Our thanks to Matthew L. Severs and Philip E. Harriman for permission to reprint the article written in Journal of Practical Estate Planning April/May 2009; “A New Take on Prudence: The Role of Trustees in Life Insurance in a Changing Environment.”

Matthew L. Severs is a Senior Consultant at ValMark Securities, Inc., specializing in life insurance case design and estate planning concepts. Through ValMark, he has had the opportunity to work with some of the most distinguished planners and financial advisors in the country.

Philip E. Harriman has worked with family-held and non profit businesses in the areas of retirement planning, business continuation arrangements and estate planning for 30 years.

TIA E-News: A New Take on Prudence

Prudence is defined as “careful in managing resources so as to provide for the future.” Clients seek prudent advisors. When defining who is a prudent advisor, one needs to start with the Uniform Prudent Investor Act (UPIA) which has been adopted in some form or fashion in 44 states. UPIA requires trustees to have a prudent process that they follow for “diversification of trust assets, and for the evaluation for risks associated with those assets. Those who do not do this are undoubtedly leaving themselves open to litigation.” We have already seen the Cochran v. KeyBank case where a prudent process (even if “less than perfect”) and outside, independent entity with no policy to sell or any other financial stake in the outcome, was heavily weighed in judication of the case.

Past e-newletters alluded to the new insurance environment in Severs’ and Harriman’s article in which accuracy and transparency problems will be further regulated. “Rating agencies will be repositioned as one piece of a proper risk evaluation. A shift of reliance from rating agencies toward independent analysis on the part of advisors will result. This independent analysis should be considered part of the duties and responsibilities of a trustee managing a life insurance trust.” You cannot rely on rating agencies data as your sole source of due diligence. THEInsuranceAdvisor.COM’s Confidential Policy Evaluator (CPE) uses 5 factors of suitability; only one factor of the 5 factors of suitability is Financial Strength and Claims-Paying Ability.

Severs and Harriman prudently advise trustees to “take a fresh assessment of the life insurance they are managing. The matrix of possibilities between policy performance on a “guaranteed” and “current” projections proves that what the trustee and grantor assume are occurring and what is actually happening are likely to be different. Indeed many trustees will discover that without proper policy management the policy may lapse. As a fiduciary, the trustee needs to document that she/he has delivered due care of the policy for the beneficiary.” Click Here to read more of the article.

With THEInsuranceAdvisor.COM when you have a CPE report, you receive a FINRA compliant, accepted by the American Institute of Certified Public Accountants (AICPA), endorsed by the New York Bankers Association (NYBA),  professional document that you can put in your (client’s) file to show that you have exercised due care of your (client’s) life insurance policy. A CPE report is the best evidence of due care and process to help limit exposure to professional liability and future error and omission claims.

THEInsuranceAdvisor.COM provides the empirical pricing and performance research essential to any complete investigation of life insurance policy suitability (as defined by FINRA and/or the Prudent Investor Act) and which can then lead to independent and objective suitability determinations.  While due care is an emerging field, and while there is room for a difference of opinion in some areas, THEInsuranceAdvisor.COM goes well beyond overly-simplified comparisons of comingled and hypothetical policy values to better protect and/or compete against other misleading Policy Review systems or services.

Use the Confidential Policy Evaluator (CPE) Research Reports to determine the appropriateness of pricing, the reasonableness of performance expectations for invested assets underlying policy cash values, and overall suitability for you(r) clients' policies based on the 5 factors of suitability.  Click here and get up to 3 Confidential Policy Evaluator (CPE) research reports under our NO-RISK trial subscription.