Some Sample Cases Illustrating the
Value of Expert, Fee-Only Advice
- Permanent insurance in danger of lapse before insureds’
second death; policies replaced
had purchased $6 million of second-to-die coverage 5 years
previously from a relatively obscure company that had
recently demutualized and that had experienced a downgrade
in its financial strength ratings. Policies consisted
of an equal combination of whole life and term insurance.
ledgers of existing policies showed death benefit lasting
indefinitely. However, Life Insurance Advisors
(LIAs) independent analysis using proprietary
software showed a strong likelihood that at least half
of the insurance, and perhaps all of it, would lapse
if the survivor of the client couple lived a long time.
This is one of the everyday examples in LIAs experience
where a companys own projections have proven unreliable
and overly optimistic. This experience forms the basis
for LIAs opinion that policy reviews require an
objective analysis that does not depend solely on illustrations
and projections from the carrier in question.
clients were able to switch coverage to a top-rated
company with a consistent history of producing highly
competitive returns on whole life policies. Because
the replacement policy was structured with the lowest
possible commission, the cash value of the new policy
exceeded the new premium outlay by the second year.
Permanent insurance in danger; death
benefit reduced to save policy
referred by attorney, had purchased three $2 million
dollar second-to-die policies for which they were paying
almost $250,000 annually. These policies were a combination
of whole life and term insurance and were designed to
purchase the most permanent death benefit
for the least premium. Once again, an independent review
indicated a substantial risk that the policies would
not last as long as the survivor of the two insureds
might live, even though they were in relatively poor
health. In spite of these health issues, an agent had
proposed new policies with $225,000 of commissions.
An analysis of this proposal suggested no realistic
chance that the replacement policies, even if approved,
would surpass the performance of existing policies.
The large commissions would clearly preclude any possibility
of such an outcome.
Insurance Advisors worked with the existing insurer,
obtaining and analyzing numerous alternative illustrations,
to repair and preserve the existing policies. LIA determined
the amount by which the term insurance portion of the
existing policies should be reduced to increase, to
an acceptably high level, the odds that the policies
would last for as long as one of the insureds would
Recommendation to save over $2 million
in commissions on new insurance
referred by fee-only financial advisor, was interested
in purchasing a very large insurance policy ($4 million
of premiums in two years) on his wife through his profit-sharing
plan. He then planned to sell this policy to an irrevocable
trust for a very low cash surrender value, a fraction
of the premiums paid by the plan trustee.
Insurance Advisors raised some of the possible legal
problems with such a plan from a policy valuation and
ERISA compliance standpoint. Client was satisfied with
the legal advice he had already received on these points.
LIA pointed out that the very low cash surrender value
of the policy after $4 million in premium payments resulted
from unusually high commission payments for such a policy.
LIA contacted the insurer in question and determined
that it would be possible with this insurer to buy such
a policy with a rebated commission in California (the
clients home state). LIA suggested that the client,
if he was prepared to incur the legal risks of such
a plan, pursue it on a commission rebate basis, resulting
in more than $2 million in additional funds within his
profit-sharing plan after the purchase of the policy
than if he had proceeded according to his original plan
that he discussed with LIA.
Alternative company, policy design, and premium structure reduces commissions by 88%; increases cash value and death benefit rate of return by 77% and 59 %; adds over $6 million to death benefit.
referred by fee-only financial advisor, had been shown
an illustration for a $6.9 million policy from a company
with a well-recognized name. LIA was asked whether the
proposed policy offered the best possible company, policy
type, cost, and risk-adjusted return.
recommended a different company with higher financial
strength ratings and a better historic rate of return
on its policies than the company in the original illustration.
LIA also suggested a policy type and premium structure
that substantially reduced commissions and increased
cash value and death benefits by millions of dollars.
For a policy with the same premium, death benefit, and
underlying investments as the client had been shown,
LIAs recommendation produced the following superior
- Reduced the first-year agent commissions by over
88%, from $155,000 to $18,000 in comparison with
those in the illustration the client had been shown.
- Increased the first-year cash value from 0 to
- Increased the cash value at the insureds
age 85 from $7,657,000 to $13,556,000, or by 77%.
- Increased the death benefit at the insureds
age 85 from $10,404,000 to $16,499,000, or by 59%,
Insurer restores original $1 million
policy that was about to terminate
referred by attorney, had purchased a variable life
policy that had been sold with a vanishing premium
illustration. Subsequent to the purchase, the agent
had indicated that client did not need to make certain
premium payments and that the sales illustration was
conservative in comparison with what the policy would
provided analysis showing abnormally low rate of return
for premiums that had been paid on this policy and
reviewed file and history of case to uncover facts
and arguments that helped the lawyer negotiate a highly
favorable settlement with insurer. As a result, the
policy that had been on the verge of lapsing and that
the client had been inclined to surrender was restored
to its previously illustrated value. The insurer guaranteed
the permanent original death benefit of $1 million
with a continuation of the original premium payments.
Client negotiates additional benefit
for value of split dollar policy cost
referred by attorney, sought help in calculating the
current and future value of his interest in a split
dollar policy. Client was considering an early retirement
but wanted to maximize his benefit under the split
reviewed plan details and calculated the possible benefits
to client and future costs to the employer under various
possible alternatives and in light of new IRS regulations
governing split dollar plans. LIAs independent
spreadsheet analyses helped to persuade employer to
offer client an additional severance benefit equal to
the future cost of the split dollar plan for client
that the employer would avoid as the result of clients
of Services for Term Insurance Review
of Services for a Basic Performance Review of Existing Permanent