FACT: Statistics show that nearly 70% of life insurance policies can be improved!
Case History 1 - The Story
Recently I was approached by a 59 year old physician; let's call him Dr. H & his wife. They have been very successful professionals and asked me to help them locate suitable long-term care policies for them, which I did.
Dr. H was incredibly astute and understood absolutely everything I said to him. During one of our many conversations, I queried him on his current life insurance policies. He assumed that his policies were in good order; however, based on this brief conversation, I knew there were potential issues forthcoming for him. As it turns he has two policies and his wife, one.
Although he obliged me in talking about them, he assumed my services in reviewing them would be futile. He trusted me based on my thoroughness and honesty, even though we had not yet met in person at that point. He also had nothing to lose, and was interested in whether or not I could actually help him improve upon his current insurance program.
He had purchased these policies back in the 1990s and, since his agent had long left the business, he had not had an agent review them for many years. Unfortunately, the company did not send another, replacement agent out to see him and update him on status. Yes, he received annual statements from the company; however, most people just file them without really knowing what is happening until its too late.
With a $1,000,000 death benefit, the premiums on his insurance policies totaled ~$6,100 per year. When he described them to me, I knew there was most likely an issue based on two factors: firstly, his cash values were interest-sensitive, & secondly , I sensed that he was only paying the target premiums assigned at policy inception and that the policies would eventually become underfunded and problematic down the road. (Sorry, I know this is insurance speak; however, there is no direct translation.)
I requested in force illustrations from his current insurance carrier, with his written approval. When they arrived, it was clear that unless the interest rate environment increased and/or he increased his premiums, his policies would run out of protection at age 75 & 79 respectively on the current assumption side and at age 69 & 66 on the guaranteed side. This was a problem–he could very well outlive these policies! Yes, this was disturbing news to him to realize that he may indeed loose his coverage completely if he didn’t react. Losing the protection he wanted for his wife and children, not to mention all the premiums he had already paid in, would make anyone uncomfortable.
Most people feel that as long as they pay the timely, requested premiums, there will be no future issues… Clearly not always the case.
Now, if he keeps doing what he is doing, and pays his current premiums to his age of 75, his premiums will most likely need to go way, way up or his death benefit will go way, way down or, worse yet, his coverage may run completely out.
I also had the insurance carrier run several alternate illustrations to determine how much premium would need to be paid to keep them I force for life from today. These premiums totaled just over $16,000/year and this was still not guaranteed, but assumed. For a guarantee, it would obviously cost much, much more. So, the ~$6000/year he was paying would now need to be ~$16,000 to have a reasonable chance of continuing his protection to age 100!
Conversely, when I ran competitive quotes on the open market for potential replacement policies, we discovered that many companies would offer a $1 mil policy for a much more reasonable premium of ~$9000/year (assuming he 1035 exchanged the cash from his current policies and placed it in the new one.)
This assumed that he qualified for the same rate class at which the original policies were issued. Unfortunately, the new policy was issued at a slightly higher rate class (standard plus) and the new premiums came in at ~$12,000/year.
The good news was that he could have a guaranteed death benefit for much less than he would pay with his current policy. The bad news was that it would cost him near double what he was currently paying. My suggestion to him was to determine how much insurance he really wants to have, for how long, and what his premium tolerance was. We could blend some term insurance with a guaranteed permanent plan to achieve both his premium and benefit objectives.
The moral of the story: Have a competent, experienced life insurance agent review your policies. This is why insurance companies protect themselves by stating right on their policies: You should periodically review your life insurance policies.