Needs Change

In today’s market, few businesses or consumers would fail to periodically evaluate their home, car or liability insurance. Most homeowners have refinanced their houses at least once in the past couple of years and investors meet regularly with their financial advisors to review and rebalance their portfolio.

Why do people do this? Because the market is dynamic, not static. Interest rates, competition, new products, expense charges and other factors all change over time. If a consumer is not regularly evaluating the market, chances are opportunities are being missed.

Where We Are Today
In today’s market we have an interesting juxtaposition. On one hand we have the downward pressure on interest rates and the accompanying under performance of in-force insurance policies. On the other hand, the modern life insurance market, with different pricing, different guarantees, new mortality assumptions, new reinsurance agreements, alternate distribution systems, etc., along with the continuing competitive forces in the industry, has produced a new generation of competitive insurance products with previously unavailable guarantees.

An article in "Lawyers Weekly" states, "One study found that up to 85% of TOLI [Trust Owned Life Insurance] policies could be restructured to provide more value - at least 40% more death benefit for the same premium, or the same death benefit for at least a 40% lower premium." (Fiduciary Duties for Trust Owned Life Insurance Under UPIA, July 2, 2001)

Depending on the nature of the insurance need, this evolution in products may provide a better fit for a consumer. A need that was temporary may now be permanent and a need that was thought to be permanent may no longer be; cash flow and net worth, goals and philosophies are all subject to change.

Maybe what is in place is exactly what is still needed and continues to provide the best fit. Do you know that? Do you understand the alternatives? Does it make sense to become educated in order to make the right decisions?

What To Do
An unbiased comparison of the performance of existing life insurance against what is available today is vital and often provides some stunning revelations. Sometimes changing health conditions preclude exploring alternatives so it is more important than ever to evaluate existing coverage to ensure it is performing adequately.

Whether the end result is an excruciating realization that a policy will lapse under current assumptions within months, or the relief that a policy is sound into the foreseeable future, information is the key to sound decision making.

The bottom line is that any individual or institution holding a portfolio of life insurance policies (even a portfolio of one) needs to have the policies audited.

What is an Audit?
An Audit consists of analyzing a client's life insurance holdings to determine if they are performing well or should be restructured - often replaced by a better life insurance product.

In conducting an audit, we obtain an in-force ledger of the current policy, perform a thorough analysis of how it is performing, consider whether it is in line with the client's current needs*, perform a preliminary underwriting process, then develop illustrations for current competitive products and submit our findings and recommendations in a formal, organized, certified presentation.

*If the client's primary goal is permanent death benefit protection, chances are extremely good that one of the new family of products, called "no lapse, guaranteed" policies can provide substantially more DB coverage per premium dollar than the current policy. And the new policy is guaranteed as long as the fixed premiums are paid. The trade-off is that the no lapse, guaranteed policies tend to have little cash value. If the client plans to cash the policy in at some point, he may be better off with his current policy (or he could invest the premium savings in another financial product to build cash value.)

Why Conduct an Audit?
Life insurance is a financial instrument and, like any other investment, it needs to be managed in a changing market. As we discussed in "The Consumer and the Market" there is a whole new generation of life insurance products available today. Various published articles - and our experience - show that up to 70% of all life insurance policies are under-performing with respect to their original assumptions, and especially in comparisons to new products. Managing an investment involves checking its performance against what is available in the market. It also means checking if it is still in line with the investor's changing goals. This is what an audit accomplishes.

As an Agent, How Do I Know if a Policy is a Good Candidate for an Audit?
Go to our Audit Qualifier. Fill in the requested information and submit. We will tell you if it is "Highly Likely", "Somewhat Likely" or "Unlikely" that the policy is under performing. You can then decide whether you would like us to perform a formal audit. To initiate an audit, use our Policy Audit Request Form.

I Have Hundreds of Client Policies. Where Do I Start?
Although policies of all sizes can be improved, larger policies, obviously, have the biggest impact. Start with your larger policies that have been in force for more than 2 years. UL policies are generally better than Whole Life. Term policies are also attractive. For your older clients, a Life Settlement may offer a very attractive option (See "Life Settlements.") Here is a general template to compare policies against (remember this is a starting point, not an ending point.)

• Policy Size: Over $5,000 in premium
• Policy Issue Date: Over 2 years old
• Policy Type: UL, Term
• Client Age: Special attention to anyone over 75 years old