Do Your Clients Need an Insurance Policy Review?

Ethan Young
Ethan Young

09.02.20 in Wealth Planning & Investing

Estimated Reading Time: 5 Minutes (986 words)


Commonwealth partnered with Ash Brokerage to enhance the insurance marketing and operations functions available to our advisors. Ash Brokerage doesn’t just specialize in insurance; it approaches insurance with a passion that matches our own company culture, providing our advisors with untapped growth opportunities in offering protection products for their clients. I’m pleased to present the below post, brought to you by the specialists at Ash Brokerage, which discusses why now may be the right time to help your clients perform an insurance policy review.

As we all adjust to this “new normal,” many of your clients have likely begun to reflect on how they manage their lives and their finances. For some, job situations have changed. For others, priorities have shifted. And for many, their risk tolerance has evolved. Given all this, your clients may need an insurance policy review to ensure that their life insurance policies still align with their current goals.

Assessing the Current Situation

The goals your clients had in mind when they first purchased permanent life insurance may be completely different now. Further, the various factors that affected how the policy was designed to meet those goals—such as interest rates, dividends, index crediting rate, or subaccount returns—may not have turned out as expected.

As clients age, children grow, homes are paid off, and retirement gets closer, the purpose of their life insurance will also change. Other life events are less gradual and might require more immediate action:

  • Marriage or divorce

  • Birth of a child

  • Purchase of a new home

  • An inheritance

  • Change in job or income

  • Health changes

  • Death of a family member

Any of these events could reopen a discussion around protection planning—and lead to better outcomes for your clients.

Unpacking the Review Process

During an evaluation, rerunning a needs analysis, looking at supplemental retirement income strategies, and improving underwriting on current coverage should all be considered. In-force illustrations and policy data from the insurance company will also come into play. This information will help show how the policy could perform under various assumptions. Finally, you’ll need to gather the client’s current goals and objectives, along with insurable risk profile, to recommend the best outcome—whether it’s managing the current policy or applying for a new one.

To illustrate how this process might work, let’s look at two different case studies* and the effect the policy review had on each client’s financial goals.

1) Underperforming whole life. A 54-year-old woman owned a whole life policy with about $550,000 of cash value. With her advisor’s help, she uncovered a need for both long-term care (LTC) and access to the life insurance cash value in case of an emergency. Additionally, the policy’s dividends were underperforming and declining.

The carrier accepted the full exchange amount and divided the cash value between a linked-benefit LTC policy and life insurance. It created a large pool for LTC expenses while maintaining a paid-up life insurance policy with a tax-free death benefit and access to cash values (see chart below).

insurance policy review

2) Overinsured with whole life. A 55-year-old man owned multiple whole life policies with about $325,000 of combined cash value and $3 million in death benefit, with an annual premium requirement of about $75,000. After a needs analysis, the advisor and client determined cash flow was more important than death benefit. High contract premiums were eliminated, and coverage was consolidated into one paid-up policy.

Here, the client was able to exchange about $325,000 of cash value into $1.4 million of coverage. The new coverage plan is guaranteed for the client’s lifetime without additional premium.

The Benefits of the Insurance Review Process

There are many benefits of working through this process—for you and your clients.

Close the insurance policy gap. New clients usually come with old policies—and an old policy may be one of the first things they ask about revisiting. There is constant turnover in the financial services world, and orphaned policies are typical. Closing this gap, and providing new clients with information around what’s best for them, can tighten the relationship you’re starting to form.

Build relationships with centers of influence. Your clients and prospects aren’t the only ones who need to understand the value of a policy review. Centers of influence and referral relationships, including CPAs, business and estate attorneys, and trust officers, often need a resource for an objective look at in-force life insurance policies.

Identify areas of weakness. As many as 7 of 10 policies could be improved by making changes. When a client’s current policy is failing, these common factors could be to blame:

  • Low interest rates: Many policies were sold years ago, with higher projected interest rates and dividends. But rates have fallen, and many policies haven’t kept pace with what was promised.

  • Mortality tables: Every time the industry revises mortality tables, life expectancy increases. There’s a strong chance your clients are paying a higher cost of insurance based on older assumptions of how long they are expected to live. Even some medical issues that once resulted in higher premiums could be reconsidered for improved pricing.

  • Poor management: Permanent life insurance has many benefits, but it needs to be treated like any other financial asset. If policies aren’t designed or managed carefully, they can lapse, which can create large tax consequences.

Remember, even if your review reveals no policy changes are needed, your clients will gain confidence— at no cost.

Ensuring the Right Protection

If done right, the insurance review process can be easy and collaborative. By determining if your client’s coverage still makes sense or if it’s time for something new, you’ll help ensure that your clients have the protection they need.

*These case studies are being shown for illustrative purposes only. Actual performance and results will vary. These case studies do not constitute a recommendation as to the suitability of any product or investment for any person or persons having circumstances similar to those portrayed, and a financial advisor should be consulted.

This material is for educational purposes only and is not intended to provide specific advice.

Please review our Terms of Use.


Enjoy thought leadership from some of the most respected, seasoned professionals in the industry.