Life Cycle Financial Planners, LLC

Category: life insurance review

Get Paid For Selling Your Unwanted Life Insurance Policy – 10 FAQs.

More and more life insurance owners are taking advantage of life settlements by selling unwanted or un-needed life insurance policies to 3rd party investors. There are still too many owners of life insurance who shy away from or do not know about this option. The industry is regulated and very beneficial to policy owners over age 70. There are exceptions to age 70 and experienced life insurance professionals can help people navigate their way through. The bottom line is that policy owners can let policies lapse, surrender the policy for its internal cash value or sell it for its maximum market value. Each case is unique. What is the market value of 2015 BMWs, 4-door sedans? Without an appraisal, it is impossible to know the price for each one. There is no set price. The exact same rules apply to inforce life insurance policies.

What is a life insurance settlement? When an un-needed or unwanted life insurance policy is sold to a third party investor, that is known as a life settlement. In exchange for selling the policy, the owner receives a lump-sum payment. Or, some people choose different options allowing them to “partner” with the investor to keep a portion of the death benefit, without ever paying further premiums.

Who should sell the policy for you? An experienced life insurance professional, especially experience in the life settlement market. By putting buyers in a competitive situation, offers will increase. The U.S. market is robust and you want an agent with knowledge and access to all current buyers. Should you sell your policy? It pays to work with a professional working in your best interest. Before making a decision, I advise my clients to speak with their spouse, other advisors and their heirs. This information about a life settlement transaction may help.

What is the ideal age to sell a life insurance policy? Typically, buyers of life insurance policies want people who are at least 70 but there are exceptions. Some people under 70 have significant health history and they may qualify. The buyers of policies are more interested in people with shorter life expectancies and a significant health history. Of course, those people with significant health history often want to keep their policies.

Can term life insurance policies be sold for a lump-sum payment?
Yes, but not all term life insurance policies are eligible. It depends on the specifics of each policy, including conversion deadlines, which can be determined in a brief phone call. Most buyers are not interested in policies with less than $1,000,000 of face value.

Can a term insurance policy eligible?
Most life settlement buyers only want term policies that can be converted to permanent insurance.

When does the conversion privilege on my term policy expire?
The conversion deadline varies in each policy, even policies issued by the same company will have different conversion deadlines. Some limit the conversion period to a number of years while others may impose a maximum conversion age, often around age 65.

When should I begin to convert the policy if a conversion is necessary?
Selling a policy involves getting recent medical records, in-force illustrations, a life expectancy analysis, an offer and closing documents. Because the entire process can take 3 to 4 months, it’s best to convert no later than 4 to 6 months prior to the expiration of the conversion privilege. Each time you review your existing life insurance portfolio, it is wise to review conversion options.

What are the alternatives to selling an unwanted policy? If your life insurance policy has market value to an investor, it may also have value to your heirs. Depending on the circumstances, there are methods to help heirs retain portions of a policy, without paying further premiums. These alternatives are often overlooked, especially in rushed situations.

Can I split my policy and sell part of it?
It depends on the policy and the company that issued it. Some insurance companies do not permit a policy to be split.

What happens to the cash value in my policy if I sell it? When there is cash value in a policy going to the settlement market, it is a good idea to discuss the many options to maximize its value before the sale occurs. If there is an outstanding loan, that too should be addressed.

How is this different than a viatical settlement? Viatical settlements are exclusively for people who are terminally ill.

What are the income tax ramifications ? There are income tax consideration for some people but each situation is unique. Of course, income taxes will not exceed the lump-sum you receive, if taxes are due.

To help people with the possible sale of your policy, we offer a complimentary consultation by phone. Please call us or fill out the contact form on this page and we will contact you shortly. You can call us directly at 561-771-4647.

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September 8, 2020
Best Options Before a Term Policy Expires.
The two most important considerations to focus on before a term policy expires are your current health and the policy’s conversion option. Every option you will face involves these considerations. Whether you keep, convert or sell the policy, current health and convertibility will be factors. The best time to deal with the end of a term policy is well before its end, allowing for enough time to consider a plan based on the options available in the contract. This way, you retain control over keeping the coverage or shopping for a new policy.

Long duration, guaranteed term insurance is a relatively new product in the life insurance industry. It started getting popular about 25 years ago. Low premiums have enticed many insurance buyers to overlook some disadvantages. For example, let’s assume a 35 year old person bought a 20 year term policy, 20 years ago. Twenty years later, around age 55, the policy is expiring. What we find is that a very large percentage of people in this boat want to extend the coverage, but they cannot. There are many reasons for this which I cover extensively on this site.

Before a policy expires, you want to be aware of the following:
1. If the policy served its purpose, you can walk away, assuming there is no secondary market value. If you are over age 70 with some significant health issues, you might want to explore the secondary market to determine its value to a settlement investor.
2. Another option is to convert your policy to a permanent one from the company that issued the original term coverage, after making sure the conversion privilege is still in effect and available to you. DO NOT ASSUME IT WILL BE. The conversion option is the single most misunderstood provision in term insurance. Most policies limit the time you can convert. Once it passes, you are out of luck and you will then need to prove evidence of insurability to the insurance company. They will want new and updated health information, new blood and other labs, at the very least. They will re-underwrite you again as if you’re a new policyholder. If, however, you are ABLE to convert WITHOUT evidence, you still may NOT want to exercise this option. It will depend on your health.
3. Another possibility is to buy another term policy if you are insurable. If you are, shop the market with an insurance professional who can find you the most competitive policy at that time. No matter what you do, you are paying for the professional to assist you. If you buy a policy and use no help from anyone, the insurance company will pay the full commission to the designated agent assigned to your purchase. There is no way around this. Like the car business, you cannot call Ford and bypass the dealerships. My point is to take advantage of what you are paying for and find an agent you are comfortable working with.
4. Or, you can buy a permanent policy. Beforehand, shop the market with an insurance professional who can maximize the value of your purchase, especially with a permanent policy. See point #3. Be selective and try to find a professional with experience, an impeccable reputation and solid referrals.
5. Another option is to extend the coverage by paying the “renewal” premium offered by most policies. The rate will be much higher than the rate you’ve been paying. This option usually means the insured is in bad health and has no other options.
The most important thing I can offer as a takeaway is to review the policy every couple of years and talk through these options to be mindful of when the conversion date expires. Planning around that date will prove to be beneficial in the long and short run.

Give us a call at 561-869-4500 or email me at TB@LifeCyclePlanners to get started. I offer a complementary conversation about anything on your mind concerning your insurance coverage or succession plan.
January 21, 2020
New Alternative Creates Customized Payouts of Life Insurance Proceeds to Protect Beneficiaries.

For the past 200 years, life insurance companies have only offered a lump-sum payout of policy proceeds to beneficiaries. For many, this is not ideal considering these income tax proceeds are squandered in less than 5 years. Ask any life insurance buyer if they intend for the proceeds to be spent in less than 5 years.
Life insurance buyers want choices. In fact, a high percentage of life insurance owners do not want a lump-sum payout. Instead, they want a policy that gives them the option to create a customized and guaranteed income stream for their beneficiaries that cannot be mismanaged. The Installment Option instructs the insurance company to make guaranteed, pre-determined income payments over time. These payments are selected when the policy is issued by the policy owner. The best life insurance policies today give policy owners flexibility and options; the more, the better.

The Installment Payout Option allows policy owners to create a customized schedule to fit their family needs and guarantee a protected income stream for their beneficiaries, up to 10, 20 or even 30 years.
 Premiums payments – up to 50% less for guaranteed results or the
total benefit is increased as much as 50% for the same premium.
 The annual payments are pre-determined and guaranteed,
regardless of economic conditions or other variables.
 Ability to customize the death benefit payments to meet individual
planning objectives.

Proceeds are paid according to a pre-determined schedule, selected by the policy owner at the time of purchase. In the past, a lump-sum payment was the only option available. The Installment Option eases concerns about lump-sum payments being mismanaged.

Protect Proceeds For Beneficiaries

What is the Installment Life Payout Option?
Rather than your beneficiary receiving a lump-sum payment at the time of
death, the Installment Payout Option gives you the power and control to choose guaranteed, pre-determined installment payments when the policy is purchased.
Is the Installment Option Less Expensive ? Can I Buy More Life Insurance With the Same Premium Payments?
Yes, this option is less expensive. The longer the deferral period, the lower the premium payments will be. Premiums can be as much as 40% less on an annual basis.

Is the Installment Option Better Than a Lump-Sum Option?
Neither option is “better” than the other. An increasing number of life
insurance buyers are concerned about the risks of leaving a lump-sum death benefit to their beneficiaries. For them, the Installment Option may be best. Life insurance owned for estate tax planning is a good example of when a lump-sum option may be a more appropriate alternative.
How is the Deferral Schedule Determined?
We encourage every life insurance buyer to meet with a life insurance professional to consider these options, and others. Your income, debt levels,
other assets, fixed and variable expenses, education, retirement assets and inflation are some of the elements in the calculation.
Can I Change the Payout Option from Installment to Lump-Sum?
Some insurance companies allow for this. Unlike the lump-sum option that is very limited from a planning perspective, the Installment Payout Option allows for customization by each policyholder.
Can I choose a Blend of Lump-Sum and the Installment Option?
Yes. Most people appreciate the ability to customize their life insurance
policy by combining a lump-sum payment with installment payments over time.
Can I Upgrade My Existing Insurance to the Installment Option?
Yes. By doing so, you may be able to lower the premium payments or
increase the death benefit for the same premium you pay now.
Can a Beneficiary Make Changes to the Installment Schedule?
No. However, the installment payments are an asset that can be sold at a
discount. We recommend a trust be considered as the policy owner, with an
informed trustee to ensure the insured’s intent is honored.
What if My Health Has Changed Since Last Purchasing Life Insurance?
If you have had a material change in health, be cautious about giving up
any existing coverage without a careful analysis. Consult with us to help evaluate your options. By choosing the Installment Payout Option, you may be able to neutralize the impact of a higher premiums.
What Insurance Companies Underwrite the Installment Payout Option?
The Installment Option is available from several of the most highly rated life insurance companies in the United States.

Please call me at 561-869-4500 or email me, Ted Bernstein, about a complimentary review of your existing policies.

December 17, 2019
The Term Insurance Failure
Buy Term and Invest the Rest – A Failed Theory.

A growing number of life insurance owners are worried that their current TERM LIFE INSURANCE policy is expiring soon and they find themselves without good options for securing new coverage. Many of these people were sold a sales concept known as “buy term and invest the difference“. Instead of purchasing one policy that would last a lifetime, people were encouraged to purchase something like a 20-year term insurance policy and build up a separate savings account, outside the policy. To make this gimmick sound plausible, they were convinced they would not need, or want, life insurance later in life. Once they were near retirement or when their kids were independent, the term insurance was designed to lapse. For millions of Americans, this has proven to be nothing more than a sales pitch with very detrimental planning consequences. Not only are people forced to buy new coverage later in life, there is no side fund that is needed to pay for the new, and more expensive coverage. Adding insult to injury, some people will not qualify for a new policy.

How Did This Happen:
1. If there were side fund accounts, they did not grow close to 7%, after tax.
2. Virtually no one “invested the difference” with any type of discipline.
3. If there were side funds, they were often used for other things.
4. The conversion deadlines passed in most policies.
5. Health issues cause renewal premiums to be higher than anticipated.
6. In divorce situations, the side funds were often divided.
What Happens Now:
1. Check the conversion language in your existing, inforce term policy.
2. Determine your insurability for new coverage.
3. Seek counsel from an experienced life insurance professional.
4. Consider policies with different duration options.
CALL NOW FOR A COMPLIMENTARY CONSULTATION AT: 561-771-4647

Life insurance is a lifetime need. Ask anyone over 50 if they feel differently than they did at 35 about their need for lifetime coverage.

Most people are unsure how some health issues might affect the rates for a new policy. A few extra pounds, controlled blood pressure or high cholesterol are common issues after 50. They may increase the premium for a new policy but not as much as you might think!

More than 95% of all term premiums are wasted because they are NOT INFORCE as we get older. If you are currently facing any of these problems with life insurance coverage, contact us to discuss the options. There are solutions but acting now is essential.

Without knowing the future, it is impossible to “predict” when your need for life insurance coverage goes away, if that ever really happens. If you bought term insurance in your 30’s or 40’s, you were likely told that term insurance was the best option. It was inexpensive because the premiums were low and the premiums were low because the chance of dying was remote. If you are currently in your 30s and 40s, now is a great time to consider options that are flexible and customized to meet your goals and objectives.

“Buy term and invest the difference” or “buy term and invest the rest” was a marketing gimmick promoted by non-insurance personalities like Dave Ramsey and Suzy Orman. There were thousands of untrained agents promoting this marketing strategy instead of counseling people about proven solutions and guaranteed outcomes. It has taken 20+ years, but we now have a national crisis in coverage that has not been seen before. A large part of the uninsured class now consists of previously insured people in their 50s, 60s and 70s.

Term insurance may be appropriate coverage for young people with children who may not yet have the financial resources to pay for permanent protection. It makes sense to cover bank loans, key-person life insurance obligations and for divorce agreements.

Busting the myths about term insurance!

Please complete the contact form on this page. Or, contact Ted Bernstein at Life Cycle Planners for a complimentary consultation.

CALL NOW AT 561-771-4647 FOR A FREE CONSULTATION

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April 12, 2019
Term Life Insurance In Danger of Lapsing?

Is your term life insurance lapsing?

Do you know when the conversion deadline in your term life insurance policy expires?

One of the most critical dates in a term life insurance policy is the conversion deadline. You don’t want the conversion deadline to pass without your consideration. Insurance companies DO NOT notify you as the deadline is approaching. Many people who purchased term life insurance within the past 20 years may not understand this option. Term life insurance lapsing can create problems for families and businesses. Too many inforce policies do not allow you to convert the policy in all years without new evidence of insurability. To avoid finding yourself with limited options after the deadline has passed, speak with an insurance professional.

Why would I convert my term policy?

To continue a term life insurance policy after your health has changed, the conversion option is key. You may never need to convert your term policy to permanent insurance but if you have a significant health problem after purchasing the policy, you may fall into the rated or un-insurable category. When this happens, that conversion deadline becomes critical. Conversion may be your only option to keep life insurance with premiums based on your previous good health. Unfortunately, there are millions of people who are unable to convert because the deadline expired. For example, if you own a 20 year term policy, it may only be convertible in the first 10 years or until age 65.

What should I know if I own a term policy?

You want a policy with no conversion deadline or the longest one possible, something like 80% of the guaranteed term period. It is equally important to buy from a company that allows you to convert to their entire portfolio of products. Some companies limit term conversions to only one policy, often not their best. Terry Savage offers some great advice in her recent column about term life insurance lapsing because of unknown conversion deadlines. If nothing else, check your current policy’s conversion deadline.

https://www.terrysavage.com/term-insurance-running-out/

https://wgntv.com/2018/08/01/financial-expert-terry-savage-on-term-life-insurance-credit-card-debt/

Can I buy a term policy with Living Benefits?

Living Benefits may be the single most important enhancement to life insurance in the past several years. At no additional premium, Living Benefits allows you to draw against the face amount of your policy when you have a critical, chronic or terminal health event. It is not a loan and there does not have to be any cash value in the policy. It is an advance and it comes from the face amount. You can receive up to 90% of the face value depending on the severity of the health incident.

If you currently own life insurance, chances are good that your policy does not have these Living Benefits. Adding Living Benefits and a better conversion deadline are two good reasons to consider new coverage.

We offer state of the art solutions for life insurance and lifetime income annuities. Let us help you minimize your premiums and maximize the value of your coverages. Please call us at 561-869-4500 or email me at TB@LifeCyclePlanners.com. Upon request, we will send a complementary overview of Living Benefits.

August 3, 2018
10 Life Insurance Underwriting Tips To Lower Your Costs
Life Insurance Underwriting – Demystifying The Black Box of Underwriting

Sex, Drugs and Genetics

One of the most effective ways of reducing your cost of life insurance is by improving the rate class or making sure to get the best class possible when buying new coverage. Once you decide to purchase a life insurance policy, the process of underwriting begins. Life insurance underwriting is the process allowing an insurance company to determine the appropriate rate class for your policy. It is important because the rate class determines the premium. There are many different rate classifications, usually starting at preferred. Most companies use a system with 16 extra classes – the highest rating being a Table 16.

A system of credits and debits.

Overweight by 20 pounds? On high blood pressure medication? Smoke an occasional cigar or occasionally use marijuana?

Most people feel certain that any one of these will cause their life insurance premiums to be higher. In most cases, not one of them will increase the rate or knock you out of standard rates.

You should expect to pay the lowest possible premiums and receive the best rate class each company offers, based on your specific information. It is the responsibility of your agent to get you the best rate by giving the underwriters all the information in the best light possible. Underwriters convert positive information into credits and negative information into debits. More information is better. Still, too many people are not paying the lowest possible premiums.

The difference between one or two rate classes can lower premiums by 20% or more, annually.

Life insurance underwriting is a blend of art, skill and experience. The key to getting the lowest rates possible is full disclosure on your part. The improvements in medical sciences are leading to lower premiums. These improvements lead to more people reaching life expectancy, resulting in decreasing premiums. In other words, the rates you are paying on policies issued several years ago are likely MORE than new policies issued today, even though you are older. If you are in similar or better health, you should be able to reduce your cost of life insurance.

The following issues require good life insurance underwriting management. A good underwriter will consider many factors to determine your rate class. The more information you and the agent provide to the carrier, the better your chances will be in creating maximum credits:
- Extra weight. Most people carrying extra weight miscalculate by a lot how their premiums will be affected. Typically, unless the extra weight puts you in the obese class or is causing other medical problems, added pounds do not automatically warrant any rate increase.
- Cardiovascular issues. Many life insurance companies excel at underwriting these cases. If there is good follow up and control, many insurance companies will consider standard rates after a few years.
- If you have had cancer in the past, you have a reasonable chance of getting a policy with standard or preferred rates, depending on the history and your current health. Do not assume the worst; this is a classic mistake made by people and their advisors, including their physicians. I have many clients with cancer history who now have standard rates.
- People with Type 1 diabetes typically have impaired life expectancy across the board, so your rates will depend on how well controlled your condition is and what you need to control it. If well controlled, Type 2 should lead to a smaller spike in rates. Diabetes is complicated and requires excellent underwriting.
- Mood Stabilizing Drugs, Depression, Psychotherapy. If you’re taking medication for an ongoing condition such as anxiety or depression (meaning it’s more than just a temporary state due to, say, a loved one’s death), you will probably see higher rates, but typically not what most people expect. The insurance industry needs to review these issues regularly as the medications are better and untreated anxiety and depression is far worse.
- Family history. If immediate family members have had serious or hereditary conditions, that may prevent you from getting preferred rates. The biggest culprits here are cardiovascular disease (especially if a parent died from it before 60), cancer and diabetes.
- Cholesterol & High Blood Pressure. Controlled high cholesterol and blood pressure, by themselves, typically do not add extra cost or deny you preferred rates. With these conditions, it is all about control and stability.
- Nicotine use. The use of nicotine comes in many delivery systems and life insurance companies are not consistent about this topic. Using the Installment Payout Option can help smokers reduce their premiums by as much as 40% per year.
- Driving History. If you have more than two moving violations in the last three years, you likely won’t be able to get the best life insurance rates. Time is your friend here, even for the most serious offenses.
- Substance abuse. It is impossible to generalize with substance abuse history. However, with full disclosure and a strong record of non usage, life insurance can be obtained at standard rates.
- Lifestyle/Career Issues. Any hazardous, regular activities such as rock climbing, motorized racing, skydiving, ultralight flying, hang gliding, and scuba diving could increase life insurance premiums.
While some companies increase rates for firefighters and police officers, many do not.

Full disclosure and working with an experienced agent is crucial. Knowing which companies excel in the each area and then not being afraid to challenge underwriters are some of the advantages you will get from an experienced professional.

Want to learn more? Please contact me at 561-869-4500 or by email. I will clarify and answer any questions on a complementary basis.”

Ted Bernstein Boca Raton Florida
April 27, 2017
Don’t Need or Don’t Want An Existing Life Insurance Policy?
Do You Know The Market Value Of Your Existing, Inforce Life Insurance Policy?

Every day, people are receiving significant cash payments for unwanted or unneeded life insurance policies they thought had no value.

If you are 65 or older, you may have a policy with asset value in the secondary market. The value of policies is measured as a percentage of the face amount. If you have a $2,000,000 policy with a settlement value of 10%, it is worth $200,000. It is fairly simple and straightforward to get an appraisal done to determine your policy’s value.

Please email or call me at 561-869-4500. Visit us at Life Cycle Planners in Boca Raton, Florida.

The secondary market is the market for unwanted life insurance policies – they are usually institutional investors. A good analogy is Carmax. They buy cars from people who don’t want or need them anymore. They specialize in the aftermarket of automobiles. In the life insurance industry, there are buyers who specialize in this market and they are typically the highest bidders.

The state of Florida has made it mandatory for life insurance companies to inform Floridians that they should consult with a professional when contemplating a change:

…“a life insurer shall provide an individual life insurance policyholder with a statement informing him or her that if he or she is considering making changes in the status of his or her policy, he or she should consult with a licensed insurance or financial advisor.”

If you have a policy with cash value, its value is based on it and nothing more. Life settlements may not appeal to everyone. Some people don’t like the idea of strangers having an interest in their mortality. It is a perfectly reasonable position, regardless of the potential financial benefit that might exist. There can be meaningful differences in the offers you receive from the secondary market.

Term life insurance policies may have value in the secondary market.

There may be no cash surrender value in your life insurance policy but there may be great “market value” for a life settlement company. The payment you receive in a life settlement transaction is the market value (see the recent case studies below).

It may be in your best interest to consider selling. The goal is to compare offers you receive against the value in the policy.

More than 90% of seniors lapse policies without knowing about this option. They would have considered a life settlement if they were aware of the process.

Further, 79 percent feel their advisers should have told them first.

Depending on several factors, including age, health and policy type, life insurance policies can be valued as much as 20-30% of the face value. If you no longer want to pay premiums for a policy, there are realistic options to consider.

The reasons to consider selling an unwanted or unneeded policy:

· Receive a higher cash payout than cash surrender value.
· Receive money for a term policy.
· Create cash to fund retirement solutions such as guaranteed income annuities, long term care insurance or life insurance with the installment payout option.

For example, 30 years ago, Dr. Smith purchased $2,000,000 of life insurance to protect his wife and children against the loss of his $300,000 income. He was 46 when it was issued and today, at 75, his children are grown and the need for income protection is gone. With nearly $200,000 of guaranteed lifetime income from annuities, a pension and social security, Dr. Smith feels the policy is unnecessary.

The insurance policy had a cash value value of $90,000 if he walked away. The Life Settlement value was 15% of the face value, or $300,000. The decision was simple in this case.

Unfortunately, each year there are too many people who are still unaware of life settlements or they fail to give it proper consideration.

Potential Disadvantages:
1. Life Insurance benefits are usually income tax-free. Some portion of a life settlement may be subject to income tax.
2. Paperwork is required to transfer the ownership of the policy.
3. Proceeds will benefit the buyers, typically non-family members.
Organizations such as the AICPA and hundreds of esteemed estate planning law firms are on record advocating the benefits of life settlements. Life insurance is an asset with great potential value.

RECENT CASE STUDIES REPORTED IN THE INDUSTRY

– an 88 year old male sold a $2,500,000 John Hancock policy, which netted him $500,000 (cash surrender value was $0),

– an 88 year old male sold a $2,000,000 universal life policy for $1,110,000 (cash surrender value was $218,000),

– a 64 year old female sold a term policy for $20,100 (the face value was $250,000; she kept $50,000 for her beneficiary),

– a 72 year old man sold a $896,450 Transamerica policy for $196,476 (cash surrender value was $94,647),

– a 61 year old man sold a $400,000 Mass Mutual term policy for $220,400.

Please email me at Ted Bernstein or call me at 561-869-4500. Visit us at Life Cycle Planners in Boca Raton, Florida.
February 15, 2017
7 Helpful Tips to Review Life Insurance
Life Insurance Policy Forensics

Follow the 7 helpful tips to review life insurance coverage below and you will either improve it or have confirmation that the policy is appropriate. It makes sense to review all insurance coverage every two years. Done this way, each type of insurance should take no more than 15 minutes.

For many individuals who own or purchase life insurance, having an objective and impartial advocate in the process proves to be invaluable. It is a complex asset class, there are hundreds of insurance companies with 50 State Insurance Departments. For individuals or businesses, our service helps you navigate the life insurance world with the comfort of impartiality defining underscoring the relationship. Acting in the best interests of our clients is the cornerstone of our practice.

For institutional owners of life insurance policies or individual trustees of trust owned policies, life insurance is an asset that must be regularly monitored by the policy owner. The owner is a fiduciary and is therefore responsible for the policy and for keeping it in good standing as any other asset for which they have this responsibility. When revocable or irrevocable trusts are owners of life insurance, we recommend that the policy or policies be reviewed on a regular basis by the Trustee. If the review is out-sourced to a professional, we suggest that these reviews be done on a fee basis.

Long before other professionals began working in this area, we recognized the value of an unbiased, fee-based option to give trustees and owners the proper level of due diligence assurance and trustee compliance.

The life insurance industry is in a constant state of change making a life insurance policy a complex financial tool. Many types of policies and their components are misunderstood by the policy owner. The insurance industry is constantly changing the way life insurance is designed, priced and underwritten. Having an objective professional who is not contractually prohibited from selling products is similar to the value of a real estate appraisal done by an independent appraiser.

FREE OR FEE? IS THERE A DIFFERENCE?

Trust Owned Life Insurance (TOLI) should be treated as a “buy and manage” asset. Too often, life insurance agents offer only the buy function and not the manage function as this is typically not part of their standard discipline. Every Trustee and Owner of a life insurance policy must ask themselves this question: “Is there a difference in the value of a life insurance policy review done on a fee basis versus a free review?” Is the review being done by a sales agent as a way to create selling opportunities? The goal for policy owners is to develop a review and monitoring model based on best practices versus predatory practices. When the owner is in a fiduciary capacity, the review process should be done on a fee basis to ensure impartiality.

THE 7 BENEFITS OF A REVIEW – CHANGE CREATES RISK FOR OWNERS HELD TO A FIDUCIARY STANDARD.
1. Life Expectancy has lengthened. Insurance companies have implemented pricing and underwriting standards to reflect these improvements. There have been significant changes in heart disease, cancer, diabetes, high blood pressure, mental disorders, medications and other medical issues.
2. Insurance companies have introduced innovative new products and pricing techniques that reduce premiums and improve policy performance. For example, indexed universal life is policy type that did not exist 20 years ago.
3. Interest and dividend crediting rates change. Economic conditions are always changing, requiring insurance companies to either increase or decrease their crediting rates. These crediting rates are directly tied to the rate of return in the policy. As a result, due to today’s low interest rate environment, many interest sensitive policies such as Universal Life, Variable Life, Indexed Universal Life and various combinations of these, issued prior to 2000 are not performing as originally intended.
4. Market conditions have changed. Fluctuations in the stock market have impacted life insurance. Many customers purchased Variable Universal Life policies in the 1990s that are at risk of failing or in need of re-calibration due to these fluctuations.
5. Planning goals of the policy owner may have changed. Evaluation of current goals and needs is an essential part of the life insurance audit process.
6. New products have emerged possibly making previous product selections less desirable in light of new options.
7. Federal Estate and Gift Tax laws have changed which can eliminate the need for coverage.
WHAT IS INCLUDED IN THE REVIEW?
- A client update of original goals and objectives and a policy summary.
- Location of original policy and all amendments.
- A review of the structure of the policy, ownership, beneficiaries, payment methods, relative to the client objectives.
- An assessment of possible rate class improvements.
- An evaluation of the effect of changes in interest rates/sub-account performance, increase in cost of insurance, or any combination thereof. Updated carrier ratings provided from national rating agencies.
- Market Comparison. An objective evaluation on whether there is a more cost effective and reliable way to provide the results the client expects. This is intended to ensure that the client’s current and future objectives are being met. Also review the availability of new or improved carrier products.
- Context Analysis –is the policy still suitable for the current estate plan, as circumstances are constantly changing in clients’ lives as well as applicable tax law?
- Premium Funding Analysis – Many policies will eventually lapse due to poor policy performance, leaving the client with a sizeable premium increase. Current projections will be obtained to view the policy under different conditions.
- Stress Test – Worst case scenarios will be analyzed by running a variety of different illustrations from inforce carrier(s) and alternative carrier(s).
- Secondary Market Analysis – If it is determined that a policy is no longer needed or wanted, rather than lapsing or surrendering the policy, it may make more sense to sell to a third party institution in exchange for an immediate cash settlement or arranging for a lender to make the premium payments.
Before any review can be begin, it is critical that we speak with the insured/owner and their advisors in order to gain important insight concerning the policy’s origination, purpose of insurance and how it fits into today’s planning goals and objectives. Please contact us at 561-9-869-4500 or email me to arrange a complementary consultation about our policy review services.
December 8, 2016