LIFE INSURANCE POLICY REVIEW - Minimizing Policy Risk

Review of trust owned life insurance policy performance has shown repeatedly that over one third of the policies in institutional trust portfolios pose serious risk of lapse to the fiduciary or policy owner and to the beneficiary. There is every reason to think that the risk of policy problems may be even greater for policies held outside the arena of institutional trusts - in policies owned by individuals, corporations, and non-profit organizations.

Why is policy risk so great?

• Life insurance remains an essential asset for individuals, businesses, and non-profit organizations, but it has become one of the most complex of all financial assets.
• Policy owners and their advisors tend not think of life insurance as an asset that must be managed with the regular review process and attention to performance which routinely applies to other important assets such as a stock portfolio.
• Most policy owners and fiduciaries never formulate an investment policy statement on how to manage their life insurance assets.
• Policy owners tend to think that regular premium payments are sufficient to keep policies in force, but policy projections in the carrier's illustration - especially for larger, more complex policies - can change over time in response to market conditions. The result can be policies which are significantly underfunded.
• The ensuing risks include: large premium increases, loss of cash value or death benefit, and policy cancellation.
• Most policy owners do not have the expertise for proper evaluation of policy performance.
• Most financial advisors - estate planning attorneys, CPAs - also do not have the time or knowledge to manage policies properly and are not in a position to offer advice in an area outside their core competency.