The Underfunding/Overfunding Problem:The Answer Lies in These Three Considerations
"Hi everybody, Tyler Horning here, Principal at TDC Life. Today I wanted to talk to you about overfunding, underfunding, and not letting life insurance policies lapse."
Did you know that $600B of life insurance lapses every year? That may be intended or unintended. 69% of life insurance policies are never reviewed after they're sold. These are staggering numbers. And what it means is: life insurance companies are winning on these policies.
Life insurance companies are either collecting too much premium, or too little premium and the policy might ultimately lapse and they never have to pay out a death benefit. So how do you take back control for yourself or for your clients? We think there's 3 great ways:
The first is getting professional advice.
Find a life insurance professional that can review and help you manage the policies going forward. At TDC Life, we manage nearly $8B of life insurance death benefit on behalf of our clients. Some of those policies we sold to clients, and other policies we've been retained and engaged to help professionally manage the policies going forward. In either case, it's important you have somebody looking at the policies on a regular basis.
Life insurance is not an asset you can set and forget, and put the policies in a drawer and never look a them again. It would be unthinkable if you had a large portfolio of assets not to have an investment advisor, or not to at least review your investment plan on a regular basis. Yet most folks manage their life insurance policies that way.
The second is to do a longevity study.
How do you know if you're overfunding or underfunding your life insurance if you don't have a good expectation of how long the insured is going to live. There are professional companies out there, called life expectancy companies, that will provide a report based on somebody's medical records of how long they're projected to live based on the actuarial tables. It's important to have that data to understand how to properly manage a life insurance policy, or candidly, for doing any financial planning.
We at TDC Life have a service where we'd be happy to order medical records and procure some of these life expectancy reports on behalf of you or your clients
Third, there's the idea of potentially selling a policy for cash.
Before you might let a policy lapse, you should think about the idea of a life settlement. This is where you can sell a policy to an institutional buyer who will pay the policy owner cash to take over that policy. The buyer ultimately collects the death benefit and has to pay the premium, but the policy owner gets cash today.
Before you let a policy lapse, make sure you've considered a life settlement.
So, these are three important considerations in managing a portfolio of life insurance policies on a go-forward basis. We at TDC have been doing this for the past 60 years on behalf of our clients, and would love to help you with you or your clients' life insurance portfolios going forward. We're here to help, thanks for listening, and have a great day!"
-Tyler Horning, Principal