The problems you are addressing only apply to universal life policies right?
No, but the problem certainly applies to almost all universal life policies. However, to compete with universal life many of the “whole life” policies sold over the last 25 years weren’t really whole life. They were blends of smaller whole life policies with term riders and paid up addition riders. Many of them aren’t working either. Even traditional whole life policies will likely not perform to policy owner expectations.
What can happen?
In many cases you may lose both their cash values and ultimately their death benefit. In other cases, cash value and death benefit will not last as long or grow as much as expected.
Are you talking about inferior policies from inferior companies?
No, I am talking about excellent policies issued from the very best companies.
Can you give me an illustration of the impact?
Here is one we recently reviewed. A policy was purchased 15 years ago with a premium of $15,000 a year for $1,000,000 on a man then age 53. He believed that as long as he paid the premium he would have his coverage. He believes it is a type of whole life. He’s now currently 68 and the policy has $171,000 of cash value. However, per the most current company illustration the policy only guarantees to remain in force for 8 more years. It projects to last 17 more years. So somewhere between 8 and 17 years from now he will find that both his cash value and his death benefit will have disappeared even though he continued to pay the $15,000 a year.
What should I do?
You should arrange for an an objective, third party policy audit with our office.
What would this audit include?
Stated as simplistically as possible:
1.) A thorough review of the financial quality of the life insurance company.
2.) A thorough review of the product you have purchased (How it has performed to date relative to initial expectations and how it is realistically expected to perform into the future.)
3.) A thorough review of your options if there is a problem.
What should I watch for?
Some agents are using this problem as an excuse to automatically “sell” people more insurance or replace policies which are salvageable in the clients best interest.
What is wrong with that?
You may be subjected to the same problem in a few years. The new policy you buy may not fully address the long-term problem. That’s why you need to complete a thorough analysis, utilize a sound policy procurement process and institute an ongoing management structure.
What about the new death benefit guarantee Universal Life Policies?
That is also a potential replacement tactic that has some dangerous flaws if not administered correctly. Your client's old guaranteed cash values may be un-necessarily converted to projected cash values (not guaranteed) in a new UL policy. This does not make using these new products automatically wrong. The key issue again is: has a thorough objective review of the options been done? Sometimes these guaranteed policies are clearly the best option for clients with specific goals.
What does a preliminary objective review cost?
The cost is determined by the scope and complexity of the review. The price will run higher if a more sophisticated structural analysis is done. The price is set for each phase before work begins and agreed to in writing by all parties.
Is this process only for existing policies?
No, it serves as a great way to help people who are confused by the variety of options and advice they receive at the time they are considering the purchase of new life insurance.
Why can't I depend on the information in the annual statement or could I just order an in force illustration?
Annual statements simply don't supply enough information to make a sound decision. Many companies are still running projections based on interest rate assumptions that are higher than they will be able to maintain. The vast majority of the in force illustrations need to be modified and tested by a professional.
Why hasn't my life insurance agent told me about this problem?
There may be many reasons. They may be unaware of it. You may not have an active agent any longer. Or it may be that he or she doesn’t want to be the bearer of bad news. It’s no fun and not profitable.
Can agents do an audit for me for free?
Maybe, but it is highly unlikely. Most agents don’t have access to all the necessary information. It’s just not what they do. They are in the business of marketing and selling new life insurance policies.
How do I know Opportunity Concepts will be objective?
Opportunity Concepts stands alone. Its only source of revenue is from reviews. It does not sell life insurance. Also, this work is done hand in hand with other professional advisors.
Can I still use my existing agent?
Of course, Opportunity Concepts welcomes the opportunity to work with existing agents. It makes the process much easier if the agent assists in our efforts to obtain correct and accurate information from the companies.
What are the options if there is a problem?
If there are problems, many options are available. Sometimes it simply entails paying more to the existing carrier. Other options are specific to your personal needs, health, financial and personal circumstances. It takes a trained expert to analyze them all.
Are policy audits and life settlements for the benefit of the client or all about making money?
Two things we strongly believe in are:
- Doing what is in the best interest of the customer
- Compensation commensurate with value added
When a policy is replaced by another with the same or better benefits, an equivalently rated carrier and less costs, or a policy which was destined for surrender for cash surrender value is sold on the secondary market, the value added is quantifiable, immediate and usually substantial. The reason this is a burgeoning mark is because of the clear and compelling value to clients.
If you have more questions, give us a call and we will do what it takes to answer them.