Life Insurance Policy Reviews

[JNugent2]

I'm sorry that I wasn't clear on what I'm asking. I did work in an Advanced Markets group. I know what type of questions to ask. The non profit is trying to maximize their overall IRR as the purpose of the non profit is to have more money for their charitable work.

They are trying to determine their if:
1. They should cash the policies in now (and invest) the proceeds to wait.
2. Same as one with maybe buying term instead and investing the difference (in case someone does die prematurely).
3. Replacing the policies with another product
4. Holding the policies.

When I was in an Advanced Markets department, we had a software tool to help us run every scenario and crunch these numbers. It also gave us details on some older policies (such as details of older riders that I am not familiar with). However, the name of the tool was never made available to us. Therefore, I'm trying to see if something similar exists.

Rich - Send me a message with your contact information; There is an easy way to do this review, assuming the necessary data is on hand, without the need for software. We do this work on a regular basis.

 

[Caryn Montague]

Rich-

Most respectfully, you cannot simply apply basic field underwriting principles here to this case. You need the policies, true. But you also need the employment contracts, the buyout or key person contracts, the financials, information on the NFP since the original policies were issued, etc.

It sounds like the policies are beyond the initial underwriting, costs, etc. Starting fresh WILL result in new commissions but what will the clients glean?

May I recommend you partner with a seasoned broker, even one who does this on a fee-for-service basis, who is very skilled in advanced underwriting, corporate, buy-out, key-person, NFP issues and allow him/her to show you the way to handle your options. I am no longer actively engaged in sales or I'd offer to help. (I'll gladly take a question or two, but I'm not seeking the work.) I am still an expert witness in E & O issues; you don't want me on the opposite side of the table.

There is simply no software that will replace skill.

#

 

[Rich38]

There's an app for that. Been around over 35 years too.

HP-12C - Wikipedia

I'm well aware and could do it that way. However, my BD wouldn't allow me to just blindly enter IRR calculations into a spreadsheet based off a calculator.

 

[DHK]

Change BDs. If a B/D prevented me from using my brain and using a CFP/CFA-approved calculator... then that B/D has to go to the curb.

And yes, I'm serious.

Keep in mind that this isn't about investment projections or securities analysis (unless they are variable insurance contracts). This is about fixed insurance and (should not) is not subject to the same regulations as securities.

 

[Rich38]

Rich-

Most respectfully, you cannot simply apply basic field underwriting principles here to this case. You need the policies, true. But you also need the employment contracts, the buyout or key person contracts, the financials, information on the NFP since the original policies were issued, etc.

It sounds like the policies are beyond the initial underwriting, costs, etc. Starting fresh WILL result in new commissions but what will the clients glean?

May I recommend you partner with a seasoned broker, even one who does this on a fee-for-service basis, who is very skilled in advanced underwriting, corporate, buy-out, key-person, NFP issues and allow him/her to show you the way to handle your options. I am no longer actively engaged in sales or I'd offer to help. (I'll gladly take a question or two, but I'm not seeking the work.) I am still an expert witness in E & O issues; you don't want me on the opposite side of the table.

There is simply no software that will replace skill.

#

Caryn, thank you for the input. However, I think you may be confused on what I'm asking. This isn't a case where there are any contracts or buy outs. It's a case where the Charity owns life insurance on individuals who are active donors of the Charity. In some cases, the donors are paying the premium. In others, the Charity is. The Charity doesn't necessarily need cash at this point. However, they don't want to keep paying into polices either that are not performing well (or could get a higher rate of return on their cash outside of the policies). Therefore, they are trying to determine do they cash in now vs. keep paying into the policies and wait until the donor passes. There's multiple donors and multiple types of policies that are owned (whole life, UL, term, etc.) so I'm helping them with going through the whole portfolio one by one.

 

[scagnt83]

Again, Insmark software it will do pretty much everything you have asked about.

 

[Caryn Montague]

Rich- The face amounts of the policies are far more valuable than the cash. There were tax advantages to having these contracts placed. (There were also very high commissions.) Funders also looked to the insurance (face values) as an asset and this could impact funding through grants. Changing how/what is in place may not just impact the NFP but may also impact the donors, and what they continue to donate. If they had the charity named, there may be specific ways in which the monies may be spent.

Good luck. Sounds like an interesting endeavor. Happy new year.

 

[Rich38]

Rich- The face amounts of the policies are far more valuable than the cash. There were tax advantages to having these contracts placed. (There were also very high commissions.) Funders also looked to the insurance (face values) as an asset and this could impact funding through grants. Changing how/what is in place may not just impact the NFP but may also impact the donors, and what they continue to donate. If they had the charity named, there may be specific ways in which the monies may be spent.

Good luck. Sounds like an interesting endeavor. Happy new year.

I agree that the face amounts are always more valuable than the cash when just comparing the two against each other. However, there's always an opportunity cost to the Charity if they are the payor and the insured lives for a long time. Therefore, running an IRR is necessary in my opinion (at least on the policies the Charity is paying for).

You mention that there were tax advantages to having the contracts placed. What tax advantages are you referring to? The Charity is a 501(c)(3). Therefore, from the perspective of the Charity, they always have tax advantages regardless of investment or product. From the perspective of the donor, if I'm not mistaken, if the donor was paying for the policy, they were only to receive a deduction for the premium payments (just like a gift of any other value other than non liquid assets). So what tax advantage are you referring to that they would get that's different than anything else?

You also mentioned about "having the charity named". I'm assuming you're thinking that the donor owns the policy and the charity is the beneficiary. In my situation, this is not the case. The charity is the owner and beneficiary. The donor is the insured (and "sometimes" the payor).