A New Look at Policy Audits
September 11, 2014 | BY AL STOCKWELL
Hopefully you are all aware of the benefits of looking at your clients’ existing life insurance policies. Reviewing existing policies gives agents a chance to look for opportunities to increase clients’ death benefits, lower their premiums, extend their guarantees, or add living benefits such as long term care (LTC). Audits make a lot of sense, and we continue to see a strong market in this arena. We also see another issue popping up more and more during the review process: possible gaps in coverage that might be overlooked at first glance. Potential problems are often not as obvious as noticing that a policy is only projected to last until age 75 and clients could experience similar adverse financial affects if they are not addressed.
Let’s take a recent case example that we reviewed. Many policies written back in the 1980’s and 1990’s were written with a provision that if the client lives to a certain age, the policy will mature for the cash value. What does this mean in this case? The client was a 71 year-old male in good health and longevity in his family. He had a $1,000,000 policy that matured for the cash value at age 95. During the initial evaluation, the agent commented that the policy looked solid. The death benefit was projected to age 95 on the current side and age 78 on the guaranteed side.
After a review of the in-force ledger, however, we discovered that the $1,000,000 was projected to mature at age 95 with approximately $175,000 of cash value. If the client is lucky enough to live to 95, the policy would only pay him $175,000 and then it would no longer be in force. The $1,000,000 death benefit would be gone, and he would have no option to extend the coverage.
What was the solution? We had to evaluate the client’s concerns for his longevity, in addition to several other factors. In this particular case, the premiums for a new policy were similar to what the client is paying now. While there was no added benefit there, we added the full guarantee and a chronic illness benefit, which are combined, to make the deal work. The agent is now looking at a commission of close to $30,000 when he initially thought the client might want to keep the policy.
This issue shows the importance of auditing even solid-looking policies for potential problems. Some cases are not as cut-and-dry as others. My point is that many agents focus on the obvious enhancements such as lowering premiums and adding benefits, but might miss obscure opportunities for improvement. Abstract issues are not easily identified, and you need to be a little more diligent about looking for them. However, the rewards to both the client and agent make the extra research worth the effort. Call Davis Life & Annuity today and we will be happy to assist you in evaluating the best possible products for your clients.