A number of state and federal regulations in recent years have brought an increased focus on carefully matching life insurance and annuity policies with individual client needs, often referred to as “best interest” review.
In-force policies may have been sold with fewer questions asked about client goals and resources, and these also may have shifted over time. It’s a good idea for insurance professionals to evaluate their clients’ and prospects’ older policies to make sure their needs continue to be met.
Changes in the economy and insurance marketplace also call for re-examination. Older policies may have been designed and sold based on interest rate and expense assumptions that no longer hold true, putting the policies in danger of lapsing or failing to meet client goals in the foreseeable future. At the same time, a new generation of life insurance products continues to enter the marketplace with more robust features and benefits, along with competitive death benefit guarantee options.
Consider these key reasons for conducting in-force policy evaluations:
- Clients may be paying more premium than necessary.
- Clients may be able to obtain more value for the same premium.
- Clients may be interested in additional features, like long-term care or chronic illness riders.
- Unintentional policy lapse, particularly from accumulated loans, can cause significant tax liabilities and loss of needed protection for clients.
If you have an existing insurance client base, you should do a periodic inventory of in-force policies that could use re-evaluation. Generally, focus on policies that are older, or at least past (or nearly past) their surrender charge period. Also look for policies with loans on them, regardless of age — these are frequently in most peril of lapsing or needing modification. Also include any clients who you know have had a major life change recently, such as marriage, birth of children, divorce, or death of a family member. Contact these clients and find out who would like to conduct a review.
For clients who are interested in doing a review, it helps to take a step-by-step approach to evaluating in-force insurance policies.
Step 1: Fact-find thoroughly with your clients.
Find out what policies your clients already have (or think they have!), including those purchased from someone else. When were they purchased? Have the clients had any major changes to their life circumstances or goals since that time? Regardless of whether there have been major changes, make sure you understand their present goals and resources. Make sure to ask about the factual information required by New York Regulation 187 for policies issued in New York (and even insurance professionals not operating in New York may find this list to be a useful reference guide).
Step 2: Obtain in-force ledgers for permanent insurance policies.
If you were not the writing agent on these policies, you may need to help the clients with requesting these illustrations, and/or obtain a broker of record change authorization. Also check on the status of term policies and find out when their fixed premiums will expire.