Observations on Life Insurance Companies and Products

I saw this list (excerpted) of observations from a Life Insurance sales person, and it is worth looking at, keeping in mind the sales oriented goals:

Will Life Insurance Policies Pay Out on Death from a Pandemic?

  •   Individual life insurance policies DO NOT EXCLUDE deaths from a pandemic.
  • Some Employer provided life insurance policies MAY EXCLUDE pandemics, war and terrorism.

How Will Insurers’ Financial Health Be Impacted By The Corona Virus?

  • Life insurance company portfolios are actually impacted negatively due to increased Death claims from the coronavirus but are positively impacted from the elimination of annuity payouts on the death of annuitants.

Are Life Insurers Still Able to Conduct Physicals for New Policies?

  • YES.  And, Some companies have Eliminated the need for Physicals for many applicants, while still offering the same pricing.

How Will the Downturn in the Markets & Interest Rates Affect Policy Performance?

  • A number of companies have just announced reductions in the amount of investment return that they are crediting to policies.
  • For clients with Indexed Universal policies, the portion of S&P returns that flows to the insured’s account (the “CAPs”) have been reduced. This will cause premiums to rise OR policies will expire before insured passes away.
  • For clients with Variable Universal policies, their premiums and cash values are invested by the clients in mutual funds, which have obviously taken a hit.  This could ultimately lead to dramatically higher premiums to keep these policies in effect over the long term. AND, with many of these policies, your clients’ death benefits may have dropped significantly as the cash value has declined.

How Can Clients Replace (Some of) Their Portfolio Losses To Ensure Financial Security For Their Families?

  • When clients calculated the amount of insurance they needed, that likely reflected the amount of their liquid assets. Clients may want to (temporarily) increase their life insurance to mitigate their portfolio losses, so their families are as well protected as they were in the recent past.

Can Clients Improve Their Cash Flow With a Re-Structuring of Their Life Insurance?

  • New policies could be cheaper since they are priced using the NEW life expectancy tables
  • Clients may be paying finance fees on their premiums
  • Clients may have significant cash value that can be leveraged in a new policy with a lower outlay.

Clients Who Recently Bought Life Insurance Can Add Coverage

  • Clients who bought life insurance within the last 6 to 9 months, may not be aware that their insurance physical may still be valid and that they can possibly add to their coverage with minimal administrative work.

Are There Opportunities Similar to the Mispricing of Bonds, i.e. Pricing Anomalies with Life Insurance?  YES !

  • Insurance companies will need to develop new policies with higher rates due to the lower interest rates and potentially higher death claims.
  • Since it takes an insurance company more than 6 months to obtain approval from the State Insurance Departments for new (Higher-priced) products, there is a window of opportunity for (healthy) clients to trade out of their existing policies that are subject to increased prices and replace those with policies with better guarantees and more favorable pricing.

What Options Do Clients Have with Existing Term Policies?

  • Clients may want to explore changing a portion of their term insurance to cash-generating policies OR survivorship policies, without any underwriting – if their insurance company allows that.
  • This may be particularly attractive now, (as part of re-balancing) given the downside protection of e.g. whole life policies, the guaranteed fixed income crediting rates and the fact that they are non-correlated with bonds or stocks.

   Estate Planning Opportunities For High Net Worth Clients?

  • Intra Family Loans and other techniques to leverage low interest rates
  • Gift assets at current (lower) valuations AND do so BEFORE the lifetime exemption of $23.2 million disappears.  As you know, the gifted amount and any appreciation (rebound) and income on those assets would be sheltered from estate taxes. While this amount is supposed to remain in effect (actually grow) until the end of 2025, it is conceivable that a new administration would lower the exemption considerably. Even if no changes are made, clients would be grandfathered on these gifts.

Opportunities Exist For Monetizing Policies No Longer Needed

  • There may be opportunity to sell those policies for significantly more than their cash surrender value.


Posted in Perspectives, Planning Opportunities.