Observations on Fee-Based Life Insurance Consulting
As the founder and principal of Opportunity Concepts, LLC, a life insurance consulting and management practice, my days are filled working with policy owners and their advisors regarding many aspects of life insurance, from simple front-end, second opinions to in-depth, actuarially defensible analysis of portfolios of policies. This is the story of a “typical” engagement.
Clients and advisors seek me out for my fee-based approach to life insurance consulting. While there are great life insurance professionals who do a good job and bring tremendous value on a commission basis, some policy owners and advisors in the market have had experiences which leave them cynical. One answer is to pay a consultant for analysis and advice.
Not long ago I was brought into a situation by a respected estate planning attorney who was acting as the trustee for his business owner client. He told me that after years of hearing me preach the importance of policy analysis and management, he realized that as trustee he had a fiduciary duty to fulfill and he couldn’t lean solely on the work and advice of the agents involved, regardless of how well intended they were and how much he trusted them.
As always, we first had to introduce the fee-based concept to the client. The idea of paying for something which has historically been “free” sometimes takes a little getting used to. A little reflection produces the realization that this practice would be normal in many other consultations and the magnitude of the investment into the insurance portfolio at hand warrants such an expenditure.
The client’s existing portfolio consisted of roughly twenty policies from a handful of carriers sold by as many agents over the years. After spending time with the stakeholders to understand the nature and the goals of the planning, we reviewed the performance of the existing policies relative to earlier projections and relative to each other and we put this into perspective by exploring market alternatives. Diversification by carrier and by policy type was deemed important with the ultimate goal to maximize death benefit for estate planning purposes with cash value accumulation a secondary consideration.
At the end of the day, a relatively simplistic analysis determined that despite a multi-year drop in crediting rates across the board which resulted in more out of pocket premiums than originally anticipated, most of the policies were sound. A few of the policies would need some sort of remediation strategy in order to have any faith they would persist until policy maturity or even actuarial life expectancy and some of the policies simply didn’t fit the estate plan moving forward.
It became apparent that for this client in this situation, maintaining each of the existing contracts was not optimizing resources. Alternate policies available in the market offered greater death benefits both today and beyond life expectancy, granted more assurance that the death benefit would be there when needed and guaranteed that there would be no additional outlay of cash. Read more…
