Where is the Risk in Your Client’s Insurance Porfolio?

Welcome to the “Danger Zone”

Over 85% of the permanent life insurance sold in America over the past 25 years are in this danger zone.  Many policies are not performing and these policies might die before the insured dies.  These policies represent a risk to your client and should be managed like any other asset.  You wouldn’t neglect a $1.0 million dollar building, why neglect a $1.0 million dollar life insurance policy?

The effectiveness of the policies within the “danger zone” is dictated by more than just the strength of the Insurer.  These policies live and die on market performance, policy cost, interest rate, and numerous other “moving parts”.  The only way to get a handle on these policies, which are at the whim of the forces that control them, is to make sure they are properly managed.

This brings up the question of who do you turn to for the information you need to make an informed decision regarding a policy?  Do you turn to the  insurer whose obligation ceases when a  policy lapses?  The “sell and neglect” life insurance agent?  What about a third party who specializes in evaluating the effectiveness and performance of a policy?

We believe it is prudent to maintain unbiased, analytical, and written proof that the policies in the “danger zone” are managed properly.

The following are some of the most important considerations in forming your own customized Life Insurance Property Management Protocol.

• Style of Policy – consistent with risk tolerance and investment suitability
• Desired death benefit – level or increasing?
• Actuarial funding sufficiency parameters – minimum statistical probability of sustaining (and the age to which funding will be targeted)
• Basis on which life expectancy will be used – personalized or non-personalized
• Sub-account asset allocation – and how often it should/should not be altered
• Source of premiums – and likely consistency
• Threshold of minimum insurer financial strength

Each one of these points require a conversation of their own – and will be.  Stay tuned for more information to come in the next few weeks.

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