Newborn baby girl in New York life insurance deal!

[skyguy918]

Btw I'm thinking now, imagine this deal would've been for males only - there would be a discrimination lawsuit filed already

I know it was a joke, but there is already implicit 'discrimination' in insurance rates/pricing due to differences in mortality experience. Montana (there might be 1 or 2 others, just don't recall offhand) actually require all insurance pricing to be equal regardless of gender.

[Barryg]

The tax bill will be going to the owner of the policy at that time................... not Davka for the 20 year old

Owner of policy can be changed to the 20 year old... I forgot to mention, but I should have, just in case anyone will be searching this thread in 20 years from now.

[Barryg]

Don't the actuaries and insurance companies have a basic review process? How did this get through?

Either they messed up or, All State wanted some publicity into their new WL and did it on purpose...

[DMYD]

Either they messed up or, All State wanted some publicity into their new WL and did it on purpose...

+1 They are willing to take the lose but Its advertising, They are known as Car Insurance, they also want to be known as life insurers.

[Ergel]

+1 They are willing to take the lose but Its advertising, They are known as Car Insurance, they also want to be known as life insurers.

No way

[Ergel]

These days the gender of the baby is known to the ultra sound technician and is displayed on the screen.
This is no longer considered "hidden" and there is no question of "finding out". Closing your eyes and telling them to keep the gender to themselves seems a little silly IMHO.

It's amazing how you have such strong opinions on matters which are "silly" either way. Why do you care if someone knows or doesn't know the gender of their unborn child?

[DMYD]

No way

Which part?

[Ergel]

Which part?

That they did it on purpose for advertising

[ExGingi]

I have a lot of inside knowledge on this deal and will share here, also responding to some of the questions and comments:

• This is a Whole Life policy with Allstate
• It is a NON-PARTICIPATING Whole Life policy, it will NEVER earn a dividend. All parts of the policy are guaranteed by the issuing company (Allstate Life Insurance Company of NY)
• The numbers are self evident to be a pricing error. Anyone with a little knowledge and understanding knows that mortality risk at age 0 is higher than at age 4. Why then would the price of an age 0 be LESS THAN HALF of the price at age 4?
• As previously stated, this is a NY issued policy. NY is the most stringent of all states in insurance regulation. The only way this Guarantee will not work is if the company is disolved by the insurance regulator. Even if something like that were to happen (highly unlikely IMHO, it would severely damage the Allstate brand) other insurance companies are likely to step in and take over policies of a failed company. That doesn't work well for policies that count on dividends, but since this policy is 100% Guaranteed in Premiums, Cash Value and Death Benefit, it would have to be honored if taken over by another company.
• While it is true that for the age 0 the IRR (internal rate of return) on the cash value maxes out at year 13, that doesn't necessarily mean that cashing out at that point makes sense. Remember this is safe, fixed, guaranteed money. Future values are GUARANTEED to be higher than current values. At any point the reason to pull out would be if you need the money, or can do better elsewhere.
• With this policy as an exception (or with policies structured in a very special way that most agents won't do, as it cuts into almost all of their commissions, and they do need to earn something) a juvenile Whole Life policy is NOT a good cash accumulation vehicle. A 1035 exchange is probably the way to go AFTER age 18, if child turns out well בעז"ה. If חס ושלום, something happens, you at least have 250,000 of life insurance for an unbelievably low price.
• If you are looking for an honest יידישע Allstate agent, go to ChasunaFund.com. Most Allstate agents don't know much about Life Insurance. Property and Casualty (mostly home and auto) are their bread and butter. ChasunaFund.com was set up by a group of עהרליכע Life Insurance agents working in collaboration with a יידישע, שומר שבת, Allstate agents. They are careful to make sure all i's are dotted and t's crossed so that you can rest assured that you get exactly what you see.
• As per NY State law, a parent buying life insurance on a child of that age, must be insured for at least 4 times the amount being applied for the child. The policies are issued with an endorsement saying that if it is discovered that parent was not insured at time of application for the proper amount, the policy can be cancelled (premiums would be returned).
• The company underwriting wants to see that the other parent is insured for at least amount being applied for child, and that other siblings are insured for similar amounts. Take a step back for a second and think about this with a cool head. The company is issuing this as LIFE INSURANCE CONTRACT and is on the hook for $250,000 from the moment the policy is approved and paid for. From an underwriting perspective, it sounds fishy to want to insure a child for more than that child's parent is insured for, and also to insure one child and not others, or for different amounts. If you believe children should be insured (primary reason is to protect insurability), then why would you not treat all children equally? Do you know something that is not being disclosed to the underwriter which would be a reason to insure only this child for more than other children? Remember the underwriter's decision puts the company on the hook for a substantial sum. All they see is a paper application, or some data on a computer. They don't know the people involved. Risk taking decisions must be made carefully by underwriters.
• While it is obvious that on each individual policy like this, Allstate will lose money, in a weird way they might actually consider this decent business. One of the biggest challenges of insurance companies is premium persistency - having policies staying on the books for a long time with predictable cash flow. Given the ages of issue, and the pricing error, these policies are likely to stay on the books for a long time. Since the risk is limited on each individual insured, even an eventual loss 20 years down the road is not that significant in the big scheme of the insurance company.
• The loan provision of THIS POLICY is not attractive. It is guaranteed at 8%, and the cash values are also guaranteed at whatever they are, with no upside or downside, and no direct-recognition (a practice that adjusts returns on policy cash values based on the existence of a loan).

[DMYD]

That they did it on purpose for advertising

This isn't a mistake, they wouldn't let agents sell it if it was a mistake.

[ExGingi]

Oh, and just by the way. All prior statements about commissions earned on this product are WRONG!

Even if the Agent would be earning 100% of first year premiums as commissions on these policies (they don't), that's not a lot of money given the time and overhead involved for these small premiums. The agents hope to make up for the time spent on these by filling the need for additional life insurance on parents (which parents should have regardless of whether this deal was available or not), and possibly acquiring new clients for other lines of business.

[ExGingi]

Btw I'm thinking now, imagine this deal would've been for males only - there would be a discrimination lawsuit filed already

Let's take this a step further, given the direction this country is taking with PC... Who's to say Max Chan-Zukerberg is a female or a male? Body might be one thing, but gender identity might be another

[Ergel]

Let's take this a step further, given the direction this country is taking with PC... Who's to say Max Chan-Zukerberg is a female or a male? Body might be one thing, but gender identity might be another

Fascinating. I really wonder what would have if Bruce/Caitlyn tried to get life insurance...

[DMYD]

Oh, and just by the way. All prior statements about commissions earned on this product are WRONG!

Even if the Agent would be earning 100% of first year premiums as commissions on these policies (they don't), that's not a lot of money given the time and overhead involved for these small premiums. The agents hope to make up for the time spent on these by filling the need for additional life insurance on parents (which parents should have regardless of whether this deal was available or not), and possibly acquiring new clients for other lines of business.

But no need to get an Allstate life insurance policy for the parents, as there are better and cheaper life insurance companies that could choose.

[ExGingi]

But no need to get an Allstate life insurance policy for the parents, as there are better and cheaper life insurance companies that could choose.

Absolutely not. It would be illegal for them to insist that other family members be insured with them and not with other carriers.

Though there have been some moronic Allstate underwriters asking to why other family members are not insured with Allstate. Also, there have been some cases that went through fully disclosing that other siblings are not insured for similar amounts, and even with a parent that is not insured. YMMV. The guys at ChasunaFund.com seem to know what they are doing, but even with them YMMV.

[skyguy918]

I have a lot of inside knowledge on this deal and will share here, also responding to some of the questions and comments:

Thanks for posting. I feel vindicated having expressed nearly all these points throughout this thread.

It sounds like the loan terms are punitive enough to make it a no-brainer to surrender once you need more than the basis. My question then is how to avoid the tax hit on surrender. Would it make sense to transfer ownership to the child early on (ie before the value exceeds the gift tax exclusion limit) - or make the child the owner from the start if that's possible - to minimize the tax hit when you eventually surrender the policy?

How long has this been going on? You make it sound like this didn't just happen yesterday.

[skyguy918]

This isn't a mistake, they wouldn't let agents sell it if it was a mistake.

Mistakes happen all the time, they're just normally not this lucrative. There are regulatory issues preventing them from fixing it immediately. And if you're saying they should just order their agents not to sell it, it doesn't work that way. Insurance companies are constantly running into schemes that agents cook up, and they have to navigate closing loopholes delicately to maintain the relationship.

[churnbabychurn]

It's amazing how you have such strong opinions on matters which are "silly" either way. Why do you care if someone knows or doesn't know the gender of their unborn child?

I don't have a strong opinion at all. Just posted an observation that I had recently.

[Barryg]

This isn't a mistake, they wouldn't let agents sell it if it was a mistake.

When was the last time a life insurance company guaranteed a cash value return of over 5.5%, probably never. It took me a half a second to discover this was clearly a mistake - and any actuary or team of actuaries should have picked up on it rather quickly.

[ExGingi]

It sounds like the loan terms are punitive enough to make it a no-brainer to surrender once you need more than the basis. My question then is how to avoid the tax hit on surrender. Would it make sense to transfer ownership to the child early on (ie before the value exceeds the gift tax exclusion limit) - or make the child the owner from the start if that's possible - to minimize the tax hit when you eventually surrender the policy?

How long has this been going on? You make it sound like this didn't just happen yesterday.

Since this policy DOES NOT EARN DIVIDENDS, the only way to take money out other than a loan would be a SURRENDER (though I would assume that one could do a partial surrender, by reducing the policy face amount, but that might change dynamics and trigger a tax event too, I'm not sure). IMHO paying the tax might not be so terrible, given the phenomenal rates of return. What other SAFE investment that returns anything close to this would not be taxable? It's just something we have to live with.

Doing a 1035 exchange and rolling the money into a new policy might help to a certain extent, but you WILL take a certain hit on the cash value for a few years. Depending on circumstances that might be a good choice to make. No way of predicting now what happens 20 years from now! The Allstate policy values are guaranteed, so we know what that will be (except if חס ושלום a death benefit is paid out sooner), but we cannot know what else will be happening. What will tax law be? Will the child grow up and still be insurable? What will interest rates be? etc. etc.

I don't know how long this has been around. I heard about it in late October. The mispriced policy might have been around for a long time, but my guess is that someone caught onto the pricing error recently (after all, who thinks of Allstate as a Life Insurance Carrier, and how many people buy policies on children?) and it's been spreading like a wildfire in Boro-Park, Williamsburg, Lakewood and Crown Heights in recent weeks.