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Life Insurance Professional Analysis and Review
Presented By:
Matt Woodson
Zenith Marketing Group, Inc.
Charlotte, NC
Is your client’s insurance up to P.A.R?
To ensure that all clients have the best possible life insurance solutions
available.
Paramount Principle
Purpose
• Assure that the insurance need hasn’t changed• Uncover changes in underwriting status, good or
bad• Review policy performance• Review policy provisions• Review beneficiary status• Review loan status (if appropriate)
Who Needs A Review?
Personal Clients
• Younger and Middle-Aged Clients Changing Family Needs Supplemental Income, make insurance
permanent
• Older Clients Need to keep policies in-force Estate Planning and TOLI
Who Needs A Review?Business Clients• Benefits – need to support promises
Deferred Comp.Sec. 162 Bonus PlansSERP
• Business Continuation and Key PersonMore or Less OwnersOwnership Properly Structured?Buy-Out PossibilitiesBusiness Properly Valued?
Who Needs A Review?
Trust Owned Life Insurance (TOLI) Survey
• Professional Trustees83.5% - No Procedures or Guidelines for TOLI95.3% - No Procedures for Variable Life Policies
• Family and Friends as Trustees94.7% - No Procedures for Variable Life Policies71.2% - Have not reviewed Life Policies in past 5
years.
Survey published in Trusts & Estates magazine, May 2003, page 63.
Who Needs A Review?
Code of Federal Regulations Title 12 Sec. 9.6
• Mandates requirements for National Banks dealing with Trust Assets, including Life Insurance.
• ReviewsPre-Acceptance, Post Acceptance, Ongoing
Annual
Some Policies May be in Danger of Lapsing Because:
Low interest rate environment/ low interest crediting rate
Lower than anticipated investment performance (VUL)
review subaccount allocations Increased Cost of Insurance
More premium may be needed to fulfill the original goal.
Issues You May Uncover
Some Policies May be in Danger of Lapsing Because:
Reduction in Dividend Rates (WLP) Increasing Premium (Term) Policy Loans Excessive Withdrawals Skipped Premium Payments
More premium may be needed to fulfill the original goal
Issues You May Uncover
If Under-Funded…
Possible Solutions Increase the future premiums to make up for
the shortfall. Improve underwriting class, if eligible Drop unnecessary riders Decrease face if need has decreased
Problems With These Solutions
Clients may not want to pay more Increased premiums to ILIT’s may create
taxable gifts Reluctance to contribute to policy in
economic environment of low interest rates (UL) or low subaccount growth (VUL)
If Under-Funded…
Problems With These Solutions
If policy has existing loan and client making further loans to make premium and interest payments, problem only becomes worse
Need for current level of insurance remains Desired changes may not be available nor
meet planning objectives
If Under-Funded…
Potential Solutions
Reasons to Keep Current Policy
Surrender of an existing policy may incur a surrender charge; purchase of a new policy would impose yet another surrender schedule
Need for life insurance is temporary Higher guaranteed minimum interest crediting
rates may not be available
Reasons to Keep Current Policy
Adverse health change New contestable and suicide periods Limits on transferring loans Tax consequences Tax benefits issues New acquisition costs
Potential Solutions
Reasons to Consider Exchange or Replacement Company strength – has the existing Insurer had significant recent drops in ratings Extended maturity
Available since @ 1999 New benefits/riders may not be available on older
plans Term insurance getting expensive and need
continues
Potential Solutions
Why a Review?
Secondary No-Lapse Guarantees
Extended Maturity Riders & features
Long Term Care Critical illness
coverage Return of Premium
Estate Tax Repeal Riders/Options
Pref. Plus Underwriting Classes
Policy Loan Provisions
Improved Loan Rates– Zero Net Cost Loans
Policy Options/Benefits Not Previously Available
Re-evaluation of Underwriting
More history since health occurrence Improved health, lost weight, healthier lifestyle Change in smoking status Do they qualify for one of the new, improved
underwriting classes available today? Table Shave Programs (what’s left)
Change in avocation status More experience (Example: pilots, divers) Age of traffic violations
Why a Review?
Why Review Now?• Reinsurance – The 800lb. Gorilla
8 Major Reinsurers left in the North American market.
Less Reinsurers = Less Risk Diversification = Higher Pricing and Stricter Underwriting
Very difficult to get exceptions, especially in Preferred and better categories.
Max capacity @ $125 Million Immediate Effect on Ages 70+
Why Review Now?
• Actuarial Guideline 38Sets higher reserve requirements for
extended guarantee plans.Retro-active to July 1, 2005
• 2001 CSO Mortality RatesExtends premiums beyond age 100Helps offset impact of AG38Especially helpful for lower ages
Potential Solutions
Case Study – Loan Rescue
Situation:
Age 50 Male, Preferred Non-Smoker, has $250k face policy (non-guaranteed), paying $2,475/yr, cash value of $40,000, with $20k of loan against the cash value.
Wants to get rid of loan and maintain the $250,000 face on a guaranteed basis.
Potential Solutions
Case Study – Loan Rescue
Solution:• 1035 Exch. Cash and loan into new policy with
face of $273,000• Take withdrawal in year 2 to pay off loan and
loan interest• Nets a guaranteed death benefit of $250,000
with new premium of $2,000/yr.
Jumbo Loan Rollover
• Male, Age 66, SNT, $75M face policy, $25M CV– $12.5M outstanding loan– Policy reprojections show lapse within 5 years
on current factors– Goals: avoid “phantom income” and maintain
net level db of $62.5M• 1035 in Legend 300LR – no loan repayment
Case Study
Jumbo Loan Rollover
Results– Maintained guaranteed net level db of $62.5– No phantom income with guaranteed db!
• Annual Cash outlay to keep guaranteed level death benefit at $62.5M ($75M - $12.5M) = $855,255
• Paid as primarily loan interest ($687,500) + premium $167,755 in years 1-20
Case Study
Potential SolutionsLeveraging Strategies
• Putting Turbo in the 1035Exchange to SPIAOther options:
Installment Refund or Cash Refund to protect principal
Age rated if adverse health conditions
Can be paid directly from carrier to carrier
Potential SolutionsLeveraging Strategies
Example: Male, Preferred Non-Smoker age 70 with $250,000 cash value
• Traditional 1035 Exch. Into another life policy produces $722,400 face amount
• 1035 Exch. Into SPIA creates $22,896 gross annual payout, or $20,575 net taxes (at 28%)
• $22,896 purchases $842,948 face amount• $20,575 purchases $757,047 face amount
Potential SolutionsLeveraging Strategies
• Life SettlementsSubmit health records for L.E. projectionGather OffersPlay the GameBe mindful of capacity limitsAt least 6-8 week process
Life Insurance Professional Analysis and Review...
Why offer one?
• Deliver Value → Client satisfaction
• Deliver Value → Client retention
• Deliver Value → More referrals
• Deliver Value → Enhance your professionalism