Year End Alert: Don’t Lapse! Don’t Overfund, & Don’t Forget to…

October 7, 2020

On average, every year over $600 Billion* of life insurance death benefit lapses or is surrendered. These lapses can be intended or unintended but in either case the insurance company collected premium on a policy on which they will never need to payout a death benefit. Equally concerning, on average, 69% of life insurance policies have not had a performance review in the past 5 years.** These are policies where an insurance company is likely collecting either too much or too little premium; in either case, the INSURANCE COMPANY WINS!

 

Help your clients take back control:

 

  • Get professional advice on policy management. Buying life insurance is not a one-time event. Policies, like other investment assets, need to be reviewed, maintained, managed, and monitored. A properly managed policy or a portfolio of policies can increase the return on one’s premium investment, and more importantly, decrease the likelihood of a total loss of this asset. See how we help - Ongoing Policy Portfolio Management.

 

  • Do a longevity study. Buying and holding life insurance is about proper planning and not about cutting corners or guessing. There are actuary specialists that review a prospective policy owner’s medical records to provide a life expectancy (“LE”) report. A LE report provides an estimate of how long someone may live based on actuarial tables and one’s medical history. These LE reports provide valuable insight for planning, and how much premium to pay on a policy (among many other factors) by helping advisors to better understand the longevity expectancy of their clients. Click here to learn more.

 

  • Consider Selling the Policy for Cash Today. Policies purchased years ago may no longer fit current needs; tax and estate law changes, sale or acquisition of a business, cash flow needs, personal health changes are just some examples. Many do not know about this alternative to abandoning the policy and allowing it to lapse. A sophisticated market of institutional buyers has developed, and they are paying cash to the policy owner for the policy. Today, is a SELLERS market. See our recent transactions.

 

TDC Life stands ready to help you and your clients get professional expertise on how to properly manage your clients’ portfolios of life insurance. COVID, low interest rates, an election, all can have an impact on the portfolio. Don’t let the insurance company win, call TDC Life today.

 

Real “Life” Case Study

Situation: A client came to us with 5 life insurance policies, $30,000,000 of death benefit on his 89-year-old father. The insurance policies had a planned premium of $1.24M / year. The client planned to pay that premium this year and every year going forward until his dad passed. The client was not getting any professional advice on the policies because the writing agents had retired.

Recommendation: We were engaged to perform a portfolio review which included a longevity study and premium re-projections. Our analysis uncovered that the insured had a 2-year life expectancy and all of the life insurance policies could sustain themselves for more than 2 years without any additional payment of premium. We immediately recommended to suspend premium payments. TDC Life was hired to manage and monitor the policies going forward.

Success: Savings of at least $1.24m in premium and peace of mind around a $30,000,000 family asset. We will advise the family, this year and beyond to ensure the premiums are minimized to maximize the family’s return on their investment.

*Source: Trust and Estates Magazine, Lapse-Based Insurance, Wharton Faculty Platform, D. Gottlieb, 2016 (https://faculty.wharton.upenn.edu/wp-content/uploads/2016/11/Insurance41.pdf).

**Source: Source: Markham Whitelaw, William Reis, “Managing Trust Owned Life Insurance Revisited,” Trust and Estates, April 1, 1999