Case Study in Life Insurance Portfolio Management

Client Challenge

A husband and wife, ages 78 and 77, had a life insurance portfolio that was managed by their Certified Financial Planner (CFP®) that totaled $1 Million in coverage.  This portfolio contained 3 Survivorship Universal Life Policies that were underfunded and would lapse in 16-18 years.  After 11 years, their portfolio objectives changed.  The husband and wife became more conservative investors, and as a result, were seeking a product with lifetime coverage and more guarantees.  They wanted to replace their current coverage with a single policy and to not pay premiums for 15 years, and were willing to start paying premiums again in year 16, if necessary.

The CFP®, acting as their fiduciary, inquired to replace the 3 inefficient policies with 1 universal life product with lifetime coverage, more guarantees and no premiums for 15 years.  The ideal product would have cash values that were sufficient to cover all future Cost of Insurance (COI) charges and other internal expenses based on the fixed account’s guaranteed earnings assumption for 15 years, and then the required premium starting in year 16 would be $22,000 annually for life.  Overall, this would potentially be a savings of $150,000 in premiums that were currently being paid. 

Analysis

Coincidently, the CFP® called a center of influence, an advisor in Tampa, FL who is a subscriber to THEInsuranceadvisor.COM.  The advisor recommended the CFP® to run a Confidential Policy Evaluator (CPE) Research Report to measure the suitability of the in-force policies, and whether they currently met the new portfolio objectives.  Compared to the marketplace, the in-force policies received an average of 4 ½ star rating out of 5 stars.  The half star was for average cost competitiveness compared to the industry benchmarks, but according to the clients’ new portfolio objectives, they wanted a more conservative product with single premium pay and guaranteed death benefit.  Even though these were strong policies, costs could be lowered with a single, more efficient and suitable policy.

The CFP® had the advisor research the market to find the best available rates and terms for their clients assuming their previous health rates.  The search results found a $1 million Guaranteed Survivor Universal Life (SUL) policy.  No further premiums would be required for 15 years, and the clients would the clients would save $150,000 in premium from the new policy over those 15 years, and  having a more conservative product, along with maintaining the same death benefit coverage was the plan design the clients desired, and so they decided to undergo the formal underwriting process.

Solution

The male and female both received preferred underwriting ratings. The clients qualified for a $1 million Survivorship Universal Life policy with a guaranteed death benefit, no market risk in the fixed account, and no further premiums for 15 years. 

The CFP® ran a Confidential Policy Evaluator (CPE) Research Report on the $1 million, and it was rated a 5 out of 5 star policy. This product met the clients’ new portfolio objectives and had the highest star rating available to the client. 

Results

CFP® fulfilled fiduciary duty – According to the Uniform Prudent Investor Act (UPIA), a fiduciary shall invest and manage trust assets as a prudent investor would, by considering the purpose, terms, requirements and other circumstances of the trust.  By using THEInsuranceAdvisor.COM the CFP® was able to monitor, investigate, and manage the trust holdings through third party research.  By delegating these functions to third party research, the CFP® is not liable for the decisions or actions of the advisor.

Guaranteed Death Benefit - The trustee was not limited with one quote from the incumbent insurance company.  THEInsuranceAdvisor.COM CPE Research Report confirmed the policy was strong, but did not meet the clients’ new portfolio objectives.  The rates and terms in the market revealed the previous policy could be improved upon, and provided the grantors with a potential premium savings of $150,000 by a delaying premiums for 15 years and removal of market risk.

Internal costs were lowered – THEInsuranceAdvisor.COM report on the in-force policy along with the best available rates and terms search revealed internal costs could be improved.  According to Section 7 of the UPIA, in investing and managing trust assets, a trustee may only incur costs that are appropriate and reasonable in relation to the assets, the trust’s purpose, and the skills of the trustee.   The new policy lowered the internal costs for the same death benefit, and the policy will last for the lives of the insureds with no premium for the first 15 years.

Lifetime Duration of Coverage – THEInsuranceAdvisor.COM CPE Research Report presented the opportunity for the client to have the death benefit last for a lifetime in the new policy. The previous coverage lapsed 16-18 years.

Client now has the right policy – Due to a change in the clients’ financial situation, the clients became more conservative and risk averse.  The CPE Research Report helped identify the best policy for the client which was a Guaranteed Survivorship UL with no market risk and $150,000 premium savings in the first 15 years.

Tools Used

THEInsuranceAdvisor.COM and Confidential Policy Evaluator (CPE) Research Reports - to determine the suitability of the given permanent life insurance products for clients based on the 5 factors of overall suitability as they relate to both industry benchmarks and peer-group products.

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 your (client’s) 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.