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Success Stories: A Plain Jane Policy Analysis

November 28th, 2018 No comments

An estate planning attorney introduced me to a client of his who was the trustee of her parent’s irrevocable trust that owned a $4 million dollar second-to-die policy. As is typical in these scenarios, the trustee understood very little about the insurance and her father was the one “in charge” of the policy over the years but he didn’t under-stood it much better.

To anyone who does something every day, it may be bewildering that their respective specialty is so entirely misunderstood by others. So it is with life insurance. I understand it can be a mystery to many, and in some ways it is ridiculously complicated, but I am often reminded that I can take nothing for granted when working with consumers.

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This case was as typical as an engagement can be. The $4,000,000 in death benefit was not projected to last as long and Mom & Dad were expected to last and they wanted and needed guidance.

The policy had been put in force as a single pay 1035 exchange in 1999. Just knowing that date you might surmise the new policy was a securities based variable life contract. You would be correct. Unfortunately, too many agents and advisors were chasing stock market returns and in the late nineties it was easy to show attractive alternatives to the existing policies clients had. Generally, these policies were sold under ridiculously aggressive assumptions with no real world modeling or stress testing involved. Additionally, these policies were put in force at the absolute worst possible time for a securities based product, almost immediately before the tech bubble crash, when blind monkeys throwing darts could get attractive double digit returns.

Dad had this idea that he couldn’t pay anything into the contracts now and that some day there would be a reappearing and increasing premium due. What he was thinking of was basically the increasing mortality charges of the contract that would be required annually when the cash value ran dry. Who knows where this came from but it was his reality. Furthermore, he had no idea what these numbers would be.

My simple solution was to request multiple new in-force ledgers from the carrier under much more conservative and realistic assumed returns and run to last a variety of duration’s. We also asked for all of the same at various lower death benefits. All of these scenarios were independently modeled to give them a sense for the chance of success and I calculated the internal rate of return moving forward for each and every scenario so there was an ability to compare apples to apples and to judge what would be an acceptable “deal”.

While none of this is particularly complicated or much of an in-depth analysis, it gave the family an immense sense of relief just to know they had at least some control over the destiny of their policy. Before this they were just holding their breath and thinking they were at the mercy of decisions made a couple of decades ago, market returns and what the insurance carrier would “let” them do.

Effectively there has been a meaningful shift in their understanding of what this policy is and how it works, a shift in their realization that they have input control to affect outcome and an ability to understand the results of their decisions in a measurable and comparable format.

This contract and its performance in the big picture may still be somewhat of a disappointment but the outlook and the peace of mind moving forward are a refreshing change of pace.

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Success Story: Another Second Opinion

July 20th, 2018 2 comments

The attorney for a billionaire family called me one day at the behest of a mutual acquaintance. The clients were looking to procure $100,000,000 of new coverage and simply wanted a second opinion.

The couple worked closely with a large bank and their advisor had brought in the bank insurance specialist. I went in with no preconceived notion as I have seen many similar situations and in some I supported the transaction and others I stopped it. success-stories-logo

In this case the existing advisors had been doing a very good job. They seemed sincere and had looked at many angles. I am not sure how excited they were that I was brought in but they had to deal with me. I quickly realized they are among the “good guys” and all I did, after understanding the goals and objectives, was to challenge a few things, brought a couple of ideas to the table and offer some opinions. In the end, what they moved forward with was substantively what they had planned before I was in the picture. For full post, click here…

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Success Story: Details of a Life Insurance Fraud Case

September 5th, 2017 1 comment

Details of a Life Insurance Fraud Case

Some success stories are more fun to share than others. This is one of them. Sometimes this work is so fun that I (almost) feel guilty getting paid for it.

I want to start with the premise that there is a difference between idiots and criminals. Some-times the end results don’t differ but the path taken varies widely. I deal with the results of a lot of “professionals” who don’t know what they are doing but, fortunately, I don’t deal with a lot of criminals. However, they exist.
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Here’s my story. As a result of a piece I wrote, an accountant in the Chicago area called me asking for advice. He was trying to accomplish something for his client and it was within my ex-pertise so we agreed on a modest engagement and moved forward. For full post, click here…

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Timing of Premium Payments

May 11th, 2017 No comments

AIn my May 12th, 2015 post, Why Paying Attention is Important, I referenced a hypothetical issue which has just come across my desk in real life. It has to do with a Guaranteed Universal Life (GUL) policy and the timing of premiums.

Much has been made of the sensitivity of GUL contracts to the timing of premiums, and for good reason.success-stories-logo Many policies do not have the grace periods of more traditional policies. A premium which comes in late, may slightly affect the internal formulas which determine the guarantees and, consequently, the policy may not last as long as expected. For full post, click here…

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Success Story: Life Settlement Saves the Day

April 18th, 2017 No comments

The life settlement market is clearly much different than it was 10 years ago but it is still alive and well. The target for finding a qualifying policy is much smaller today but the parameters were likely somewhat unrealistic back then anyway.

Settlements still tend to be success-stories-logosomewhat controversial but with a straight face I will say that I cannot understand why. A legitimate, well understood life settlement is arguably the most consumer beneficial concept I have ever been a part of in my history in the life insurance market. The many, many millions of dollars I have been able to secure for clients who otherwise would have lost millions is astounding. For full post, click here…

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Success Story: Salvaging Loss in a Life Insurance Policy

October 6th, 2016 No comments

An attorney brought a case to me which was typical in many respects.  There was a portfolio of policies on multiple family members.  Some policies had recently failed and, among the balance of them, some were holding their own and others were rapidly falling apart.

I want to focus on the two policies on Dad.  One policy was projected to lapse in a year and the other in about 5 years.  Thsuccess-stories-logoey are currently burning through roughly $5,000 a month in cash value.  If only I had been brought in a couple of years earlier I could have saved them six figures in lost dollars.  None-the-less, late is better than never.  One policy has surrender value of $157,000 and a basis of $14,000 so the gain is  $143,000.  Another has a surrender value of $46,000 but a basis of $167,000 so there is a “loss” of $121,000. For full post, click here…

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Success Story: Managing Life Insurance – What does that mean?

September 21st, 2016 No comments

Sometimes people ask me what I mean when I say life insurance needs to be managed over the duration of the contract.  Most think that means making sure the premiums are paid but, while obviously important, that’s not really it.

Making sure contributions to a policy are sufficient given a decades long reduction in the interest market is something I talk about incessantly but there is so much more to it.  Here is a very simple example:success-stories-logo

An advisor I work with brought me the policy on his own life. It turned out to be a traditional whole life contract with a well-known carrier.  There was no issue with the company but the policy was deteriorating due to the loan it was carrying.  I don’t recall if the loan was a result of actually pulling money out of the contract or if the loan was created by the policy “auto loaning” itself money to pay premiums which weren’t paid out of pocket.  It doesn’t really matter.  We can even assume the policy owner funded the contract as originally proposed and a sales ledgers might have even shown he could withdraw money with no ill effect. For full post, click here…

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Success Story: “Shooting from the Hip” – Hit or Miss

April 5th, 2016 1 comment

An attorney member of the Wealth Council posted a question on the list serve asking for referrals to a fee-based life insurance advisor.  Another member directed him to me and I ended up in an engagement with his client.

It turns out a woman in her eighties had recently lost her husband and someone had advised her and her family that the $1,500,000 of insurance in force on her life was “garbage” and they should get rid of it.

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Fortunately, the attorney recommended an independent analysis before any action was  taken.  It ended up that there were two policies, one for $500,000 and one for $1,000,000.  One was originally a survivor life policy.  The $500,000 policy was a well-funded Guaranteed UL policy with a highly rated and well respected carrier.  The $1,000,000 was with another decent carrier and was a current assumption UL contract which was modestly underfunded. For full post, click here…

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Success Story: The Importance of the “Second Opinion”

March 15th, 2016 No comments

After a presentation at Heckerling a few years ago, an attorney in the audience came up to me to introduce himself and let me know he may be calling me for help on a case.  A full year went by when he finally emailed me details of something he was working on.

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It turns out his client was the owner of a very successful global company and had a large existing life insurance portfolio.  The client and advisor was working with an agent who had a very long term and particularly close relationship to the family.

The reason the attorney brought me in was due to his skepticism regarding some work the agent was doing.  Something didn’t seem right but he couldn’t put his finger on it.  For full post, click here…

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