The critical practice for an advisor: regular portfolio reviews
As a financial advisor you are well aware of the need to manage and review investment portfolios, but you may not understand how important it is to manage and review your clients’ life insurance policies to ensure they are continuing to meet their objectives.
Many Life Insurance Product Features Must be Managed
Modern life insurance policies contain many useful features. Regardless whether your clients have universal life, indexed universal life, variable life, whole life or “no-lapse,” their policies may include options such as flexible premium payment, the ability to select and manage underlying sub-accounts, and obtaining a given death benefit and premium guarantee. Even whole life has non-guaranteed elements such as dividends and term riders. Each of these features have important caveats that must be managed, much as you must manage a client’s portfolio against downward volatility, to make certain the policy benefits are maximized and to insure that options are not lost or guarantees voided.
Many policies also provide for current expenses that are substantially lower than those guaranteed in the policy. As we’ve seen in the past few years insurers have latitude to increase their cost of insurance pricing, and assessment and management of a product’s performance is necessary to understand the long-term implication of possible changes in
policy expenses and crediting rates.
For universal life styled policies, it is the policy owner’s responsibility to make certain that sufficient premium is paid into the policy in a timely manner so that policy death benefits can be paid whenever the insured dies. Periodic assessment is essential to make sure premiums are timely paid to maintain the policy in force.
Changes in Client’s Situation Demand Reassessment of Life Insurance Policies
Furthermore, just as an investment must be reassessed based on a client’s changing situation, life insurance should be reviewed periodically to make sure it continues to match the current needs of a client. Areas to cover include assessment of the amount and purpose of the insurance coverage, type of product, owner and beneficiary arrangements, and impact of the insured’s health status on the potential for a rate reduction or product conversion.
Carrier Due Diligence Should be Performed
Finally, just as due diligence must be performed on investment products, it’s also important to be vigilant of a carrier’s ratings. In times of economic volatility, especially like what we have experienced the past couple of years, you need to periodically monitor the carrier’s financial situation. Significant rating down-grades may be a cause for concern.
An initial review of your clients’ existing life insurance policies is as simple as answering a few questions and sending your the annual policy statement to DBS. Check out the “quick-look” policy review DBS offers. Contact your DBS Case Design Analyst for more information.