FACT: Statistics show that nearly 70% of life insurance policies can be improved!
Case History 2 - The Story
I called Mr. M one day (a 55 year old lawyer from NY) to review his policy, although I was not his current agent–he was an orphaned policyholder. (This is a policyholder whose agent had left the business and who was now assigned to another agent... in this case, me.) Yes, I was his new agent, although he had never heard of or met me.
He had several policies, and he was having trouble with one of them. It had a $900,000 death benefit with an annual premium of $3500 that he had been paying on for many years. His most recent bill, however, requested he pay $14,000 to keep his coverage in force.
I immediately requested information from his company on his behalf, which took a few weeks to arrive. We also placed a call to his company to be certain his coverage would remain in force for the time being.
When the documentation arrived, the issues were quite apparent. The interest rates credited to his cash values had dropped to the minimum guaranteed level of 3%, depleting the cash values to extremely low levels. He was going to lose his insurance unless he increased his premiums significantly.
According to his insurance carrier, the alternative was to continue paying his current $3500 premium and experience a serious reduction in coverage soon. Within 5 years, his coverage was projected to drop to between $206,000 & $251,000 (depending on interest rates), and in 10 years, the death benefit would drop to between $130,000 & $159,000. Not nearly enough for his family's needs and expectations.
Yes, he had a serious problem. Being divorced with children, he was also required to continue carrying this $900,000 death benefit as stated in his divorce decree.
The good news was that he was still in excellent health and this provided good opportunities on the open market. I queried dozens of companies looking for alternatives with the goal of retaining both his $900,000 death benefit and his current premium of $3500/year.
Because he had very little cash value in his policy, meeting the above criteria was challenging; however, we did eventually accomplish this by purchasing a $200,000 guaranteed universal life policy and adding a $1,100,000 20 year term policy. This configuration was very comfortable for him as it maintained his current premium tolerance, increased his coverage to remain in force far beyond his divorce obligation, and assured him that if he continued to pay the $200,000 policy premium of $2800/year, this coverage would remain in force, guaranteed to age 120.
Does it always work out this smoothly? No. Did this happen over the course of an afternoon? No. It took a few months to finalize everything… Absolutely normal protocol.
It is critical to review your life insurance periodically with a competent, experienced agent. Had this been provided years earlier, he would have saved thousands of dollars.