Dear Joe,
" Thanks Again. When we had opportunity to review a large ILIT this year, VMG swung into action. You answered my questions, took a proactive approach and presented me with an outstanding review that helped close the case. I'm glad I chose to work with VMG."
Robert Shiner
President, Austin Manning, Inc.
Not only do life circumstances change, but so do the external factors affecting life insurance coverage including, but not limited to, crediting rates, performance of sub accounts, and premium schedules. In recent years, life insurance rates have fallen, performance of policies tied to the market have collapsed, new products have come to market and creative methods for funding a policy have come about. If the policy was first purchased at a time when interest rates were high, it is likely that the initial illustration assumed a relatively high interest rate for the life of the policy. In recent years, interest crediting rates (on universal life) or participating life dividends have been lower. Similarly, the market downturns have affected performance of some variable life policies. Even small variations from the initial policy illustration will cause a difference over time and the possibility of a policy lapsing.
To maximize the value of the investment, a Life Insurance Audit (also known as a Policy Review) should be performed every 24 months to makes sure that the policy is still suitable, competitive and performing to expectation. This will assure that the ILIT will accomplish what it was set up to do.
Our Policy Review involves an in-depth review of several key components and is separated into four areas. This process will give you the information needed to make an educated decision to either retain the current coverage as is or consider making a change to betters suit the grantor and beneficiaries’ needs.
- 1. Current Summary and Overview
- Cursory Analysis – First we must establish if the policy is still suitable for the current estate plan as circumstances are constantly changing in clients’ lives as well as applicable tax law. This will analyze the current death benefit, owner, beneficiaries, policy loans and other characteristics of the policy.
- Underwriting Assessment – We examine the policy rating when obtained and whether or not this was indeed accurate and negotiated well during the initial underwriting process. We also assess if the insured has made positive lifestyle or health changes or advances in medical underwriting allow us room to renegotiate the insured’s health in their favor.
- 2. Comprehensive Review
- Lapse Analysis – Unbeknownst to many clients, their policy may eventually lapse due to poor policy performance leaving the client with a sizeable premium increase. It is important to analyze the crediting rates (both guaranteed and non-guaranteed) and their impact on cash values in order to prevent this unexpected sum coming due from the carrier.
- Cost/Fees Analysis – Many policies have excessive fees that need to be compared against industry benchmarks. These fees include loads, surrender charges, mortality/expense charges, subaccount management fees (variable) and other possibly hidden management fees.
- Performance Analysis – During this process we look at the relationship between the policy’s cash values, fees and crediting rates. For variable policies, we also look at the subaccount performance and choices. For whole life, we look at interest crediting rates and dividend payments and how this affects the policy. Ultimately, we compare the contract against two benchmarks to ensure the policy is performing to level of the clients’ current needs.
- 3. Carrier Strength Comparison
- Carrier Stability Analysis – with hundreds of carriers in the marketplace, we provide an assessment of the carrier’s financial stability using ratings from Moody’s, S&P, The Street, Fitch, The Street and most importantly Comdex which provides an overall average rating by using all other available ratings. We also provide an objective view of the financials and underlying exposure. Lastly, we look at anything in the news that should be of interest or concern.
- 4. Conclusion and Recommendation
- After the above steps have been thoroughly examined, we provide a conclusion of all findings and a recommendation based on the review process. Our ultimate goal is to assist and ensure the trustees of Trust Owned Life Insurance have complied with UPIA standard and make it easy to fulfill fiduciary responsibilities as well as assist clients in meeting the long term financial objectives. To that end, we will recommend whether or not we feel the policy is in a stable condition and needs no adjustment or that there are concerns that need to be addressed and a change should be made.
In summary, we will outline several key points that may need attention including outstanding loans, carrier strength, funding, performance and guarantees. Our review will cover the three basic trustee duties as defined by the UPIA which are 1) monitoring, 2) identifying problem areas and 3) recommendation.
- Also, please consider the following advantages to using VMG Insurance Advisory Services for your Policy Review needs:
- The review is accepted by the American Institute of CPAs (AICPA) for independent client representation.
- These research reports are compliant with the Financial Industry Regulatory Authority (FINRA) for use with all types of life insurance contracts.
- This comprehensive review is also endorsed by the New York Bankers Association (NYBA) for Uniform Prudent Investor Act (UPIA) compliance.
- We take the worry and liability off the trustee.
