POLICYINSIGHT A Policy Newsletter on Life and Health and Financial Security Issues Winter 2014 General Custer Had Protected His Family

ou rarely hear General Custer Abraham Lincoln State Park in North and McDonald’s iconic leader Dakota. Jefferson and the Commonwealth Y Ray Kroc mentioned in the same of Virginia wanted the project to be sentence, let alone together with the protected from risk as well. They knew words “good decision.” But there’s one that Houdon was a critical asset — he good call both of these men shared: was key to the successful completion of the decision to invest in life insurance. the sculpture. From this understanding came one of the first recorded Life insurance has been around since instances of “keyman insurance.” If Ancient Rome, when military leader something were to happen to Houdon, Caius Marius set up a club to pay for not only would his family be covered, fallen soldiers’ burials and provide but the investment to celebrate a small stipend for their survivors. By America’s founding hero George the late 1700s, life insurance had Washington would also be protected. become more common. Even back then, people understood the value 11 Million Keyman insurance, also called “key of insurance in protecting against a life insurance policies person insurance,” is one way that risky occupation, a long voyage, poor owned by Texans. businesses protect themselves when health or business risk. their most important asset is their top people. Star athletes, celebrities and As a veteran of the Civil War, General Life insurance wasn’t limited to people ...Continued on page 4 George Armstrong Custer knew the in high-risk occupations. In 1784, dangers of battle quite well. In 1784, a Thomas Jefferson was tasked by the couple of years before his final stand at Commonwealth of Virginia to find an Little Bighorn, Custer and several of his artist to create a historic sculpture of officers bought life insurance. Custer George Washington. Jefferson selected IN THIS ISSUE: designated his wife as his beneficiary famous French sculptor Jean-Antoine on a $5,000 policy issued by New York Houdon. Soon after the agreement A Texas-Sized Life. was signed, Houdon fell ill. There is Investment Made By Life no record of the specific ailment that Insurers ...... 2 Whether Custer had an intuition about Houdon suffered. However, it was his fate during the Indian Wars will serious enough that after Houdon As Nation Implements remain one of history’s great mysteries. recovered, he insisted upon a life ACA, Supplemental However, historians were able to track insurance policy before traveling to Policies Remain down Custer’s original life insurance the United States to take detailed Important Option for document from New York Life. Today measurements of Washington. Houdon you can see a replica of Custer’s policy made sure that his family would be Consumers ...... 3 at the Custer House, located in the Fort taken care of if tragedy were to strike. A Texas-Sized Investment Made By Life Insurers

ost people understand the start-up costs or for cash to put toward value of life insurance in a home purchase. Also, policyholders M protecting families against may cash out their investment before unforeseen tragedy. What’s less the policy ends. well-known is the profound economic benefit that life insurance companies Altogether, Texans carry approximately provide the state of Texas, in the $2 trillion in life insurance coverage. form of jobs and billions of dollars in This figure includes over 11 million investments. individual policies, along with group life coverage totaling over $810 At its core, life insurance is a tool billion. for mutualization of risk among a large group. In today’s world, the What does this mean for the state $20 Billion risk of an early death from illness or of Texas? Foremost, it means that paid to Texans in life accident is small, yet to the extent that many Texans have invested in their insurance benefits in 2011. the potential is there, people insure family’s financial stability. In 2011, against it. Businesses also recognize life insurance companies paid Texans important role here too, purchasing the advantage of distributing the $21 billion in death benefits, surrender over $7 billion in Texas-related Build cost of risk across large groups of values, dividends and other payments. America Bonds, which fund capital workers, and frequently offer group life For the sake of comparison, that’s costs for hospitals, schools and insurance as an employee benefit. almost 10 times more than the Texas transportation corridors. Lottery Commission paid out in prize Certain types of life insurance also winnings the previous year. There’s no doubt that Texas will double as investment tools. Called continue to expand, with its robust permanent insurance or “cash-value” The impact of life insurance stretches culture, favorable business climate and life insurance, they allow individuals beyond the lives of individual Texans. strong job market adding thousands of to use the policy as a savings tool, Life insurers also invest in communities new residents each week. As the state with some tax benefits. Funds can be where policyholders live and work, grows, so will life insurers’ commitment borrowed from cash-value policies for contributing over $375 billion to to provide financial security to an specified purposes, such as business Texas’ economy — approximately expanding population while also $14,650 for every Texas resident. investing in Texas in a way that benefits These investments include mortgage policyholders and the state as a whole. loans, real estate investments, stocks and bonds that support business Sources: development, and job creation. American Council of Life Insurers, www.acli.com US Census, www.census.gov In fact, the life insurance industry Texas Lottery Commission report, http://www. generates more than 166,000 jobs in txlottery.org/export/sites/lottery/Documents/ Texas, including both direct employees Winning_Dec10Jan11.pdf and noninsurance jobs. To put that number into perspective, that’s more people than live in either the cities of 166,000 Jobs McAllen or Waco. in Texas supported by the As Texas grows, so do the demands life insurance industry. on infrastructure. Life insurers play an

2 As Nation Implements ACA, Supplemental Policies Remain Important Option for Consumers

upplemental insurance policies, they receive from their employer or a type of which are fixed through an Exchange. Consumers’ S indemnity policies, are insurance interest in these specialized insurance products designed to provide cash products has increased, as individuals benefits, itemized or lump sum, want choices to round out and tailor to assist consumers with expenses their benefit packages and provide a beyond what a basic health policy financial safety net for their families. might cover. Supplemental policies can be particularly attractive, as Benefits covered by a fixed indemnity they allow individuals to customize or supplemental policy are typically coverage themselves, beyond their paid as a fixed amount for certain invested$376 in the Billion Texas economy, primary medical coverage, to meet medical services (hospitalization, making the life insurance their personal and family needs. surgery, doctor visits, etc.) or other industry one of the largest Supplemental policies are often expenses that occur during a period sources of investment capital purchased to cover expenses beyond of lost wages due to an accident or for the state. primary coverage, and are in fact lump illness. sum payments that, once received, can • Accidental Death and be used for any purpose, including Consider a policy advertised as fixed Dismemberment normal living expenses, mortgage indemnity coverage. The policy will • Accident-Only Health Insurance payments and childcare. contain a list of procedures it covers, • Disability Income with a fixed dollar amount paid for • Hospital Indemnity Coverage Passage of the Affordable Care each service. For example, a policy • Long-Term Care Act is expected to fuel interest in could cover doctors’ visits at $50 • Medicare Supplement (Medigap) supplemental policies among both per visit, hospitalization at $100 per • Specified Disease (e.g., cancer) employers and consumers. Many day, various surgical procedures at • Prescription businesses are expected to offer a full different dollar rates per procedure, • Dental array of supplemental policies to allow and/or prescription drugs at $15 per employees to customize their benefits prescription. An especially attractive aspect of these package to complement coverage products is that they provide income While the payments provided by the replacement for expenses such as policies can be used for any purpose, mortgage payments when one is off many find them appealing because work due to illness or injury, or to pay they can help cover expenses related for out-of-pocket medical co-pays and to health care costs that include: deductibles. It is important to note • deductibles, co-pays and co- that medical expense payments do not insurance go to the medical provider, doctor or • hospital stays hospital; rather, the payment is made • transportation needed for medical directly to the consumer. treatment • medical tests or procedures For these and other reasons, the • treatment related to a specific National Association of Insurance $4 Billion illness Commissioners (NAIC) has stated that paid to Texans in life and supplemental policies are a beneficial annuity benefits in 2011. Some of the more popular ...Continued on page 4 supplemental policies include:

3 (General Custer) Remember Ray Kroc? When he first McDonald’s chain. ...Continued from page 1 purchased the small McDonald’s hamburger chain, Kroc was running History shows that no one is immune CEOs are often covered by keyman as much on ambition and business to risk, whether it’s a seasoned war insurance, so that if something acumen as he was on cash. general or a savvy businessman on the happens to them, the enterprise is able Oftentimes, liquidity was scarce as he cusp of building a multi-billion dollar to recover. rapidly expanded his fast-food empire. enterprise. While the stories of Custer, To cover those lean times, Kroc Houdon and Kroc are notable enough Cash-value life insurance has also borrowed from his two cash-value to be inscribed in history, countless played a role in supporting successful life insurance policies in addition to other successful businesspeople, businesses, especially during the securing bank loans. It was a strategic entrepreneurs and artists have also critical start-up phase. move that paid off handsomely, in relied on life insurance to build and light of the worldwide success of the protect their dreams.

(Supplemental Policies) product, such as supplemental ...Continued from page 3 insurance. According to the report, 46 percent of workers reveal they product for consumers and should have less than $1,000 in savings to remain available in the market. pay for an unexpected health event, and more than half (57 percent) say According to the NAIC, supplemental they do not have a financial plan. policies have “proven to be popular Still, more than ever, these workers and we see no reason they should be are facing increasing medical costs eliminated as options for supplemental In 2011, life insurers invested due to changes to the health care coverage.” system and increasing trends toward $7.3 Billion consumer-driven health care models. Many insurers offer some form of in Texas-related BUILD Often, having these voluntary policies supplemental insurance products to AMERICA BONDS (43% of can help workers to build a safety net consumers, ranging from MetLife, the bonds issued). that protects them from out-of-pocket Nationwide and Mutual of Omaha costs, unexpected debt and may even prevent bankruptcy, helping them to to Trustmark, Assurant and National issuers. The 2013 Aflac Workforces focus on getting better and getting Teachers Associates. Aflac is one of the Report highlights the value consumers back to work. most recognizable supplement product place on a voluntary insurance

REGULAR MEMBERS Germania Life Insurance Company New York Life Group ASSOCIATE MEMBERS AFLAC Government Personnel Mutual Life Insurance Pacific Life Insurance Company Greenberg Traurig, LLP AIG Company Principal Financial Group Winstead PC Group Guardian Life Group Prudential Thompson, Coe, Cousins & Irons, LLP HCC Life Insurance Company Reliable Life Insurance Company Mitchell, Williams, Selig, Gates & Woodyard, American Fidelity Group HealthMarkets, Inc. Southern Farm Bureau Group P.L.L.C. American National Insurance Company Landmark Life Insurance Company Insurance KPMG LLP Americo Group Liberty Bankers Life Insurance Company SWBC Life Insurance Company Jaynes Reitmeier Group Assurant Group MetLife Life Protection Insurance Company Locke Lord LLP Best Life & Health Insurance Company Mutual of Omaha Group TIAA-Cref G.P. Monnin Consulting, Inc. Blue Cross and Blue Shield of Texas National Farm Life Insurance Company TrustMark Companies Ewbank Group, P.C., The Central Security Life Insurance Company National Guardian Life Insurance Company United Benefits, Inc. Rudd & Wisdom, Inc. Central States Group National Life Group© UnitedHealth Group Texas Life and Health Insurance Guaranty Colonial Life Insurance Co. of Texas National Teachers Associates Life Insurance USAA Life Insurance Company Association Conseco Insurance Group Company Lewis & Ellis, Inc. Croy-Hall Management, Inc. National Western Life Insurance Company Sedgwick, LLP Funeral Directors Life Insurance Company Nationwide Texas Star Alliance Genworth New Era Life Insurance Company

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