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Avoid Severely Reduced Benefits or Possible Termination
It may be time to review your life insurance policies. Over the last 20 years, premiums for various forms of whole life insurance policies have gone down. In addition, there are many existing life insurance policies which have benefits that are dependent upon both the investment of premiums and achieving specified rates of return which have not been met. The result of insufficient investment performance or the failure to meet required rates of return is that the policies either terminate or have severely reduced death benefits.
Compare the facts of today to the facts that were present when many in-force policies were written:
- Many life insurance companies are now publicly held. In order to impress Wall Street on a quarterly basis, insurance companies need to show ever-increasing amounts of insurance in force.
- Life expectancies are now longer. People are not only living longer, but life insurance life expectancy assumptions are now based on true life expectancy as opposed to artificially low life expectancy. Because of longer life expectancies, people will pay premiums over a longer period. Life insurance companies used to write policies to age 90 and then 100 and now write to as many as 120 years of age. These factors result in lower annual premiums.
- There is more information on diseases and treatments. Compared to underwriting criteria at the time many in-force policies were written, insurance companies now have good data on the life expectancy of people with bypass procedures, strokes, heart attacks, cancers, high blood pressure, tobacco use and many other severe health conditions. The current life expectancy of people with these conditions is often significantly longer than the assumptions made when existing policies were written.
What do these facts mean? First, it means that owners of policies are oftentimes able to exchange existing policies for new policies with the same death benefit at materially lower premiums. It also means that it is possible to salvage policies that are about to terminate because of not meeting investment rates of return. Further, it is incumbent upon trustees to have policies owned by trusts reviewed. If it were to be determined later that the same coverage could have been obtained materially cheaper, or if policies are allowed to terminate when they could have been salvaged, the trustees may be at serious risk.
We Can Help.
If you need advice on this issue, please contact a member of Maslon's Estate Planning Group for assistance.
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