Critical Fiduciary Responsibilities. Life Insurance Audit

Transcription

1 Critical Fiduciary Responsibilities Life Insurance Audit SM

2

3 Life Insurance Audit A comprehensive evaluation of life insurance. The Life Insurance Audit provides trustees with a comprehensive evaluation of the performance of trust-owned life insurance policies, along with recommendations to optimize coverage. Consistent with the requirements of the Uniform Prudent Investors Act (UPIA)*, which sets forth standards for actively monitoring life insurance policies held in trust, the Life Insurance Audit provides access to leading-edge expertise, resources and procedures. * The UPIA was drafted and recommended for enactment by individual states at the 1994 conference of the National Conference of Commissioners on Uniform State laws. States have not been compelled to enact the UPIA and there are a wide variety of methods by which states have adopted the provisions.

4 A Heightened Level of Accountability for Trustees Never before have fiduciaries faced more far-reaching responsibilities with regard to trust-owned life insurance. Life insurance policies are increasingly complex and trustees are now potentially liable for the failure or perceived failure to manage and monitor the policies held in trust. Prior to the UPIA, trustees focused on the administration of life insurance policies paying premiums and ensuring policies remained in-force to provide beneficiaries the anticipated death benefit. Trustees are now required to manage the costs and maximize the benefits of life insurance policies, as well as adhere to disciplined procedures for monitoring and managing trust-owned life insurance. This entails sophisticated risk/return analyses to investigate the suitability of underlying cost of insurance charges, policy expenses, and policy earning assumptions. Recognizing the distinct, technical expertise that this degree of oversight entails, UPIA now allows fiduciaries to delegate the management of trust assets to qualified agents.

5 Life Insurance Audits Provide Valuable Information Over 65% of Life Insurance Audits reveal the potential for improvement, either through premium reductions, increased death benefits, extended coverage, or better policy guarantees. 65% of policy audits and Critical Support for Fiduciaries According to a recent survey of professional trustees: 83.5 % 95.3 % Have no guidelines or procedures for handling trust-owned life insurance. Have no policy statements on how to handle asset allocation within variable life policies. Trusts & Estates, May 2003

6 A New Approach to Life Insurance Traditionally, trustees have tended to treat life insurance policies as long-term assets that did not need to be actively managed or monitored. In the current environment, however, that approach is increasingly precarious. In some cases, declining interest rates and market fluctuations have created a gap between policy performance and projections that were made at the time of the sale. In other cases, beneficiaries are failing to benefit from more favorable coverage options based on advancements in the medical technology used to determine underwriting risk or increasingly innovative, competitive policy options. Just as investment portfolios are actively managed and monitored, life insurance requires professional management and analysis.

7 Factors Affecting the Outcome of a Life Insurance Audit n Actual policy performance might be out of sync with original projections due to reductions in interest crediting rates, dividend rates or sub-account performance. n Policies may be scheduled for a premium increase, as a result of the original policy or design or inadequacies in the underlying policy mechanics. n Medical advances and longer life expectancies have led to more favorable underwriting classifications for many conditions. n Consistent industry improvements in products and pricing, as well as longer life expectancies, have resulted in more cost-effective policies. n The availability of secondary guarantees on new generations of life insurance products may offer clients more security than had previously been available. n New riders allow for greater flexibility in the design of policies. n Policy death benefits may no longer be sufficient due to inflation or evolving client needs.

8 The Life Insurance Audit Process Policy performance is analyzed relative to original projections, along with a thorough risk/return analysis. A medical risk assessment of the insured is conducted to determine whether mortality charges are in keeping with the most up-to-date medical underwriting classifications. When appropriate, cases are renegotiated with carriers to obtain the most competitive underwriting offer available. Product and planning tactics are reviewed to determine if they are aligned with the insured s goals and objectives. The insurance carrier s financial stability is evaluated. The combined results from the audit are then analyzed resulting in a recommendation to: > either maintain the current policy or > consider other options that could optimize coverage.

9 Case Study Current Policy Facts: > Universal Life Policy issued in 1990 > $1,000,000 level Death Benefit with a policy and cash surrender value of $317,309 > At the annual premium of $30,000, the policy was guaranteed to age 83, and projected to last to age 92 > Planning goals Guaranteed death benefit for life with minimal premium outlay for estate planning > Underwriting and Risk Assessment generated a tentative offer of standard non-smoker from five top rated carriers, all offering competitive solutions. Audit Results: n New premium of $16,512 (a 45% annual savings) n Guaranteed death benefit for life n Achieves planning goals more effectively than current coverage

10 Testimonials I was so impressed with the independence of the audit that I have recommended that individuals who have their own business, and clients, for estate planning purposes, also utilize this audit. I believe the objectivity of the evaluation is very crucial and that the audit was extremely well conducted. DENNIS D. SUTTON Lawyer Burt, Blee, Dixon, Sutton & Bloom, LLP As trustees for irrevocable life insurance trusts, I believe that reviewing life insurance policies owned by the trust is one of our more difficult fiduciary responsibilities. The Life Insurance Audit is an excellent tool for trustees to use when seeking to objectively assess life insurance. I recommend that fiduciaries try the Life Insurance Audit and experience it for themselves. CATHERINE BORKOWSKI, JD VP & Trust Officer First National Bank & Trust

11

12 For Producer Use Only. Not intended for use in solicitation of sales to the public. The Life Insurance Audit is a complimentary service offered by Ash Brokerage, Inc. ( Ash ) through some of the top financial service professionals in the country to assist consumers in analyzing their existing insurance policies. For use with non-registered products only. It is not a program designed to encourage consumers to replace existing policies. Products and programs offered through Ash are not approved for use in all states. Andrew J. Schwartz CLU, ChFC 807 Arizona Avenue Santa Monica, CA ext. 190 aschwartz@whitesutton.com LI-4000 Rev. 06/08