The Insurance Doctor

Month: October 2020

  • Annuities That “Don’t Suck!”

    Annuities That “Don’t Suck!”

    If you watch TV, especially in the daytime, you might be familiar with Fisher Investments.  Ken Fisher built his empire by saying “never buy annuities.”  He has inferred that ALL annuities suck! 

    Ken was probably referring to variable annuities, which can have high annual fees.  Just like anything else, there are good products and bad products.  An independent advisor’s job is to decipher products and make suitable recommendations accordingly.  When someone wins the lottery, they are usually given 2 choices, lump sum, or annual payments.  Annual payments are almost always a better deal for the winners, and they are a form of an annuity.  Does that suck, I would think not!

    October is known to be one of two months (April is the other) when most CD’s (Certificates of Deposit) mature.  This is because many people received their tax returns in April and bought 6-month CD’s.  Fixed annuities are an excellent alternative to traditional CD’s.  Not only are higher interest rates available from insurance companies, annuities have ancillary benefits and ways to access the money with no penalties or fees.  If CD owners withdraw ANY money from their CD’s, they forfeit ALL their interest.  Also, many people do not know that fixed annuities are backed by New York State up to $1,000,000 whereas the FDIC (Federal Deposit Insurance Corporation) standard insurance amount is $250,000 per depositor, per insured bank, for each ownership category.  CD rates are so low currently, some people refer to them as CERTIFICATES of DISAPPOINTMENT! 

    See below for 12 advantages to owning fixed annuities:

    1. Guaranteed Interest Rates: With a multi-year guaranteed fixed annuity, you know exactly how much money you will have at the end of the term.
    2. Guaranteed Principal: Your principal is guaranteed regardless of market conditions or company performance.
    3. Interest Rates: Annuity interest rates are higher than CD’s and most other safe alternatives that offer principal protection.
    4. Tax Deferred: The “power of compound interest” means that you do not pay income taxes until you start withdrawing funds, which allows for faster accumulation.  With CD’s, you pay income tax regardless if you take money out.  Annuities give YOU TAX CONTROL!
    5. NO FEES: With fixed annuities, you pay ZERO ANNUAL MANAGEMENT FEES while the account continues to earn tax deferred compound interest.
    6. Protected from Creditors: If you get sued, creditors cannot go after your fixed annuity funds.  This is why we like annuities in the portfolio when people inherit large sums of money. 

    NOTE: life insurance cash values are also protected from creditors.

    • Bypasses Probate: Fixed annuity death proceeds bypass probate; hence, they are private and save on estate and court fees, while going directly to their intended beneficiaries outside the will.
    • Lifetime Income Options Available: Most annuities will allow you, at any time, to convert (annuitize) into an income stream you cannot outlive. 

    NOTE: Life insurance is the only other financial instrument where you can receive a “guaranteed income for life.”

    • Annual Withdrawal Options Available:  Most fixed annuities allow for 10% or 20% annual “no fee” withdrawals.
    • State Guarantee Associations: Should the annuity insurance company become insolvent, there are state protections depends on what state you are in.  Most states have limits between $250,000-$300,000. 

    NOTE:  New York State and New Jersey have the highest state-protection limits in the country at $1,000,000 and $500,000 respectively!  For more information on this refer to www.Annuity.Org.

    1. Surrender Charge Waivers: Most of the newer fixed annuities have what are called “SURRENDER CHARGE WAIVERS.”  These waivers allow the annuity owner to withdraw more than the customary 10%-20% of the account, if the annuitant becomes confined, disabled, or has a terminal illness.  These are critical waivers to get access to your money when you need it most!
    2. Piece of Mind: Annuities are secure and offer “Piece of Mind” to account holders knowing they are safe from harm’s way!

    Despite what Ken Fisher says, annuities should be a part of most people’s portfolios based on the 12 advantages above.  For more information or questions on annuity products, feel free to reach out to me at Rob@InsuranceDoctor.us.  KEEP THE FAITH!

  • 5 Financial Moves to Make Now During COVID-19

    You do not need me to tell you these are crazy times!  They will be talking about 2020 for many years to come.  Although the last 6 COVID-19 pandemic-months have been long; in a way, blink your eyes and it is already the 4th quarter of 2020.

                What does this mean financially?  There are MAJOR OPPORTUNITIES AVAILABLE for ALL American’s to set up a better financial future NOW! Some of these opportunities need to be taken advantage of NOW, and over the next 60 days, since many laws and what I call “Covid-19 Special Rules” will be changing “sun-setting” on 12/31/2020. 

                These times are unique as we are in an historically low interest rate environment with low tax rates and a stock market near record highs!  In 2020, a married couple “filing jointly” can earn $325,000 (combined) and only be in the 24% tax bracket.  Our current level of spending is unsustainable, and most experts agree that taxes will be raised!

    September 30th closed our “fiscal year,” and our federal debt exceeds $23.4 Trillion.  It is estimated that this could grow another $13 Trillion by 2028.  Tax rates will likely go up and we/you can stay a step ahead by strongly considering these 5 financial moves NOW!

    1. Refinance Your Debt: Whether it is a home mortgage, business loan, and/or a student loan, there has never been a better time to refinance.  If you or your children have any loans over 4%, consider refinancing now.  Yes, interest rates should stay low next year; however, banks want to close new deals now to boost their 2020 year-end revenues. 
    2. Take Some Profit Off the Table:  Some advisors call this “tax harvesting.”  Remember, gains are only “paper gains” until you sell, and they are sitting in cash.  If you have doubled your money in an account, why not reposition half in cash and let the rest ride “on the house” so to speak?  With the upcoming election on the horizon, choppy waters lie ahead.  Double-check this with your investment professional and CPA.
    3. Consider Doing A Roth IRA Conversion: If you convert all or a portion of your IRA to a “ROTH IRA” in 2020, you are permitted to spread out the current tax burden over the next 3 years, your choice as to what percentage to declare each year.  Many people have less income this year, so you would be paying less tax this year in a lower tax bracket in 2020.  What is a little more pain for a big long-term gain?
    4. Consider Buying Life Insurance Now:  Consider buying before premiums go up (due to Covid-19 death rates) as many life-insurance companies have filed for rate increases with the state.  The NEW life insurance policies have “chronic Illness” riders that function similar to long-term care policies, allowing policyholders to tap into their death benefit while living, to pay current “qualified” ongoing chronic health issues and bills.  They are called “living benefits” which most OLD policies do not have.  There are 2 companies in New York State that include these critical riders FOR FREE on inexpensive term insurance policies which can now run to age 80.  Current cash-value life policies can be “rolled-over” into a new life insurance policy.  This is called a 1035 exchange, similar to a 1031 exchange in real estate.
    5. Revisit Your IRA’s, Trusts & Estate Plans NOW!: There are people sitting on their IRA’s, 401K’s (which can be converted to a self-directed IRA) thinking that they will pass the IRA down to multiple generations just like their parents did. 

    THINK AGAIN!  Beginning in the 2020 tax year, The 2020 SECURE ACT (Setting Every Community Up for Retirement Enhancement Act) made some positive changes such as the ability to make IRA contributions after age 70.5 (if you are still earning income) and deferring RMD’s (required minimum distributions) to age 72. 

    The 2020 “Secure Act” has eliminated the “Stretch Ira” also known as “Super Ira” or “Inherited Ira.”  Spouses can inherit this money then their heirs MUST TAKE IT ALL OVER 10 YEARS!  These changes will cost children and grandchildren dearly.  It also makes it a better idea to consider taking the IRA money now (with low current tax rates) and buying life insurance which goes TAX-FREE and LUMP SUM to named beneficiaries while bypassing probate.

    These tax changes can also render existing “Trusts” obsolete, so they should ALL be reviewed.   In addition, ALL existing wills and beneficiaries should be updated.  If this is the first you are hearing about the SECURE Act, perhaps it is time to change advisors.

    Feel Free to reach out to me at Rob@InsuranceDoctor.us for more information and to be added to our e-newsletter and briefing email list.

    Stay Safe and KEEP THE FAITH!

  • The Health Insurance Dilemma

    The Health Insurance Dilemma

    With the “Triple P” Paycheck Protection Program money mostly depleted, we are looking at major layoffs this fall.  The airline industry is said to be laying off 32,000 workers.  2.4 million workers have been out of work for 27 weeks, with another 5 million approaching the same benchmark.  With Covid-19 spikes here in the city and school closings by zip code, more businesses will shutter their doors.  What does this all mean?

    For starters, there will be a tremendous number of people losing their group health insurance.  This presents a problem due to ADVERSE SELECTION!  ALL HEALTH INSURANCE COMPANY DECISIONS ARE MADE TO AVOID “ADVERSE SELECTION!” ADVERSE SELECTION in the insurance industry, involves an applicant gaining insurance at a cost that is below the applicants “TRUE LEVEL” of risk.  A cigarette smoker obtaining life insurance as a non-smoker would be an example of “insurance adverse-selection.”  Many people get glazed-over when health insurance is mentioned.  If you can understand ADVERSE SELECTION, then you can understand how health insurance works, and why insurance companies avoid it at all costs.

    Employees that leave or are fired from large companies often get “sticker-shock” when they see the their “true” health insurance rates.  Most companies have been subsidizing a portion of the monthly premium.  Employees receive their COBRA notice (COBRA is the right to continue the group plan) and the premiums are often unaffordable, leaving them in the “Individual Health Insurance Dilemma.”

    The insurance industry is regulated by individual states, which is different from the banking industry (FDIC Federal Deposit Insurance Corporation) and the stock market (FINRA Financial Industry Regulatory Authority).  This means that while the banking and stock market industries have the same rules across the country, the insurance industry has different rules (and products) in each state.  There is no better example than New York State vs. New Jersey.  New York is a “COMMUNITY-RATED” state, meaning that everyone pays the same rate (with traditional Affordable Care Act insurance) regardless of age or health.  That means a 25-year-old man or woman pays the same rate as a 55-year-old.  Is this fair? 

    This leads to “adverse selection” in New York.  In New Jersey, rates are “age and experience-rated” so older people pay more as do unhealthy people.

    Obamacare plans (also known as traditional or fully-insured plans) are what are also known as “guaranteed issue” plans, meaning they have to accept ALL APPLICANTS into their plans.  These plans are ALL backed by New York State, who would step in if/when the health insurance company goes bankrupt.  This leads to “adverse-selection” which increases current claims and future premiums.  There is a whole cadre of non-traditional (also known as self-funded or “boutique”) plans that do not have to accept everybody.  They have a huge advantage because they can pre-qualify and exclude those with pre-existing conditions.  This avoids “adverse-selection” and keeps their claims and premiums down.  ALL licensed brokers have access to the same Obamacare plans; however, very few even know about non-traditional plans, which can be a better option for the right person. 

    In general, the larger the group/company, the better the plan, which is called “economies of scale.” A numerical example can best illustrate this.

    You have 2 groups, A and B.  A has 5 enrolled employees, all single, who pay $500/month each.  Group B has 52 enrolled, same as A with all single and paying $500/month each.  Both groups have 2 sick (unhealthy) people who are going to slam the insurance company, this is called “buying a claim,” with a $10,000 claim each the first month. 

    The way the insurance company looks at it, Group A is paying them $2500/month and they are going to have $20,000 of claims the first month, which wipes out the majority of the first year’s profit, because there are insufficiently monthly premiums coming in to cover the claim costs.

    Group B is paying $26,000/month in premiums ($500/month each for 52 enrolled employees).  Even though the health insurance company is going to get hit with $20,000 of claims in month one, they know that there is no way this will happen every month, and they can still be profitable because there are enough healthy employees paying monthly premiums to cover the sick people who are “buying a claim.”

    For individual plans, there are not enough healthy people paying premiums to cover 1 sick person.  Individual plans are fraught with Adverse-Selection, hence NO insurance companies want this business.  Remember, “Health insurance companies do everything they can to AVOID “ADVERSE-SELECTION.” 

    What is the best way for health insurance companies to do this?  By disincentivizing (penalizing) the broker!  If the insurance companies reduce or eliminate “insurance broker” compensation, brokers will not sell their products.

    This has been happening for years since Obamacare began.  Insurance companies know that most brokers sell using the cheapest plans on their spreadsheets.  For example:


    1. “Health Republic Insurance of New York” had the lowest premiums for individual plans and many unhealthy people flocked to them, creating an unhealthy pool.  New York State saw them hemorrhaging millions of dollars/per month and then shut them down with 1-2 weeks notice on 11/30/2015.  This created a “scramble” for both individuals and brokers.

    2. Most brokers then moved these individuals to Care Connect and to a lesser extend to Oscar.  Care Connect was a financially solid company who partnered with North Shore-LIJ Hospital.  This was a well-run company whose premiums were too low.  They were forced to shut down because of the money they had to kick in (the most profitable companies had to contribute to help the others) to the “shared-risk pool.”  New York state would not approve their rate hikes needed to cover this “extra” cost, so they eliminated individual plans then most individuals flocked to Oscar.

    3. Oscar just sent brokers a memo that they are “discontinuing” broker commissions on Oscar individual policies effective 1/1/2021. 

    What does this all mean?

    1. Consult With a Professional:  Start with your HR (human resources) professional if you are still employed, then go to an independent broker!
    2. Contact Your Important Doctors: If there are doctors you cannot live without, contact them and spreadsheet which Health Insurance companies they accept in-network.  Remember to also ask for the network name.  For example, Oxford has 3 different NY networks METRO, LIBERTY & FREEDOM.
    3. Be Proactive and Help Yourself:  Study this information as most brokers no longer work (for free) in the individual market.
    4. Consider Switching from a PPO to an EPO or HMO: After doing tips 1-3 above, consider going in-network only which can save between 25-40%.
    5. Consider Shopping Every Year:  Each year there are many subtle and not subtle plan changes.  Do not get caught off guard after a claim.

    During these Covid-19 times, people need to surround themselves with proficient insurance and financial advisors. 

    Are you confused yet?  Do not fret, we are here to help.  Feel free to contact me at 917-359-3985 or Rob@InsuranceDoctor.us.

    KEEP THE FAITH!