Where Trustees Have Seen Lawsuits

o Negligence in Maintaining the Life Insurance Policy. Several cases involved accepting gifts but failing to make premium payments.

o Bad Investment Decisions. Several cases involved bad investment judgments, and while beneficiaries did not win all the suits, the tendency to sue on bad decisions has precedent.

o Poor Life Insurance Design or an Improper Policy. There are several cases involving a concept that was once commonly called “vanishing premiums.” In another case, beneficiaries sued because they believed the death benefit purchased was lower than what might have been obtained from another policy design at the same company. This latter case was settled out of court.

o Poor Selection of a Vendor. In keeping with the agent/vendor selection requirements set out by the OCC, here trustees successfully were sued because they knowingly purchased the life insurance from a felon whose life insurance license had been revoked.

Kicker: Providing Assistance

How Agents Can Help Trustees

Among the areas where agents can help trustees are:

o Setting goals and standards regarding trust owned life insurance. This includes:

–Examining existing life insurance policies and comparing these to alternatives. There are several tools available to help you with this work.

–Examining client goals and beneficiary needs.

o Examining policy funding and determining if additional funding is necessary.

This includes considering whether or not a clients gifting capacity is able to support future premium needs.

o Considering life insurance performance:

–Will UL policies or participating whole life policies perform within a reasonable tolerance of the original illustrations or new client goals?

–With VL insurance, do the subaccounts need to be re-examined based on evolving client needs and subaccount performance?


Reproduced from National Underwriter Edition, May 14, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.