Understanding the impact longevity has on life insurance performance management is key to making life insurance work at its very best.  The following article provides some interesting insight into longevity-related risk parameters.

Risk Parameters in Longevity Markets

by Michael Fasano

The 20th century witnessed a steady improvement in life expectancy, with U.S. life expectancy at birth (both sexes) increasing from 47 years at the beginning of the century to 77 years at the end.

Improvements in the first part of the century were significantly affected by reduction in mortality from infectious diseases due to better sanitation, refrigeration of foods, widespread use of vaccinations and the development of antibiotics; while mortality in the latter part of the century was reduced by better diagnostics, new treatment protocols and mitigation of risk factors affecting cardiovascular disease.

Caution needed when changing GUL and UL payment modes

When you ask the home office to change a GUL or UL payment mode from an annual to monthly, quarterly, or semi-annual payments they will say “No problem.” All you have to do is divide the annual premium by 12 to get the monthly premium since there is no modal factor like a whole life or term policy.

The untold history of life insurance underperformance

Everything changed in 1979

For 240 years prior to 1979, the Life Insurance Industry had successfully sold one type of  permanent coverage known as whole life. Whole life policies were simple; the premium and death benefit were guaranteed and if you paid the premium, you got the death benefit… no matter when you died. The only thing that could potentially cause a whole life policy to fail, other than neglecting to pay the premiums, was misusing the right to borrow from the policy.

Individuals with a networth of $5.25 million or less and families with a net worth of $10.5 million or less may be throwing the baby out with the bath water as they dump the life insurance policies held in an ILIT (Irrevocable Life Insurance Trust) for estate tax purposes.

The Poke

It starts innocently enough.  At or near the end of October, an agency owner walks into a life insurance agent’s office and asks, “So, what do you think your year end numbers will be?”

The Poke

Every wise investor knows and loves the miracle of compounding interest. The Motely Fool says, “It's very much like a snowball effect. As your capital rolls down the hill it becomes bigger and bigger. Even if you start with a small snowball, given enough time, you can end up with an extremely large snowball indeed.”

The Poke

When life insurance is treated as a simple commodity, one that can be purchased and forgotten about, the opportunity to optimize its performance as a valuable and competitive form of property is too often lost.

“…human beings act in accordance with the underlying structures in their lives.

Some structures are more useful than others in leading to desired results.

Rather than asking, ‘How do I get this unwanted situation to go away?’ you might ask, ‘What structures should I adopt to create the results I want to create?’"

Robert Fritz

The Poke

While driving my car this past weekend, I turned on the radio and listened to a newscast. The stories went from bad to worse to bleak to near hysteria… the last being about the weather.

The Poke

The complex life insurance environment within which advisors strive to succeed is an unpredictable, constantly shifting jumble of disparate and conflicting elements and forces.

The Poke

Stop me if you’ve heard this one…

Late one November, an insurance advisor makes an urgent client call. “Mr. Smith, you’re a great client so I thought I would give you the heads up on the rate increases the insurance carriers are planning to push through in January.”

The Poke:

What is your life expectancy?

If you are like most people, your answer to this question is too low.

While the life expectancy data published annually is accurate, meaningful and a key component in how actuaries arrive at the cost of life insurance, its relevance to your life expectancy decreases with each passing year.

The Poke:

In these litigious times, the one mistake that will get you successfully sued most often occurs after you agree to be a trustee of an Irrevocable Life Insurance Trust (ILIT).

The Poke:

We are beginning to see some carriers are sanctioning and paying commission on internal replacement…  which of course leads us to speculate that something must be going on here.

Internal replacement simply means replacing an old policy with a new one from the same carrier. Advisors lean towards replacement as they tend to believe newer policies are better policies and it is in the owner’s best interest to replace old ones… if the carrier allows.

Beware of potential issues with GUL policies

The Poke:

Many advisors and life insurance owners believe Guaranteed Universal Life policies need no ongoing management. They assume that as long as the premiums are paid, nothing can go wrong and the death benefit is always guaranteed.

The Poke:

There once was a time when you could count on converting most level term life insurance policies into permanent policies at anytime during the level term period of the policy. And, generally speaking, you could convert to almost any one of the permanent life insurance products available from that carrier at the time of conversion.

Health impairments are not the end of the life insurance world…

The Poke: Many advisors and brokers will tell you that once a case has been brokered for a person with health impairments seeking life insurance, whatever rating the insurance company comes back with is the best you can ever expect. Even if the case has been shopped aggressively – e.g.: the broker sent it to 10 carriers – once you are rated, that’s it, game over, tout fini!

Achieving the best possible results when placing large life insurance cases requires much more advocacy on the part of the agent or advisor than most people expect or even understand is possible… especially when the insured is getting on in age.

People who have borrowed money from older, participating, whole life policies are likely missing an opportunity to take advantage of some very high earning potential.

Life Insurance product designers and agents are some of the most creative individuals in the world. This can be good when their creativity is applied to solving problems with life insurance.

But, when creativity is taken to the extreme and they focus solely on selling more policies to maintain or increase profits, very fine and valuable products are manipulated in a manner that, while generating a sale and a commission, will often never generate the results the life insurance owner expects and, more importantly, needs.