Life Insurance Review

Transcription

1 Life Insurance Review A thorough evaluation of your life insurance portfolio RELATIONSHIP MANAGEMENT EXPERIENCE PARTNERSHIPS CLIENTSOLUTIONS

2 Purpose Our goal is to provide an objective life insurance policy review that will help you confirm that the policy will achieve the objectives the policy was purchased to fulfill or to provide alternative solutions to satisfy your specific needs. The life insurance industry has done a tremendous job over the past 150+ years in designing policies to satisfy every individual need. But, while good contracts have been developed, the industry has done a dismal job of being able to succinctly describe these contracts in easy to understand language for the consumers to understand. Compounding this problem is that no one really wants to discuss, or even think about, life insurance until it s too late. The fact remains that although nearly 50 million Americans say they need more life insurance than they have, one of the top reasons that Americans give for not buying the additional coverage is the worry about making the wrong decision. Most Americans carry some form of life insurance, but let s face it it s hard to think about death. As a result, many times after purchasing life insurance, it s left alone with no analysis after the fact. Like any other financial asset, life insurance should be evaluated periodically to ensure that it: Is on track to meet your needs; Fits your current situation Is the most appropriate and competitive policy available. With over 1,000 insurance companies operating in the United States with average product shelf lives of about 24 months, insurance products are constantly changing and improving. Whether it s the base product chassis, risk classification or even government mandated changes to the tables used for guaranteed insurance rates, it s a good idea to periodically evaluate your current insurance coverage.

3 When to consider a policy review There are numerous reasons to consider a policy review including: Your life insurance needs have increased or decreased based on specific life events. Interest crediting rates on certain policies today are much lower than higher illustrated rates when the policy was first purchased, thus affecting future policy performance (requiring more premium dollars to meet policy charges.) Your health has improved qualifying you for a better rating. Your family or business situation has changed. Loans, withdrawals, or other policy changes have affected the policy s performance. Premiums have not been paid as planned. Some policies have scheduled premium increases. Insurance company ratings may have changed and may no longer meet your risk tolerance. The insurance industry has seen a tremendous amount of mergers and acquisitions over the past decade making a current review even more important. Multiple policies may be more efficiently consolidated into a single policy. An objective, consultative analysis of your current insurance holdings brings clarity to your life insurance options. Industry & Product Changes Overall Life Expectancies Advances in the medical field have extended life expectancy, which has allowed insurance companies to reflect these improvements in the pricing of products. Many older insurance policies mature at age 95 or even before, which could have adverse income tax consequences if the insured is still alive. Newer contracts can extend to age 121 and beyond. PoliciesThat May be in Dangerof Lapsing There are numerous reasons why a current policy may be in danger of lapsing (the policy ceases to exist) including: Lower interest rate crediting than initially illustrated, Lower than anticipated investment performance (for market linked policies such as VUL), Increases in cost of insurance (COI) charges, Reduction in dividend rates (whole life participating) o Direct Recognition loans on participating whole life earns lower dividends, Increasing scheduled premiums (affecting term and some permanent policies), Policy owner may have: o Taken multiple policy loans o Made excessive withdrawals o Not made planned premium payments perhaps to reduce taxable gifts? o Changed the face amount.

4 It s not unusual to see older contracts illustrated with assumed interest crediting rates as high as 12% but recent economic conditions have forced insurance carriers to lower their credited rates. These credited rates affect the overall rate of return experienced within the insurance company s investment portfolio. Many policies using higher interest rate assumptions and lower expense assumptions have not performed as originally intended. Market Linked (Variable) Policies Changing market conditions have made these policies a critical item to review on a regular basis. Industry Mergers Mergers, acquisitions and demutualization have changed the corporate structure of many of the life insurance carriers. Policyholders need to be aware of the impact of these changes. This analysis includes independent ratings of insurance company s financial stability. Changes in Goals Periodic review of your objectives and needs are an essential part of the life insurance review process. What was purchased in the past may not solve today s needs. Changes in Tax Law You should be aware of how changingtax laws could affect your policiesand determineif there are new opportunities. Underwriting Insurance carriers have been able to offer better pricing on products for customers who fit certain profiles. This has resulted in additional classifications that were not available to consumers previously (preferred best, preferred, standard plus, etc...). Also, advancements in the treatment of chronic diseases like diabetes, heart disease, cancer and other medical problems have allowed carriers to consider underwriting clients that might have been declined or were offered highly rated coverage in the past. Many insurance carriers now see themselves as experts in certain diseases and look more favorably on these ailments than other carriers resulting in lower consumer cost. Guaranteed Death Benefit Insurance carriers have begun to offer new productswith guaranteed death benefits beyond age 120 irrespective of policy case value performance. Living Care Coverage Many policies today have integrated living benefits along with death benefits. On a tax favored basis, these newer policies can accelerate the death benefits for long term care needs, terminal, chronic, and/or critical illness.

5 What is Included in a Life Insurance Review? A Life Insurance Review evaluates your existing life insurance coverage. By analyzing your current coverage, reasons for initial purchase, and current needs and goals, it is possible to review all options for optimizing the overall benefit and cost effectiveness of your coverage. It s important to note that this process should become an annual review as products and needs continually change. Highlights of a review include: A client and policy summary providing a current in force snapshot of existing coverage and how it is projected to perform in the near future based on information provided by the insurance company. A review of the structure if policy ownership, beneficiary and payment methods relative to the client objectives. Evaluation of underwriting class on the original policy. An assessment of possible rate class improvements How changes in interest rates, cost of insurance and any combination of these variables may affect future policy performance. An evaluation of the financial strength of the insurance carrier. An objective evaluation on whether there is a more cost effective and reliable way to help the client obtain his/her current and future objectives. Considerations Before Replacing a Life Insurance Policy Although the Internal Revenue Service generally allows the replacement of a life insurance policy on a tax free basis, there are some important reasons to keep an existing life insurance contract including: Adverse Health Changes Tax Consequences (especially for pre 1988 policies) New Contestable Period and Suicide Period o An insurance company may contest a death claim on a policy within the first two years of the policy and can deny a claim for suicide within the first two years. Existing Loans o Some policies offer favorable loan interest rates or zero spread loans after a policy has been in force for a period of time. o There may be limits on transferring existing loans to a new policy. New Acquisition Costs o New life insurance contracts contain sales charges and acquisition costs that must be recouped. Older policies may have already absorbed these charges. Guaranteed Crediting Rates o There may be higher guaranteed minimum interest crediting rate on an older policy.

6 Other Considerations When did you and your attorney last review your wills, trusts and power of attorney documents? Do you need to review and update ownership or beneficiary arrangements for life insurance? If you own a closely held business, when was the last time you reviewed your succession plan and buy/sell strategy? How often do you estimate your estate liquidity needs for final expenses, legal, probate costs, federal and state taxes, loan repayment and family income needs? Policy Types What type of life insurance policy is best? It really depends on your needs and the more you try to understand the different insurance contracts the more you ll recognize that you really get what you pay for. Insurance can be broken down into two main categories: term and permanent. Term Insurance is the most easy to understand and is generally the least expensive (in the short term) and least complicated type of life insurance. Coverage is typically provided for a specific term from 1, 5, 10, 15, 20 years or even longer. The premium may be guaranteed for the full term period or may increase over time. Coverage may cease if the insured is still alive at the end of the term period. One variant of term insurance is return of premium term which cost more at the outset but does return a percentage of the premiums paid (up to 100%) over a period of time. Permanent Insurance. Assumingthat an individual has a permanentneed for life insurance permanent insurance will usually be the best solution. While different companies may offer a variety of riders to the base insurance contracts providing additional benefits such as coverage for terminal, chronic or critical illness, the most important decision you will need to make is deciding which underlying permanent policy chassis fits your needs.

7 Policy Inventory # Insurance Company Type Policy # Policy Date Owner Beneficiary Death Benefit Cash Value Annual Premium Cost Basis Loan

8 Client & Policy Summary Current Insurance Carrier Product Death Benefit Surrender Value Current Annual Premium Loan Balance Policy Date Policy Owner Beneficiary

9 Summary Comparison Objective: Carrier Annual Premium Death Benefit Years Guaranteed Underwriting Rate Class Company Ratings AM Best S & P Moody s TheStreet.com Comdex Weiss ALIRT Comments: This report is for informational purposes only. You should consult your professional advisors for tax, legal or accounting services. Please refer to company furnished illustrations for complete details.

10 Summary of Alternatives All known rate class factors are considered and applied to many of the current products offered by over twenty five life insurance companies. The top five products are listed for companies that possess financial ratings similar to the existing life insurance company. Objective: Rank Company Name Rate Death Benefit 1 Premium AM Best Comdex Guaranteed # of yrs/age Objective: Rank Company Name Rate Death Benefit 1 Premium AM Best Comdex Guaranteed # of yrs/age

11 Conclusions Based on the inforce illustration from the existing insurance carrier: Policyis projectedto lapse at at current expenses and current interest rates. Policywill lapse at at guaranteed expenses and guaranteed interest rates. What to do Next Consult with the insurance agent regarding the results of the review and address the following: o Review and update financial planning objectives. o Determine if the existing policy should be maintained. If an alternative solution is appropriate: o Work with the insurance agent to complete necessary paperwork. o Schedule medical examination and assist in gathering medical records. This report is for informational purposes only. You should consult your professional advisors for tax, legal or accounting services. Please refer to company furnished illustrations for complete details.

12 Disclosure This agency does not provide tax or legal advice. Clients should consult with tax and legal professions on these matters. All guarantees are based on the claims paying ability of the insurance company. All examples are hypothetical illustrations and do not depict a particular investment or policy. The numbers are not guaranteed to be accurate and should only be looked at as hypothetical illustrations. Client should refer to full company illustrations for accurate illustrated rates. Before a client considers exchanging one life insurance contract for another all aspects of the exchange should be considered, including but not limited to costs, guaranteed interest rates, surrender charges cash value charges, insurance charges, possible insured ratings changes and different features and benefits. All illustrative values should be considered supplemental illustrations and must be read in conjunction with the basic illustrations. This is a supplemental ledger and is not valid without being accompanied by a complete basic illustration reflecting all policy values including guaranteed values. This is a supplemental illustration based on insurance company policy illustrations. Neither this supplemental illustration, nor the insurance company policy illustration upon which this supplemental illustration is based, constitutes a contract. In the event of a discrepancy among this supplemental illustration, the insurance company policy illustration, ant the insurance policy, the insurance policy shall be considered correct. Life insurance Is Not a Deposit of Any Bank Is Not FDIC Insured Is Not Insured by Any Federal Government Agency Is Not Guaranteed by Any Bank or Savings Association Variable Life May Go Down in Value.