Important Questions to Ask About Traditional Universal Life Insurance Policies and Proposals
Amount: Is the amount of life insurance correct for your client’s needs? Should the death benefit be a level death benefit or an increasing death benefit?
Basic Assumptions: Are the illustrated assumptions accurate and reasonable? (i.e.age, sex, health underwriting)
Ownership: Is the policy ownership structured correctly within your client’s estate, business or financial plan?
Beneficiaries: Are the primary and secondary beneficiary designations structured correctly within your client’s estate, business or financial plan? Who is responsible to ensure that policies have appropriate designations? (i.e. attorney, CPA, insurance representative, client)
Duration: Is the policy projected to continue for a sufficient time to meet your client’s needs and objectives? Is the projected policy duration (for an existing policy or a new policy) based upon realistic assumptions for the assumed interest crediting rate in the projection?
Cost: Is the universal life insurance policy cost effective after the underwriting (insurability determination) is completed?
Insurance Company: What are the size and financial ratings of the life insurance company? Has the company been downgraded by the rating agencies recently?
Surrender Charge: Most regular universal life insurance policies have a surrender charge, the difference between the accumulated policy value and the cash surrender value, that grades down over a period of years. How long is there a surrender charge? Most policies have a surrender charge ranging from 10 to 20 years, the shorter the better. If the surrender charge goes beyond 10 years, what is the surrender charge as a percentage of the accumulated policy value at the end of 10 years? For surrender charges continuing beyond 10 years, the surrender charge can be from 10% to 50% of the accumulated value in the 10th policy year, the smaller the percentage the better.
Mortality Cost: Does the life insurance company have a history of crediting improved mortality experience to existing policies as life expectancy improves?
Policy Projection Assumptions: Are the policy projection assumptions about the interest crediting rate and the mortality cost realistic? Do you and your client know the assumptions underlying the policy projection, and are you comfortable with these assumptions?
Full Documentation: Do you and your client have a complete illustration of the universal life policy as it was issued and based upon the correct premiums to be paid and any transfer of monies from other policies? This correct and final illustration will serve as a baseline from which you and your client can monitor the actual future performance of the policy so everyone can determine if the policy is performing better or worse than the original projection at the time the policy was purchased.
Ongoing Service: Is the life insurance advisor providing ongoing policy performance analysis service? An in-force illustration should be obtained on a regular basis reflecting projected future policy performance based upon the current interest rate and the currently projected cost of insurance. This in-force illustration can be compared to the baseline illustration to help identify positive or negative changes in policy performance.