IMGCAP(1)]Clients often seek counsel from their accountants and financial planners regarding proper life insurance coverage, especially when a policy might be used to secure family income or protect financial assets.
However, not all CPAs are equipped with the right knowledge and tools to start clients on the right path, both with new coverage and with policies clients may have long held. Recently, and for good reason, financial professionals have noted a rise in these types of requests.
After all, in 2015, five separate insurance carriers raised the monthly cost of insurance on thousands of older nonguaranteed universal life policies, which has affected mainly seniors who have held policies for decades. Now, a sixth carrier has followed suit, hitting the same age group.
Variable life policies have typically seen returns below original projections, putting these clients significantly underwater and jeopardizing their futures. Even whole life policies from rock-solid, trusted carriers have earned dividends far below original estimations, based on the projection at time of sale.
Unfortunately—and perhaps, unsurprisingly—life insurance carriers do not make an accountant’s job easy. Annual statements are cryptic at best. Accurate in-force illustrations are becoming more difficult and complicated to obtain from policy service departments that are becoming over-automated and increasingly undertrained.
Adding insult to injury, the vast majority of software products billed as “life insurance audits” are little more than policy comparison spreadsheets that provide no basis for factual analytics and certainly don’t help CPAs provide informed recommendations for best practices.
The Future of Life Insurance Policies as Financial Assets
In my nearly three decades of experience as a Certified Financial Planner, I have seen clients enjoy the immense benefits of a properly structured life insurance policy in addition to other assets. In our new financial reality, accountants can and should be empowered to lead the life insurance policy review process, in essence to become the “adult in the room” to best counsel clients.
Without a controlled, consistent and objective protocol for evaluating policies, CPAs unknowingly advise clients using distorted, inaccurate information. Fortunately, the financial industry can transform the current inconsistent review process into a systemized and accurate policy audit with the following recommendations:
• Conduct a Suitability Review – This ensures the type and structure of the coverage matches a client’s financial goals. For example, if a policy’s purpose is to pay estate taxes, it may not be suitable to utilize a premium funding strategy that accumulates a significant cash value. Establish clear objectives and expectations with your clients and their attorneys.
• Obtain a Rate Class Assessment – To determine if existing coverage is priced efficiently, you must know how carriers would treat the client if they were formally underwritten. Often, two carriers view a client’s medical history through completely different lenses—the process is quite subjective! This assessment requires review of the client’s medical history by an independent, unbiased underwriter.
• Gather Policy Data – Completing the first two steps provides a context for requesting the following information from the existing carrier. Discuss specifics with your client, but below, find a starting point:
• Confirmation of the owner and beneficiary
• Premium history and tax basis
• Funding projections at current and guaranteed values
• Alternate funding patterns to accommodate changes in circumstance
• Survey the Market – Evaluate competitive options from other carriers. Assess them against a client’s existing or proposed plan.
• Conduct a Carrier Financial Review – Identify and evaluate ratings and data for the in-force carrier and those utilized in the market survey.
• Oversee an Option Analysis – The goal is to produce actionable information to improve the client’s probability of success. This process should include benchmarking each option’s premiums vs. death benefit, against an arbitrary investment return (illustrated in the chart below) to determine the breakeven point.
As financial professionals, we must advocate for our clients, especially in a new and changing landscape where life insurance policies can yield incredible security and long-term gains. Armed with the right information and the right tools in this evolving space, CPAs and other industry professionals have an obligation to empower their clients. Together, financial professionals and their clients can truly become partners to protect their families and businesses with thoughtful and appropriate plans that make their ultimate financial goals a reality.
Gary DeVicci, MSFS, CFP, oversees the financial planning team at CPI Companies. DeVicci is responsible for the suitability elements of the firm’s PolicyAudits.com product and services. For more information about DeVicci or to inquire about financial services, call (856) 874-1250, visit
[IMGCAP(2)]
