by awalker » Tue May 04, 2010 08:58 pm
hello, If a child (16 years old) is entitled to an insurance policy and he does not have an administrator when can he get actual control of the life insurance policy?
Posted: Wed May 05, 2010 01:59 am Post Subject:
awalker, welcome to the forum. I'd like to be able to help you out, but I need some clarification on your question.
I'm not sure if the 16-year old is the potential beneficiary of the policy or if you're referring to the kid owning the insurance policy that insures his life.
If you're referring to a minor and their ability to receive a death benefit as the named beneficiary- they can't be directly paid life insurance death benefits until they turn 18. Normally the proceeds are paid to a trust and the trust will be administered by a trustee for the benefit of the minor. There are other arrangement out there for these situations, but in any case- the minor cannot be paid the proceeds directly.
If you're referring to ownership, I know of nothing that can prevent the ownership of a life insurance policy by a 16-year old. I don't know if any carriers would actually issue a policy to a minor due to contract difficulties, but I'm not aware of a statute or rule that addresses this. I'll be the first to admit that I don't know all of every state's rules.
Your post indicates, by use of the term "administrator" that someone has died and there was no will in place. If there was a will, you would have said "executor." Any help you can provide would help us assist you.
InsTeacher 8)
Posted: Thu May 06, 2010 05:49 am Post Subject:
The California Insurance Code permits a 16-year-old to own a life insurance policy on his/her own life. As the owner, they have all the rights of ownership.
But I agree with InsTeacher, that you are probably asking about the death benefit, not the contract. If that's true, everything my colleague has said above is true. Persons under age 18 cannot directly receive the death benefit. It may be held by the insurer until the beneficiary turns age 18 (at 3 or 4% interest), or, preferably, it may be paid into a trust for the benefit of the minor child, where (unfortunately) it might sit for two years earning just 1% interest or less in a bank account.
A knowledgeable and prudent trustee might choose instead to park the money in a tax-free bond fund paying 6% (or more) interest -- a true benefit for the minor child.
Posted: Thu May 06, 2010 09:57 am Post Subject:
Max,
I assume that you are not investment licensed. "Prudent" and "tax-free bond fund paying 6% (or more) interest" are not two phrases that go together.
1) If a tax free bond fund is paying that much interest, it is taking lots of risk.
2) If interest rates rise, the value of bonds decrease.
3) It is certainly possible for bond funds to lose 20%+ in value.
It may make sense for someone in a high income bracket to have some money in a high yield tax free bond fund. However, there is nothing prudent about putting all of one's money into one.
Posted: Thu May 06, 2010 02:49 pm Post Subject:
1) If a tax free bond fund is paying that much interest, it is taking lots of risk.
Hardly. Plenty of tax-free muni funds with returns that are in the 4.75-6+% lifetime range for 15 years or more, and many have done better than +10% in the past 12 months.
2) If interest rates rise, the value of bonds decrease.
True. But the interest still comes in to the fund regardless.
3) It is certainly possible for bond funds to lose 20%+ in value.
Anything is possible when securities are involved. Big short term losses? Perhaps, but not likely over 2-5 years or longer. But consider your wild assertion of bonds losing 20% in value. What kind of inflation or change in interest rates would be required to cause that? One would certainly see that coming -- the Fed would not raise interest rates in one event that could cause that kind of damage.
And I haven't seen any TFs I would recommend to a client with sustained losses like that -- remember, I'm not talking about junk bonds, but TF munis (and they don't have to be "high-yield" munis). Portfolio managers work hard to avoid big losses -- but things can certainly overtake their ability to buy and sell even bond fund assets efficiently. But even you have to admit that suggesting -20% in a TF muni bond fund is a bit alarmist.
[I suppose an argument could be made that State of California bonds are approaching junk bond status, the way our legislature and ill-informed voting public have screwed things up.]
And of course, you're certainly right: Any bond investor always has to pay attention to interest rates in the general economy. That's why bond mutual funds make sense. If one type of asset (bonds) is suddenly falling out of favor, you can quickly move your assets into something that makes more sense (equities). Totally liquid, same (end of) day transactions.
But will American banks ever pay more than 1% on passbook savings. Not likely, at least not in my remaining 30-50 years of life. That's why a 16-year-old's insurance money should not be in a passbook account. Won't even keep up with inflation during the two years before he/she can have it.
Can't even get 3% on a CD at any of the major institutions these days for less than $100,000 locked for 5 years (you have to admit that's a money-losing proposition, too). And "they" use the money to fund credit card accounts with 23% and higher interest rates.
So who's being taken for a ride here?
Posted: Thu May 06, 2010 11:19 pm Post Subject:
What kind of change would be needed for bond funds to lose 20%? How about 2008. Is that too far in the past to remember?
A good muni bond fund is probably up about 19% for the last 12 months, yet it probably only has 5 year performance of 2.5% which means for the proceeding 4 years, it was negative.
I have no problem with muni-bond funds, but they are not a replacement for banks, etc. They may give more reward, but there is definitely more risk.
On the other hand, it appears as if based upon your post you know when to get out of bonds and move quickly into stocks. So, as long as your crystal ball is working, it sounds like a good strategy.
Posted: Sat May 08, 2010 11:18 am Post Subject:
A good muni bond fund is probably up about 19% for the last 12 months, yet it probably only has 5 year performance of 2.5% which means for the proceeding 4 years, it was negative.
Not true. Here are four examples of CA Muni Bond Funds (none are "high yield" -- all are "investment grade"). May not be indicative of all CA funds, but should be a pretty fair picture.
TAFTX 2009 +20.1 2008 -12.05, 1999 -1.97, all other years in between are positive. Average returns (1-3-5-10-lifetime) = 15.38% 2.38% 3.36% 4.63% 5.70% (as of 3-31-2009)
VKCIX 2009 +15.78 2008 -12.35 2007 -0.31 1999 -5.09 all other years in between are positive. Average returns (1-3-5-10-lifetime) = 11.43% 0.57% 2.04% 4.05% 5.96% (as of 3-31-2010)
FCTFX 2009 +11.66 2008 -5.61 2001-2007 all positive. Average returns (1-3-5-10-lifetime) = 9.09% 3.62% 3.71% 5.26% not stated (as of 4-30-2010)
VCITX 2009 +13.21 2008 -6.31 1999 -3.1 all years in between positive Average returns (1-3-5-10-lifetime) 9.78% 2.92% 3.45% 5.20% 6.30% (as of 4-30-2010)
Of course, none of this means anything as far as the future is concerned. Just past performance. But no -20% in any one year (1-1 to 12-31) or negative returns for the preceding 4 years as you rant (a fundamental misunderstanding of the nature of mutual funds). And, no, just like stock funds, this is not a get-rich-overnight game. And it is not a one or two year play, either. And bonds are not for everyone, either, just like equities are not for everyone.
Is money safe in a bank? Maybe, maybe not. How many failures in the past 18 months? Yes, FDIC to the rescue, and apparently no one has "lost" money yet -- and the Democrats seem ready to print more money as needed to prevent it (which will screw up the bond markets). But thinking back to the 1980s and Lincoln Savings and Loan, Charles Keating, Michael Milken, and seniors who lost 50 cents on the dollar, or more, so much for the safety of the FSLIC (which no longer exists, along with no more S&Ls).
Even Money Market mutual funds provide a slightly better return (but not enough to overcome inflation) than passbook savings.
it appears as if based upon your post you know when to get out of bonds and move quickly into stocks
When did I say that? What I said was, "If one type of asset (bonds) is suddenly falling out of favor, you can quickly move your assets into something that makes more sense (equities)." This is not predictive, it is reactive. Nor is it rocket science. And in mutual funds, it happens at 4:00:01pm every trading day.
I, like everyone else, do not have a crystal ball. But if interest rates begin to rise, as they most assuredly will sometime in the next 6-18 months, I can expect bonds/bond funds to begin to lose value. So I can suggest that it might be time to begin repositioning assets into something else that appears to be appreciating. Eventually, it may become prudent to begin repositioning some assets back into bonds.
Has nothing to do with market timing at all, just being prudent. Which is the comment originally objected to.
From the American Heritage Dictionary: PRUDENT -- "Wise in handling practical matters; exercising good judgment or common sense."
But, as always, enjoying the discussion.
Posted: Sat May 08, 2010 06:56 pm Post Subject:
You are looking at single state muni bond funds. I was looking at multi state muni bond funds. I think that a single state muni bond fund, especially from a state like CA adds a fair amount of risk.
Again, I have no problem with bond funds or muni bond funds or single state muni bond funds. They can make lots of sense as part of one's portfolio.
They are investments. They are not alternatives for money when someone doesn't want it to lose value.
18 months ago, you were probably saying that interest rates are assuredly going to rise in the next 6-18 months.
If money isn't safe in the bank, you can bet that money isn't safe in a muni bond fund.
Posted: Sun May 09, 2010 02:59 am Post Subject:
You are looking at single state muni bond funds. I was looking at multi state muni bond funds. I think that a single state muni bond fund, especially from a state like CA adds a fair amount of risk.
Now I see. I think you are making a mistake in terminology common to non-investors. I believe you are confusing "risk" with "volatility". California, for all its budget woes as far as the state government is concerned, is still home to the 6th or 7th largest economy in the world. The state government has its share of debt (i.e., bonds), but is nowhere near as messed up as Greece. So while a California bond fund may have slightly more volatility than a mutli-state bond fund, it is probably no more "risky" than any other double or single tax-free bond fund. The likelihood of California renegging on all of its General Obligation and Special Revenue bonds at once, causing investors to lose 100% of their investment, is remote (but anything is possible).
Just to humor you, though, let's look at one multi-state bond fund I would not hesitate to recommend: ABNDX (inception 1990) -5.0% in 1994, -12.2% in 2008, and positive in every other year of its 20 year history. 1-3-5-10-lifetime: 16.64% 1.80% 3.14% 5.27% 8.48% (as of 4-30-2010). Still nowhere near your -20% doomsday scenario with its several preceding years of negative returns.
Now, if you can actually find any Tax-Free Bond Fund that declined 20% in 2008 and had four years of negative returns preceding that, as you raised the red flag over a few posts above, please share the Ticker or CUSIP with us all. I'd be interested to know that one like that exists.
So on that note, let's agree to disagree.
18 months ago, you were probably saying that interest rates are assuredly going to rise in the next 6-18 months.
Hardly. 18 months ago we were mired in the Bush-induced recession, courtesy of two ill-advised "wars" in Iraq and Afghanistan, and awaiting the inauguration of Obama and the "change" he promised to deliver. There was no chance that the Fed was going to tinker with raising interest rates ahead of a change in administrations.
Now that the socialist agenda of Obama and the Democrats is in plain view, and the printing presses at the US Mint are warming up to print trillions of new dollars out of thin air which we can ill-afford to spend, inflation and higher interest rates are just around the corner. How do you think Obama's going to pay for his health care bill? On the backs of the wealthy and the businesses of America? Think again.
If money isn't safe in the bank, you can bet that money isn't safe in a muni bond fund.
I think this is the fundamental difference of opinion driving this discussion. What's your definition of "safe"? Real estate or 0% interest bank accounts like they've had in Japan for the past 70 years? Look at what shape the Japanese economy is in today, after being the rising star of the 1960s-1980s. When their quest for money overtook their sanity, and they started plunging into real estate in America in the 1970s and early 1980s, they got hammered because they jumped into a pool in which they did not know how to stay afloat. More than 25 years after nearly drowning, they still have not fully recovered.
If you understand economics at all, you would have to agree that keeping one's money in a bank account/CD subject to annual taxation on the gain, even at 1% growth, is a money-losing proposition. The money is not keeping up with inflation. My definition of "safety" is seeking modest gains in order to not lose purchasing power in that same time.
If inflation is running at 4%, your money needs to grow by at least the same 4%. But if the money is in a taxable account, it needs to grow much larger to account for what will be stripped from your hands by the taxing authorities. So a double tax-free bond fund makes very reasonable sense. Is it a perfect, put-all-your-eggs-in-one-basket, strategy? NEVER!!
People seeking the "safety" of an FDIC bank account generally do not realize the longer their money sits in that account, the more purchasing power they are giving up.
So, of course, by that benchmark, mutual funds have a higher degree of risk. Seeking a 6% rate of return is not "high risk" by any stretch of the imagination, it is reasonably conservative. I use the term "prudent".
But I would strongly disagree that mutual fund investing is not "safe." There are no guarantees of growth, but the likelihood of lowing all of one's investment is significantly lower than investing in individual securities. To lose all of one's investment would mean that all the businesses whose securities underly the fund (or the state of California and its bonds, and the bonds of 58 counties, and countless other school districts, cities, and local agencies) would have to go out of business on the same day.
Only two things I can conceive of causing that. The Martians have taken over, so what difference does it make how much money we had yesterday? Or Jesus has returned, and some of us will definitely no longer have to worry about how much money we once had, because we'll be walking the streets of gold in Glory!
Is it "safe" to say that you probably have no money invested in the market for fear that you will lose it all? If that's your understanding of the market and mutual funds, then fine, I'm not going to try to beat you over the head to get you to change your mind or even try to help you understand. There are too many other people willing to listen.
Having said that, I will agree that if a person's investment time horizon is 1-2 years or less because they will have a specific need for the money at that time, then I would be recommending a money market mutual fund to them, where the objective is to maintain the value of a dollar from day to day. The return will be minuscule, but still better than a bank savings account. But still taxable, and losing to inflation.
Have a happy mother's day!
Posted: Tue May 11, 2010 01:26 am Post Subject:
I didn't say that it had 4 years of negative returns as in every year being negative. I am saying that the return over a 4 year period was negative.
Volatility is risk when we are talking about a short period of time.
I have no idea why you are talking about losing all of one's money. I'm not.
I'm not afraid of the market. I'm simply saying that a muni bond fund is not appropriate for money that one is trying to save for a short period of time. By the same token, savings accounts, etc. are not appropriate for investments. You are reading way too much into what I'm saying.
Posted: Tue May 11, 2010 03:56 am Post Subject:
for the proceeding 4 years, it was negative.
the return over a 4 year period was negative.
No matter how you put it, the answer is still wrong.
Any way, it was a good debate.
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