PREVENTING A $500K LOSS:
THE POWER OF A PROACTIVE POLICY REVIEW
BACKGROUND:
Managing life insurance policies within a trust requires careful review to ensure the financial well-being of beneficiaries. At Life Insurance Trust Company, our pre-acceptance process ensures that all policies — whether new, existing, or replacements — are thoroughly reviewed before approval. This proactive approach allows us to safeguard trust assets from decisions that may inadvertently reduce their value over time.
In this recent case, our review process prevented the unnecessary replacement of a trust-owned life insurance policy that, while seemingly more cost-effective, would have jeopardized key benefits and potentially reduced death benefits by up to $500,000.
THE CHALLENGE:
A team of outside insurance advisors was working with a family that owned approximately 80 life insurance policies. Their goal was to optimize the family’s insurance portfolio by reducing annual premiums and securing guarantees. One proposed solution involved replacing an existing Variable Universal Life (VUL) policy within a trust managed by LITCO. At first glance, the proposed policy seemed to offer a financial advantage by lowering premium costs. However, our remediation team identified immediate red flags. The advisors had not conducted a thorough review of the existing VUL policy, which included a No-Lapse Guarantee (NLG), variable growth potential, and premium flexibility — benefits that could ultimately outweigh the proposed cost savings.
THE RESULTS:
Upon identifying the risks, our team initiated a comprehensive review, comparing the existing and proposed policies in an apples-to-apples manner. Key findings included:
- The existing VUL policy’s NLG ensured lifetime coverage, even with premium flexibility.
- While the proposed replacement policy had a lower annual premium, the existing policy offered the potential for reduced or even ceased premium payments based on performance.
- The existing policy provided a balance of guaranteed security and growth potential, making it a superior long-term choice.
To ensure alignment, we met with the outside advisors, presenting our findings and demonstrating the risks associated with the proposed replacement. After reviewing the details, all parties agreed not to proceed with the replacement policy.
Read more about this case study and how LITCO works for grantors and beneficiaries while involving their financial teams.
