Important Questions to Ask About Existing Estate Planning Life Insurance Policies
Amount: Is the amount of life insurance correct for the client’s needs? Should the death benefit be a level death benefit or an increasing death benefit?
Insureds: Is the policy design correct for current needs? (i.e. single life, joint life)
Ownership: Is the policy ownership structured correctly within your client’s estate plan?
Beneficiaries: Are the primary and secondary beneficiary designations structured correctly within your client’s estate plan? Who is responsible to ensure that policies have appropriate designations? (i.e. attorney, CPA, insurance representative, client)
Cost: Is the estate planning life insurance cost effective and tax effective compared to available policies for the client’s current estate planning needs, taking into account the insured’s current health?
Insurance Company: What are the asset size and financial ratings of the life insurance company? Has the company been downgraded by the rating agencies recently?
Policy Duration:
1. Is the policy projected to continue until maturity?
2. When is the policy maturity date?
3. What happens at the policy maturity date?
4. Is the policy going to continue until the maturity date on a projected basis or a guaranteed basis?
5. If policy performance is on a projected basis, are the rate of return assumptions reasonable?
6. Does the premium payor understand that nonguaranteed premiums are subject to fluctuation, with future policy performance and changes in investment rates of return leading to a potentially longer duration of premium payments or increased annual premium payments to maintain the full death benefit until the insured’s death?
If the policy is under funded, the increase in annual premium payments may not be affordable if the under funding is undiagnosed until the policy is about to lapse. In a worst case scenario, the policy could lapse before death with no cash value recovery to offset the premiums that have been paid, and the loss of a death benefit that was anticipated as a part of the estate plan.
Policy Guarantees:
1. If the policy performance is guaranteed to the policy maturity date, will the full death benefit continue beyond the maturity date?
2. If the guaranteed premiums are not all paid in full and on time, is there a catch-up provision?
3. How does the catch-up provision work?
Policy Cash Value: How important is the life insurance policy cash value growth (if at all)? Some policies that have lower guaranteed premiums to age 100 or beyond also have much lower cash values than whole life and non-guaranteed universal life policies.
Ongoing Service:
1. Are the premium payment arrangements and any related matters properly understood by all parties, including the preparation of Crummey notices?
2. If the policy premiums are not contractually guaranteed, is the policy regularly monitored with in-force illustrations?