basis while the policy is inforce.

2) With any life insurance policy there is a cost associated with the insurance, but for the child’s policy that cost is nominal.

3) The overwhelming majority of the cash grows, whether by the simple interest of a mutual insurer, or by the equity (yes, equity) allocation you choose.

4) When given an early start, a policy can grow into a substantial asset, waiting to be turned over to your child, when you decide the time is right. This is important - you control the transfer.

5) You will have access to the cash values at any time while the policy is inforce.

While you could access the values for college, we would argue that an appreciating asset like this is worth keeping for emergencies. Not everyone becomes an adult with perfect health, or the economic ability to pay the premiums on a life insurance policy they may need for their family.  A child with a paid-up policy has a financial back stop that does not include management or tax reporting while the policy is inforce.

It may sound too good to be true, but check it out. Do the math.

For more information on how Shepard Insurance Group can help you gift your child or grandchild a Paid-up life insurance policy please give us a call at: (203) 637-6655


Posted in: Beneficiary | Insurance | Life Insurance | News

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Poor Beneficiary Designations Can Be Costly

March 3, 2015 at 1:34 PMKyle Shepard

No one likes to think about naming beneficiaries, but it is an important step in securing benefits that can have consequences, if not done correctly.  There are a number of “missteps” you should avoid in making sure your beneficiary arrangements are appropriate.

1) Naming only a primary beneficiary.  Failure to name a contingent beneficiary will only make sure that you deduct additional court costs from the final benefit

2) Forgetting to update for marriage, divorce, and/or having another child

3) Being unaware of the tax exposure - estate or inheritance taxes can eat away at an estate, so be certain when you name your beneficiary there is not a tax consequence

4) Naming a minor as a beneficiary

5) Failing to name an informal trustee when you have children that are minors

6) Naming a “permanent dependent” as a beneficiary, such as: a special needs child, or aging parent(s).  As little as $2,000 can cause them to lose their Supplemental Social Security or Medicaid

7) Assuming that your “Will” executed through your attorney handles your life insurance, it does not.  Your life insurance beneficiary arrangement works outside of your will

8) Failing to tell someone that you have the coverage

9) Assuming benefits have to be lump sum.  You can set up with the insurance company to pay your beneficiaries as you see fit.  Too much, too soon is never a good thing


Posted in: Beneficiary | General


More Tinkering - Flood Insurance 2015

November 18, 2014 at 12:51 PMKyle Shepard

On April 1st, 2015 the new flood insurance changes take effect. If it is National Flood Insurance Plan (NFIP) objective to have a program that does not require tax payer bailout,  it looks like they are getting there.  The big question is not, are flood premiums going to increase, the more important question is how many years of increases will the homeowner expect to see before the program gets to break even?

Here are the changes in store for 2015:

1) Premiums on average, will go up 15%, with the maximum increase in premium capped at 18%. But that does not apply to substantially damaged properties, where there has been previous claims, for those properties the increase can be 25%.

2) In 2015, all flood insurance policy owners will pay a premium contribution of 10-15% to a Reserve Fund, in addition to the base premium, to help build a fund for future claims.

3) Primary homes will incur a $25 policy surcharge. Secondary home surcharges will be $250.

4) For home buyers in a flood hazard zone, “Grandfathering” rules will now allow an assumption of the home seller’s subsidized flood policy if the seller has continuously insured the home and was compliant with FIRM (Flood Insurance Rate Map) requirements at the time of the previous mapping. Grandfathering continues to be a lower cost option when new maps show a home in a higher risk area (e.g. Zone A to Zone V).

5) But most Important Change-Deductibles can be increased to $10,000 on flood policies to offset cost, this will generate about a 40% savings on flood premiums.

Link to FEMA April 2015 document

This is it for 2015, standby

Posted in: Flood | Home | Insurance | Severe Weather


The Life Cycle of Insurance Needs - Where do you fall in?

October 28, 2014 at 6:08 PMKyle Shepard

Individuals & families with high income and a growing net worth transition thru a series of steps in their insurance needs and choices.  Having a playbook to follow may have some value in making strong choices to insure your risk is bullet proof.  Below are age based links that will give you suggestions and feedback to assist you in selecting the right coverage, at the right time, for comprehensive protection.

The Primary years: <30 thru age 40
The Growth years: age 40-55
The Empty Nest age: 55 - >65

If you are in the Primary years, many of your purchases of insurance are for the first time, so a heads up can be valuable.

Property insurance - whether you rent, or own a property the decision on how you insure your property is based primarily on how much you have. Is what you own general contents or do you own some valuables such as jewelry?  (Valuables need to be   insured separately). Once you have identified these 2 points, the decision is whether you buy insurance off the internet and pay a lower premium, or have a policy custom designed to fit your personal needs at a slightly higher price.   Property insurance claims do not happen often, but a custom designed policy will leave you appreciative that you spent the extra dollars to have your own personalized policy.

Auto Insurance - is a bit of a commodity with some concern if you are driving high valued autos. Make sure your policy has no less than $500,000 of Liability coverage and no less than $1,000 vehicle deductibles.If you have a claim always inquire as to the value of using your insurance for reimbursement. Auto coverage is a computer rated product that will be affordable if you have no tickets, no accidents, and a good credit score. But if you have an unfortunate accident the surcharges begin.  Using your auto insurance for towing or roadside assistance is not a good choice.

Liability Insurance - comes with both your home policy and auto policy. The question is whether you have other exposures like: a boat, second residence, or if your career track and future income is worth providing more coverage than just the basic home and auto policies. Adding an Umbrella Excess Liability policy for as little as $200 per $1,000,000 of extra coverage can be a wise choice.Life Insurance- in that life insurance is coverage based on your age and your health, getting an early start on this protection is a strong choice. Integrating coverage that is provided by your employer makes sense, but recognize that you may in the future change jobs and leave the employer sponsored coverage behind. When responsibilities begin to take hold, it is time to begin a relationship with a seasoned life insurance agent who has access to multiple companies. Whether providing for a spouse, children, or even dependent parents,  you need to identify 1.) the need for coverage and 2.) the number of years coverage will be needed. A good rule of thumb is that 25% of your coverage should be permanent coverage, written with a mutual insurance  company. Also if you have children make sure you have life insurance for your wife.

Disability Insurance - hopefully your employer provides robust Long Term Disability Coverage, because this is very important protection that is pricey if you have to buy it on your own. Again, the amount of coverage should match your income needs. If you need $10,000 after tax per month to meet your financial obligations, make sure you match that in after tax coverage. Coverage needs to be in place for your entire working career, typically to age 65.

Other Exposures - if you have other exposures, such as: a boat, a motorcycle, or even a second residence, make sure you have at least $500,000 of liability insurance on that exposure. And if you currently have an umbrella that the agent/insurance company are aware of the exposure so that your umbrella will apply to any serious accident.

And finally - And Very Important - with all these coverages take the time to ask the agent or company what is not covered, or where there might be coverage limits so you are fully informed on where you might be self-insured!!

The Growth Years - are normally a bit more complicated in comprehensively meeting your insurance needs. When you add children to the equation, vacation properties, and estate planning issues,  a well-organized plan with ample protections is a solid foundation to being bullet proof. Insurance needs evolve and a strong communication with a seasoned agent will be an asset.

Property Insurance - usually finds you in the home that your family will grow up in. With so much activity, protection devices like: alarms, leak sensors, and generators are essential to assist in preventing accidents and minimizing inconvenience. Pay close attention to valuables, collections, and art work to provide full coverage in the event of a loss.   With more time in a home you should be able to control surprises, so increase your deductible and save the premiums. This is the stage in life where having an inventory begins to make sense.  Whether you hire a professional or simply go room to room with your video, the hardest thing in a serious fire is to remember all that you have lost. With years in your home you accumulate a lot of stuff.

Vacation Properties - normally coastal, lake front, or in the mountains. An important step here is simply ask your agent about the insurance cost, and issues like flood or wild fire before you buy. It will save $$ and inconvenience.

Auto Insurance - this is one of the more painful areas of coverage where early on you enjoy the benefits of better auto’s premiums, only to move into the danger zone of children beginning to drive. The overwhelming percentage of children have accidents and get ticketed for moving violations. The accidents and tickets only push the cost of insurance up. Our suggestion is, depending on the severity of the accident, discuss with your agent not submitting a claim until it exceeds $3,000. Guard your record/history and the eventual cost of insurance until you transition you children off your insurance policy.

Recreation Vehicles - make sure motorcycles, ATV’s boats etc. are properly insured, and your umbrella insurer provides protection as well.

Domestic Employees - when you move past infrequent help or greater than 20 hours a week, make your nanny or full time domestic legal, start collecting payroll taxes, and provide Workers Compensation coverage. Your home policy has an EXCLUSION for anyone eligible for Workers Compensation, and this presents a large exposure that is uninsured unless you make this legal. If you pay your help cash you cannot get Workers Compensation coverage.

Liability Insurance - your building a balance sheet, and you have future income to protect so make this coverage generous. The addition of vacation properties and especially youthful operators makes this coverage essential.

Life Insurance - the need for coverage grows as your family grows, but success makes structure important. Estate taxes both on the Federal and State level become a real source of concern that generally prompts an Irrevocable Life Insurance Trust to shelter the benefits. You will need an estate and trust attorney to draft and execute a trust.  It is an important consideration here to not only take a short term view on using a trust to meet your needs, but building a model to get a strong understanding on implications of what issues surround continued success. A short term view in while using a Life Insurance Trust will add cost and complications later.

Disability Insurance - if your total income has out run your employer’s sponsored disability coverage, look to supplement with your own coverage. Strong growth of the investment assets on your balance sheet will begin to offset the total need for coverage.

Long Term Care - based upon your level of success this may be a coverage you should explore, possibly even for parents. The great majority of the population will live a long life and need some assistance near the end.

And finally, still important - ask your agent for a list of exclusions and limitations on your policies.  Do not get caught unaware.

The Empty Nest - as you wind down your commitments to children and eventually your business, there should be an effort to simplify and control future cost.

Property Insurance - there is a bit to be saved here, whether you own one or multiple properties. Having experience with all the things that could go wrong with your properties, it’s my recommendation that you push your deductible to the amount you can handle and save $$ in the process. Trimming valuable schedules to self- insure some of the smaller pieces will also add to savings.  Property insurance policies used to be a set package of coverages but you now have the ability to adjust limits to your own particular needs, so find an agent who pays attention to details.

Auto Insurance - not much new here, just make sure your rates reflect the reduced mileage to get the lowest cost.

Domestic Employees - providing coverage for domestic’s, and possibly nursing care in retirement, still requires Workers Compensation coverage to shield yourself from any potential of an injury while in your employ.

Liability Insurance - just as when you were beginning your career your income was at risk, as you approach retirement your balance sheet is at risk. Make sure ample coverage is implemented and that all your exposures are reported to the Umbrella policy for excess coverage.

Life Insurance - part of the discussion in an empty nest is Estate Taxes. Now that you have grown a nice estate, the government will tax you up to 40% to pass it onto your children/beneficiaries. Do you care? If you would like to minimize this shrinkage of your nest egg, Life Insurance is the most basic mechanism to address the estate tax exposure. You can get some relief with Residence Trust, Grantor Trust, Limited Partnerships and Corporation, but the legal bill will add another layer of cost. When you determine your retirement needs, an organized estate plan makes sense. People understand that life insurance premiums increase as you get older, so take a moment to study the value of a paid up policy on a grandchild. This is a gift of both the valuable cash build up and the long term benefits. It is a high performing choice that will be most appreciated long after your time has come.

Long Term Care - early into the empty nest is when most of these policies are implemented. If you are concerned that a long nursing home stay will eat up a large portion of your estate, LTC coverage is sensible. There are different types of LTC coverage so do a thorough review, some of the hybrids are a better choice.

And Finally - know your policies exclusions and limitation. This is a period when you may have the extra time to spend with your agent in sorting out exposures and it is vital to you being bullet proof.

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