Are Life Insurance Companies Next To Fall?

As we watch banks fail and beg for government aid, problems in another important financing services sector could be getting overlooked. With everyone already losing sleep from worrying about the status of their retirement accounts or even their jobs, the last thing they need to worry about is the status of their life insurance coverage. After all, we get life insurance coverage so we don’t lose sleep thinking about how our family will manage if we die. The fact that the insurance industry is now lobbying the government for help is not a good sign, though.

Many of the big life insurance companies have been in business for a long time—more than a hundred years in some cases. They have managed to make it through numerous recessions and even the Great Depression. What is it then about today’s economy that is putting some companies in such dire straits? The answer lies in the investments being made by the companies in question. One of the biggest concerns for insurance companies right now is that they have a lot of outstanding guaranteed annuity contracts. That means that regardless of how the market performs, they are still required to pay out a set percentage rate to the contract holder. The problem of course is that returns aren’t very easy to come by in today’s marketplace. Stocks are losing money for the insurance companies, and government bonds don’t pay out enough. To make matters worse, some insurance companies even invested in assets that they thought were safe, but have come to find out were not. Here is a line from a recent article in the Washington Post: “The insurance industry's wherewithal is closely tied to the health of the broader financial system. If the investments that insurance companies make with your premium dollars don't perform well enough over the long run— or even the not-so-long run— insurers could have trouble keeping their promises.”

The good news for those of us with life insurance policies is that some—if not all—of the policy is guaranteed. Much like how deposit funds are guaranteed up to a certain amount, so too are life insurance contracts. According to the Washington Post, “The individual benefits guaranteed by the associations vary from state to state. The guarantees in most states are $300,000 in death benefits, $100,000 in cash withdrawals from life policies, $100,000 in cash withdrawals from annuities and $300,000 total per person, according to NOLHGA.” One important note, though, is that this insurance guarantee works differently than how the FDIC works in the banking industry. Insurance companies are in essence guaranteed by other insurance companies, so if one company goes under it will directly impact the rest. So it could be possible that one failure could lead to a string of failures, each one pushing another company over the brink. It is unlikely that the government would allow such a thing to happen, especially considering their propensity to rescue vital industries; nonetheless, it is a possibility to ponder.

If you have read the story in the Post you will probably note that though the industry admits to approaching the government for aid, they have also expressed that they have plenty of money to pay claims. This sounds eerily familiar to what the banks said before all heck started breaking loose. Of course they are going to say they can pay claims. If they said otherwise, then no one else would do business with them and clients who could, would run for the doors. The bottom line is, if they didn’t really need the money why would they approach the government for help?

Taking A Bite Out Of Obesity: Alabama’s New Fat Fee For State Workers

In a move that already has some getting their mu-mus in a twist, Alabama state has instituted a new annual fee for obese state-workers to offset lost productivity and high insurance costs. The fee is only $25 dollars for the year, which is half of what some smokers pay per month at companies and in state offices around the country because of their habit. Still, some are calling the new policy oppressive, even “Big Brotherish,” which I think we all can agree is hyperbolic and malapropos, not to mention ironic: By name alone, Big Brother would seem a kindred spirit to the “Big Boned” lot.

To other state workers, however, this sort of kick in the rump is long overdue; Alabama is at critical mass, with over 30 percent of the adult population now obese, second only to Mississippi and eking just ahead of Tennessee in third place. If weight is not curbed soon, this generation and those that follow will be facing astronomically higher incidences of obesity-induced diseases, bringing higher health-care costs to companies and the state, higher mortality rates and less productivity. In areas where the economy is already sagging like an unsightly mudflap, the situation is dire.

The issue at hand only becomes more complex, larger and jigglier as one considers it, for the bathroom scale only tells a portion of how obese individuals’ eating habits impact their lives. Most overweight people are not packing on the pounds by eating leafy greens and fresh fruit, but rather high-fat, low-quality foods. One must remember that this is often not by choice; poorer communities have the least access to fresh, healthy foods and frequently subsist on fast food and pre-packaged snacks which per serving have 1 percent of one’s daily required nutrients, 100 percent of one’s daily fat allowance, and 1000 percent of the trans-fats, pesticides, rat hair and roach droppings that one would ever wish to consume. In other words, obese individuals may ultimately be accountable for their own weight, but the infrastructure and culture that surrounds them makes it all too easy to pack on those costly pounds.

There is a lot of sensitivity surrounding the issue as well, and those who will be affected are already lowing at the gates about the unfairness of the situation. The main complaint among the policy’s detractors is that obesity is caused by health problems and heredity over which obese individuals have no control; therefore, these individuals should not be hit with a sort of “fat tax”, unlike smokers, who choose their unhealthy habit.

This argument is particularly weak, but I can see both sides of the issue. For kicks and giggles, let’s look at a point-counterpoint breakdown of some of the controversy surrounding obesity.

POINT	COUNTERPOINT
Obesity is and always will be voluntary. Generations before were thinner because they ate better and exercised more. It isn’t genetic, it isn’t magic, and there is no disease that makes one gain weight spontaneously, so says the first law of thermodynamics.	Certain individuals are genetically pre-disposed to store that consumed energy which makes them more prone to weight-gain. This, combined with the lethargy inspired by contemporary culture, leads to eventual obesity. To penalize individuals for this is discrimination.
This isn’t penalization; it's recouping losses that, though they may not be entirely in your control, still cost the system a great deal of money—much more than $25 per year, in fact.	To suggest that we pay more into the system also suggests that we are doing something wrong or that we are parasites on that system.
Yea. Pretty much. The truth hurts, huh fatso?	You know, it is derogatory remarks like that which cause a lot of overweight people to become depressed and seek solace in food, thereby exacerbating the problem.
‘Exacerbating the problem’ being code for ‘adding a cup size.’	I’m a man!
Indeed you are, a man whose very presence calls into question the words of John Donne: "No man is an island unto himself."	Screw this. Where are my Ding Dongs?

In the end, the fee is so minimal that no one’s wallet will be hurting for it, though a few feelings may be hurt. As the fee is also only annual, it will soon be forgotten and thus provide little motivation to people to lose weight. Furthermore, the fee is discretionary, and if an individual is putting forth a genuine effort, it can be waived.

The one last worrying aspect of this is that it creates one more precedent of what one might call a lifestyle tax. Though I personally would like to see fees levied against people who overuse the word “synergy” or sound effects in Power Point presentations (the mental anguish caused by these infractions does indeed cause lost productivity), I wouldn’t legislate these things for fear that I might one day be nickel-and-dimed by my own foibles and lifestyle choices. After all, if I want to drink a little paint when I kick back and play Russian Roulette at the local leper colony, I may be putting my health at risk, but that’s my business, thank you very much.

I’d love to hear from huskier readers what they think. Is this sort of policy motivational or degrading? Leave a comment and we’ll chew the fat.

Investment And Health Savings Accounts (HSAs)

Health savings accounts (HSAs) are becoming more common as businesses across the U.S. place more of the onus of health care costs on their employees. As a result employees are now faced with a problem of not only learning the health insurance side of these new accounts, but also the investment side of Health Savings Accounts. Read our article, Health Savings Account (HSA) Basics, if you aren’t already familiar with HSAs.

My company recently switched to an HSA plan, so I thought I would share some of what I have learned.

Some investors may welcome the switch to an HSA plan because it offers the potential to generate returns inside the account. Money going into the HSA account is pre-tax, and as long as the money is spent on medical expenses, the money (and any gains generated inside the account) is also tax-free when you spend it. Sounds pretty amazing, right?

HSA providers typically offer several investment options to account holders, ranging from a basic money market fund to several different types of index funds. The HSA account my company offers gives us the option to keep the funds in a money market to which we can charge medical expenses directly via a debit card, or to invest in one of 13 Vanguard index funds. Most investors would probably think this is a no-brainer, and the Vanguard funds are the way to go. That was certainly my first reaction, but then I started to think of some potential drawbacks.

The first potential pitfall of investing in the funds is the time and convenience factor. With the Vanguard option, you are not able to get a debit card, and to get reimbursed for any expenses you must prove the legitimacy of the claims with receipts and other paperwork. In addition, it will take time to sell out your positions and issue a reimbursement check.

The second issue is the volatility of index funds, which are not guaranteed and may lose value. In the long term, most investors accept this risk, because historically the market has trended up over time. However, what if you get in a major accident next month and the market just lost 15 percent of its value? Some health expenses are just unpredictable. If you have a healthy savings account on the side you may be able to overcome this potential hurdle, but if you are relying on your HSA funds, you must make sure they are there when you need them.

If you are like most Americans and don’t have much in the way of extra savings, then you are probably better off keeping your HSA investments in a money market fund or low-risk bond fund--at least until you get the balance of your account high enough to cover your deductible. If you have a cushion to fall back on, then it is probably safe to invest in those higher-risk funds.