(866) 942-4181

(866) 942-4181

Life Insurance and Estate Planning

As financial professionals, many of you are aware of the trend in interest rates over the past decade. However, the issues surrounding life insurance policy performance in the low interest and volatile investment climate may not be on the forefront of your mind. The simple fact is that a good portion of life insurance policies sold in the last two decades have not performed as expected. At the same time lower mortality charges and more efficient chassis design have created a new generation of life insurance policies that can, in some situations, provide greater value for trust beneficiaries.

A life insurance policy is a complex financial instrument subject to the same types of economic fluctuations that affect mortgage interest rates or CD rates. Over the course of the last 20 years the interest rates on fixed life insurance policies have dropped continuously. For example, 20 years ago, the current interest rate on a universal life policy was almost 12%; the current rate now is under 5%.

Many trustees are learning the negative effects of underperforming policies much later than they should. The primary reason for this is because the life insurance policy has not been reviewed on a regular basis. This is not surprising because a majority of the underlying policies found in life insurance trusts are managed by a non-professional trustee (often a family member or friend). Without proper knowledge or resources, a complicated asset like life insurance policies managed by a non-professional trustee will often under-perform and not reach their expected goals. This often requires a large increase in premium funding in the later years to prevent the policy from lapsing. This can be avoided. In fact, our back office prevented policy lapses and/or increased policy effectiveness 504 times in 2007.

Advisor Insurance Resource provides two levels of service for reviewing trust owned life insurance (TOLI) policies. The first is a policy evaluation of current cash values, interest rates, surrender charges and projected performance. This allows us to assure the policy is on track to reach its intended goal. We also evaluate the market place to determine if the current policy is still a good value. We will report our findings to you so you can decide with the client what action to take. This is our Policy Enhancement Program (“PEP”), which is a complementary service to all fee-only financial advisors.

The second level of service is provided in conjunction with Insurance Trust Monitor (“ITM”). While the objective of this service is the same as the PEP program, the documentation is much more detailed. This review process allows trustees to meet their fiduciary responsibilities under the Uniform Prudent Investor Act (UPIA) by placing a detailed and professional report directly in the client’s file. This is our TOLI Simplified service. ITM charges $200 for this service. Again, if changes are needed, we will assist in every step of the way.

There is a section on our website (www.advisorinsuranceresource.com) dedicated to trust owned life insurance that offers a Q&A’s for trustees and advisors, trustee guide, process flow chart, evaluation authorization form and a sample ITM report. Please contact us if you have a TOLI situation you would like to discuss.