In our previous two blogs, Marc Schwartz talked about how pricing adjustments among a few life insurers had created an “out-of-control” environment for some of our clients. In part two of “Putting Clients Back in Control,” Marc explored several product solutions that can help put your clients back in control – but for you, what’s most important is knowing first what your clients want out of their life insurance policies. Here, Marc and DuWayne Kilbo discuss why you need to review your clients’ policies now.
The idea and process of Policy Review has been around forever. Why is it so important now?
Marc: There has been a lot of negative press around life insurer pricing adjustments, and that has created an environment where your clients need the reassurance that you’re aware of the issues and you’re looking out for their best interests. With the recent reductions in dividend rates from the mutual companies, the various COI issues in 2016 and spread compression because of the overall interest rate environment, the need to reach out to your policy owners and your centers of influence is more important than ever. This should basically be a business development activity for all life insurance professionals and advisors in 2017.
You mentioned recent reductions in dividend rates. It seemed for a while that dividends were floating above the interest rate drops. What’s changed?
DuWayne: It took longer for the sustained low interest rates to significantly affect dividend rates, but recently we’ve seen a cascade of dividend rate reductions from most if not all of the major carriers. One carrier has experienced a 33% drop in dividend rate over the past nine years, which corresponds to comparable seasoned triple-A bond rates over the same period. Additionally, the policy expense component in participating policies is adjusted independently of the dividend rate, and many carriers are, or will be, increasing those rates as well.
So what should be the next step for an agent or advisor?
DuWayne: First and most importantly, to confirm with their clients that they’re in sync as to the purpose and goals of their insurance. Clients often have older policies, or have acquired policies from other sources, and reviewing the entire life insurance and annuity portfolio, with the client’s goals in mind, is priority one.
Marc: For participating plans where dividends play such a big part, agents should review the initial projections that were used in making the sale – chances are that the policy’s performance has fallen short in some ways, especially for policies issued 10-20 years ago. Paying particular attention to the distribution side, if that was a high priority for your client, means looking closely not just at the numbers, but at the contractual loan provisions as well.
So policy reviews are critical in determining if policies are performing as needed – and will alert stakeholders if adjustments are required to get “back on track.” Are there other reasons to review a client’s life insurance portfolio?
DuWayne: Yes, absolutely! Besides underlying product performance, policy reviews provide an opportunity to audit “structural integrity” of the life insurance portfolio. In other words, think of this as a planning review in addition to policy review. Is the amount of coverage still relevant? Are ownership and beneficiary designation properly set up? Have key documents (trusts, split-dollar, buy-sell agreements, etc.) been executed and are they still current? Has the client’s health improved and should the existing underwriting class be reviewed?
Marc: Raising awareness and identifying areas of potential vulnerability will win trust and credibility with professional advisors and other centers of influence. Also, CPAs, attorneys and bankers are much more comfortable having this kind of service-oriented discussion with clients rather than one which might sound like a sales pitch. At the end of the day, it will all come back to whether the existing policy is doing the job or not.
And if a review indicates a need for a change, what options are available?
DuWayne: In situations where premium cost and cash value performance have become more questionable, there are several options that can create face amount stability as well as upside cash value opportunity. These include 1035 exchanges to newer products with baseline guarantees and potential market-indexed cash value growth, 1035 exchanges to policies that can accept sizeable outstanding policy loans and minimize adverse tax consequences, along with many other creative alternatives.
Where can agents and advisors get some help on this?
DuWayne: That’s what we do. Windsor is dedicated to help agents eliminate the hassle and uncertainty that can upset a client’s plans, and determine their best course of action going forward. We have experienced and knowledgeable industry resources who can analyze the situation at hand and develop suitable alternatives. We are expert in case design, carrier/product access and underwriting to drive the best case offer.
Marc: And we have an outstanding service platform to help steer your applications through the roadblocks that sometimes get in the way of issuing a policy. There’s no problem we haven’t seen and solved in Windsor’s 40 years serving life insurance agents and their clients – which means that agents can be confident that we’ll handle the back room, and they can focus on what they do best. For starters, we’ve provided this link to a basic policy review fact finder that agents can complete and email or fax to our Policy Review team. With all the changes swirling around the life insurance industry, now is the time to go back to your clients and reconfirm your commitment to their financial future.