Do The Review

I received an email late last year from an advisor I work with.? He’s an RIA that focuses on the high-net-worth space. ?He doesn’t write a lot of life insurance, usually about one or two policies a year, but when he does, they’re normally pretty large. ?He told me he needed a favor and needed me to help him on a life insurance case.? The advisor works with a number of wealthy clients so I was excited to hear about what I believed would undoubtedly be a large case.? We set up a Zoom call for the following week, and I prepared as if it were any other call for a large, important client.

After exchanging pleasantries and requisite small talk about the weather, I asked my advisor to explain to me what the situation was that had caused him to reach out to me.?? “So I have this client (don’t all cases start with this sentence?), he’s 73 years old, he’s very healthy, and he owns a $10MM whole life policy “. So far, so good.? This call had pretty much started like our previous calls. When he paused, I explained to him that for us to have any tactical discussion on his client's current policy we would need to order some inforce illustrations, and that’s where things got interesting. My advisor smiled and said “oddly enough I have a number of current inforce illustrations right here showing different scenarios”.? That was a surprise, normally we have to jump through a myriad of hoops to obtain inforce illustrations on a policy my agent didn’t write.? He then continued on, “the reason that I have these inforce illustrations is that the client, at the instruction of his legal counsel, (wait, did he just say legal counsel ?) ordered them”.? At this point, my level of enthusiasm lowered a bit and I asked, “I believe you just said your client’s legal council had instructed him to order inforce illustrations, do you mean his estate attorney?” The advisor cracked a smile and said “no, I’m afraid this is more of a legal issue per se than an estate planning opportunity”.? My arsenal of discovery questions would have to wait, I finally said to my agent, “why don’t you tell me what’s going on here”.?

This client was a successful business owner and real estate investor.? When he was 55 his estate attorney had done some preliminary planning work for him to get his affairs in order.?? The attorney mentioned briefly in one of the meetings that life insurance could be a vehicle by which his beneficiaries would be able to pay some of the estate taxes that would remain, despite the attorney’s plan.?? The client didn’t think much about it for a few months until he mentioned it to a friend of his while on a fishing trip.? The friend had just bought a large whole life contract from a well-respected and well-known carrier.? The agent he’d used was very experienced with these types of cases and the friend couldn’t have been happier with the experience and the product they had chosen.? The friend introduced the client and the agent, and a meeting was set up.?

The initial meeting was, by all accounts, a good one.? The agent was older, polished, and had answers to all the client’s questions.? The agent did a good job of discovery and obtained all the pertinent information from the client.? They then set a time and date for meeting number two.? At meeting number two, the client was presented with illustrations.? Lots and lots of illustrations.? Illustrations showing different funding (5 pay, 10 pay, 20 pay, pay to 100 etc).? Illustrations showing all of those funding techniques at both preferred non-tobacco and standard non-tobacco.? At the end of the meeting, the client was a little overwhelmed but agreed to move forward.? An application was completed, and the underwriting began.? Within a relatively short period of time, the client was examined, attending physician statements were collected, and just like that the client was approved as applied for at standard non-tobacco.? He paid his first annual premium; the policy was placed inforce and he proceeded to get on with his life.?

At this point I suspect that you’re asking yourself, what’s the problem?? Seems like a straightforward life insurance sale.? Here’s where it gets messy.? The client had purchased a 20 pay whole life contract.? To keep things simple, and for reasons that have yet to be explained to me, ?he decided to keep the policy out of any of the trusts he had since established.? The client was a very busy guy, and I’m guessing he figured at some point he’d probably change ownership from himself to a trust.? Each year that the premium notices came to him, he paid them promptly, for ten years straight.? I mention this because, as I said earlier, he had purchased a 20-pay contract.? Between the time he had purchased his policy and year 10 of owning it, the client, due to having discussed so many options of premium payment, had forgotten that he’d agreed to a 20 pay policy.? He’d convinced himself that he’d chosen a 10 pay.? So, when years 11, 12, 13 etc rolled around, he ignored the mail he was receiving from the carrier, figuring it was junk or an advertisement for additional policies.?? Being that this policy was a whole life policy these missed premium payments were not a problem, the missed premiums would be paid in large part by loans against his accumulated cash value.? After five years of missed premiums, he had accumulated a sizeable loan balance inside the policy.? By the time the client learned what had occurred, he was not pleased.? He angrily called the agent.? The agent explained that they had agreed to a 20-pay policy and that he had signed a 20 pay illustration.?? It turned into a big argument that at this point had the client considering some sort of legal remedy.??

At this point you may be asking, “what does this have to do with me and life insurance sales”?? That’s a fair question.? Here’s your answer.? First, as I’ve mentioned in previous posts the most frequent source of large life insurance sales that I have is assisting partner advisors of mine with policy reviews (policy audits).? It’s been that way every year and 2023 was no exception.? The above-mentioned mess could have been altogether avoided had one policy review been done at any point while the client owned the policy.? Here’s the kicker, not only did the selling agent neglect the client by never reviewing the policy, but also, to make matters worse, the clients RIA never once reviewed the policy despite considering himself to be a comprehensive planner, and knowing about the policy.?

Way too many selling agents in the life sales industry completely disappear after making a sale.? Just like the agent in my story did. I’ve had people tell me the number is close to 80%, but I’ll say it’s higher.? I’d also add that there are thousands of RIA’s (both fee based and fee only), ?Wealth Management shops that are FINRA licensed, Private Trust companies, and Family Offices out there that sell their services as being thorough and comprehensive.? Basically, a one stop shop for all financial matters for the mass affluent, high net worth and ultra-high net worth demographics.? Many of these firms lack the knowledge, tools and resources to conduct a proper life insurance policy review.? Often their solution is to ignore the policies and hope they are working out.? I know this is true because I work with a number of these types of firms, and they’ve shared that prior to working with me, that’s what they did.?

So what’s the point? First, no matter what area of financial services you find yourself, if you sell life insurance, the sale doesn’t end when the policy is put inforce.? Annually review your client’s policies.? Second, if you’re a planning firm that has little to no interest in selling a life insurance policy, that’s fine.? I’d recommend you partner with someone that can conduct a proper life insurance policy review.? To ignore it, is at best, negligence .?