Insurance Insider:

By Dennis Branconier

For most of us, a life insurance review is not on top of the priority list. However, if you are truly concerned about your financial well being, it Should be. Changes in the marketplace, and possibly in your health and/or financial matters, make a review of your life insurance policy a critical part of your financial picture.

Do you have a life insurance policy that you have owned for more than three years or has your insurance agent gone AWOL? If so, you need to review your life insurance, or hire a professional insurance advisor to help you.

Don’t look the other way. Your life insurance is too important a part of your financial health to ignore.

Why you should review your policy
Here are six reasons you should review your life insurance policy:

1. The cost of life insurance has continually declined.
Life expectancies are increasing and medical care is improving, making new life insurance policies less expensive than earlier products. If you haven’t reviewed your life insurance policy recently, you may be paying too much for your coverage.
2. Many policies are underperforming.
Due to several years of low-interest rates and uneven market performance, many older policies may not be performing as originally intended. The cash value of your policy today may not be what you thought it would be when you bought it. So you may unknowingly be headed toward higher future premiums to make up lost ground or toward a policy that lapses prior to your death.
3. The risk of liability for trustees who hold trust-owned life insurance is now a serious issue.
Although many do not realize the risk, trustees have a legal duty to monitor trust-owned life insurance. Unfortunately 80% of professional trustees indicated they had no formal guidelines in place for handling life insurance.*
4. Substandard health risks are now insurable.
Due to advances in medical care, many conditions such as heart disease, cancer and diabetes may now be considered standard risks. Coverage is now available to individuals who were at one time considered uninsurable.
5. Funding strategies have changed.
Innovative policy designs and funding techniques may be better suited to your financial situation, particularly for the sophisticated client with complex needs.
6. Not all products are created equally.
Special lower-priced products have been created specifically for the high net worth marketplace based on favorable actuarial statistics for this group.

Reviewing your policy(ies) can be daunting at first, but taking the steps outlined below will make it manageable and easily worthwhile.

Why did you purchase your policy in the first place?
First, you need to determine if your coverage is still appropriate based on your current needs. Where do you start? Determine what your original reason for purchasing life insurance was. Typically there are three reasons one would purchase a life insurance policy.

1. To create an estate - If your death would cause an economic hardship for your loved ones, insurance is an essential source of financial security.
2. To preserve an estate - Those with large estates typically arrange for life insurance to help their heirs pay estate taxes and avoid the forced liquidation of assets or business.
3. To protect business value - If your death would create an economic hardship for your business, insurance is purchased to protect fellow shareholders (key person insurance), or to secure a ready market for your share of the business (in conjunction with a buy/sell agreement).

Is the reason you purchased your policy still viable?
If the reason you originally purchased insurance still exists, but your policy is underperforming as described above, you should look at several options. It is important to first attempt to make the most of your existing policy.

First, perhaps you can increase your premium amount or the number of years to pay the premium to make sure the insurance will be sustained as you wish. You could also reduce the face amount (if it will still be sufficient to cover your needs) to reduce or even eliminate the premium requirements. Finally, if you have an improvement in your health situation or have quit smoking or have been advised that your underwriting classification can be upgraded, you may be able to get your policy reissued at a lower cost.

Once you have determined what you can do with your existing policy, it makes sense to compare it to what you can get in a new policy. See exhibit A for more information about what to consider when purchasing life insurance.

Click on Graphic Below to View Chart:

Has the reason you purchased your policy changed?
If the reason you purchased your policy has changed, there are options your can consider.

1. Surrender your policy for its cash value. This would only apply in the case of permanent insurance (such as universal life or whole life). Term insurance does not have a cash value. Make sure that, if you choose this option, you are aware of any tax ramifications.

2. Sell your policy for a value greater than its cash value. This is called life settlement and it is particularly attractive for those 75 years old and above. Basically, your policy is purchased by an institutional third party as a diversified investment asset.

3. Let your policy run for as long as it will last with no future premiums.
4. Make a tax-deductible donation of your policy to your favorite charity.
5. Purchase a new policy that better fits your needs.

Remember the following if you are terminating a policy or getting one reissued:
1. Make sure your new insurance is in force before you terminate your old policy.
2. If you are terminating your policy and not acquiring a new one, be certain you will never need insurance again, as your health may not permit a future issuing.
3. If you have several policies, look at combining them. The combined economies will often yield enhancements such as larger total benefits or smaller total premiums.

Life Insurance -The Big Picture
Remember, life insurance is a tremendous leveraging tool that helps you control what will happen for your beneficiaries financially in the event of your death. Life insurance offers you peace of mind by providing a specified block of money for future delivery, solving a critical problem at precisely the moment the problem occurs.

So the first thing to determine is if you have the right level of coverage to meet your goals. Then, determine if you are paying a reasonable price and have the most relevant product from a highly rated company. If you need to alter your policy, there are several options and potential tax ramifications to be attentive to. As products become more complex, it make sense to speak to an insurance advisor who can counsel you on the proper arrangement, including product, insurance company, payment methods and ownership (see exhibit A).
Finally, keep in mind that insurance is not simply a product, it is a privilege - you can only get it when you don't need it (i.e. your health status will qualify). Thus it is essential that you do whatever you can to have the best opportunity available today.

*Whitelaw and Ries, “managing Trust-Owned Life Insurance Revisited’” Trusts and Estates (April 1999) 38-39.

Dennis Branconier, CLU is Vice President of M Advisory Group in Torrance. For affluent clients and entrepreneurial companies, the firm provides wealth preservation and executive benefit planning, insurance expertise and 401(k) investment advisory services. He is past president of the South Bay Estate Planning Council and active in several local community organizations. Dennis can be reached at (310) 530-5525 or dennis@madvisory.com.

This information has been obtained from sources which we believe to be reliable, but there is no guarantee as to its accuracy. This material is not intended to present an opinion on legal or tax matters. Please consult with your attorney or tax advisor, as applicable.

Securities and advisory services offered through M Holdings Securities, Inc., A Registered Broker/Dealer and Investment Advisor, Member NASD/SIPC. Services provided through Cal-Surance Benefit Plans, Inc. Cal-Surance Benefit Plans, Inc. and M Advisory Group are independently owned and operated.