Policy Analysis and Review

Policy Review Resources

Authorization InForce
InForce Design Request
IPS For Life Insurance
NUCO Trust Owned Life Insurance
OCC Reg 9 Fiduciary

Life insurance is a complex and highly flexible financial instrument. Too often, it is purchased for a very specific purpose and forgotten about.  Just as you would periodically review your clients’ investment portfolios, you need to ensure that your clients’ life insurance needs are objectively evaluated on a periodic basis.

What a Policy Review Does for Your Clients

Chances are, many things have changed since the last time your client purchased life insurance. Their needs might have changed, their current coverage could be insufficient, or their existing policies might have under-performed, leaving them at risk for unexpected premiums or taxable events.

Make certain that you are diligently monitoring your client’s insurance needs and existing coverage, just as you monitor their investments. If you work with trustees, they have a fiduciary obligation to guard the trust assets to ensure the grantor’s intent is met and the beneficiaries are cared for.

A Policy Review is not a replacement program. Instead, it is part of an ongoing assessment of your client’s ever-changing needs. We can help you to analyze your clients’ existing life insurance to determine if it is appropriate for their needs and whether the type and performance of the life insurance is aligned with the client’s goals. We have the resources to help you to:

Examine a client’s current coverage and offer unbiased comments in several important areas;

Compare the current coverage to the client’s anticipated needs; AND Compare the current coverage to a newer, alternative policy.

Who Should Have Their Life Insurance Policies Reviewed?

Any client is a candidate for a policy review, however, the primary prospects fall into the following four categories:

Younger clients • who purchased term insurance some time ago (to save on the near term cost) but have a long-term life insurance need.

Middle-aged clients • who have purchased insurance for family protection, but might be paying more than necessary because they are holding term or group term coverage that might put their families at risk or they are not utilizing life insurance that builds cash value as efficiently as other policies could.

Business owners • who are using life insurance to handle their continuation plans, benefit plans or key-person coverage, and could benefit from stronger, more appropriate or efficient coverage.

Trustees • who could place themselves at legal risk, or their clients’ goals and beneficiaries’ needs at risk, by not diligently monitoring their trust owned life insurance.

Case Study | Younger Clients
Jim and Laurie bought a term contract to pay off their mortgage in the event Jim died unexpectedly. Since then, the couple had two children and Laurie stopped working. They undergo a policy review and their advisor points out several things to them. First, the couple’s existing insurance, the term policy and a small $50,000 group term contract Jim has through work, is far below the couple’s current needs – survivor support, covering college costs as well as paying off the mortgage. Moreover, their term coverage, even though level, is scheduled to have a jump in premium based on the guaranteed premiums in their contract. Their advisor shows them how they can cover all of their costs with nearly a 125 percent increase over their current coverage, while only increasing their costs about 35 percent over an expected jump in term rates.
Case Study | Business Owner
George and Spencer are co-owners in a business. Some years ago they set up a cross purchase business continuation plan where each planned to buy out the other in the event of a death. They funded the insurance with a combination of permanent coverage and term coverage. The permanent coverage was variable universal life, intended to provide a source of supplemental retirement income. The term was intended to cover any gaps in the cost of the business.

Now, years later, the business has increased tremendously in value. They speak with their advisor when they realize the gap in coverage. He notices that the variable universal life insurance is severely under performing based on the six-year-old illustration. George and Spencer are shown that they can both increase their coverage and help maintain their planned supplemental retirement income. By dropping their term and replacing the policy with two new permanent policies, they have the death benefit protection they need while using a portion of their funds to help build supplemental retirement income.

Case Study | Older Clients Utilizing a Trust
Charlie and Stella set up their estate plan 10 years ago. As part of the plan, they set up an irrevocable trust and the trustee purchased two second-to-die policies on their lives from two different companies. One was a participating whole life contract; the other was a universal life contract. The couple has diligently made gifts for premium payments each year, and the trust has worked well. However, nobody – including the trustee – has reviewed the life insurance policies.

At the urging of their life insurance advisor and their CPA, Charlie and Stella contacted the trustee and asked to have the policies reviewed. As it turned out, neither policy was performing as expected. Both were sold using assumptions that, while reasonable for the economic climate 10 years ago, are unrealistically high in today’s environment. The participating whole life policy was at risk to fail because of dividend cuts over the last 10 years. The universal life policy was being credited a rate a full 550 basis points lower than the illustration on which the policy was sold. For that policy to stay in force would require an additional 12 years of premiums over the original design.

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