1. Due Diligence in Selecting & Understanding Life Insurance Policies
Quad Cities Estate Planning Council
Due Diligence in Selecting & Understanding Life Insurance Policies
Presented by
Michael W. Halloran, AEP, CLU, ChFC, CFP®

2. Establishing the Need for Coverage

3. Need
Temporary need – term insurance
Permanent – Continuing need

4. Term Coverage Annual Renewable 10-20-30-Year Level Renewable
Convertible
Waiver of Premium

5. Permanent or Continuing Need
Whole Life
Participating
Portfolio
New Money
Universal Life
No guarantees
Secondary guarantees
Mortality Table
Company Financial Ratings
Guarantees and Problems
Purpose of Cash
Variable Life
Mortality and Expense Cost
Variable Universal Life
Investment Risk
Indexed Universal Life
Guarantees
Indexes
Participation Rate
Cap
Zero Cost Loans

6. Traditional Whole Life
Insurance
$1,000
Benefit
At Risk
Let’s review how ULSG is different from whole life and universal life’s original design.
We all know how pure whole life works. There’s a fixed premium. It provides a guaranteed death benefit and cash value. By age 100, the cash value equals the insurance amount. Lifetime coverage is provided.
Cash Value $0 50
Age
100

7. Traditional Universal Life
Insurance
$1,000
Benefit
At Risk
Lapse
With traditional universal life, premiums are flexible. Policy charges are deducted from the cash value. If too little premium is paid, the policy charges can exhaust the cash value. The policy could then lapse.
Cash Value $0 50
Age
100
Results may vary by carrier

8. Universal Life w/Secondary Guarantee
Insurance
$1,000
Benefit
With universal life with secondary guarantees, even if the cash value becomes zero, the policy will not lapse if the stipulated no-lapse premium has been paid or the “shadow account” is positive and other rules have been followed.
The stipulated premium and shadow account are ULSG policy designs. The shadow account design is the most common. The shadow account is a company benchmark. It is calculated the same way as the cash value, but with more aggressive assumptions. It is referred to as a shadow account because the policyholder has no access to it.
The no lapse premiums for either ULSG design often appear to be too good to be true. They can be significantly below the non-guaranteed premiums for blended whole life policies or the current non-guaranteed premium to maintain coverage on a regular universal life policy.
At Risk
Cash Value $0 50
Age
100+
Results may vary by carrier

9. Equity Indexed Universal Life
Insurance
$1,000
Benefit
At Risk
Lapse
With traditional universal life, premiums are flexible. Policy charges are deducted from the cash value. If too little premium is paid, the policy charges can exhaust the cash value. The policy could then lapse.
Cash Value $0 50
Age
100
Results may vary by carrier

10. Amount of Coverage
Estate
Business
Charitable

11. Understanding the Policy Illustration
Pro forma
Product Illustration
NAIC Illustration
Product enhancements (non-guaranteed)
Current experience
Past history
Current scale vs. portfolio method
Third party references

12. Professional Liability and Disclosure
Who are you liable to?
Policyowner
Insured
Beneficiaries
What happens if your recommendations are wrong?
How can you limit your liability?

13. Rates Mortality Expenses charges Interest Investing long
Investing short

14. Rating Agencies
Standard & Poor’s
Moody’s
Fitch
A.M. Best

15. Standard & Poor’s Moody’s Fitch A.M. Best
www.
standardandpoors.com
Moody’s
Fitch
A.M. Best
Superior
AAA
AAApi
Exceptional
Aaa
Highest
AAA A A
Excellent AA AA
AApi AA Aa Aa Aa
Very High AA AA AA A A
Good A A
Api A A A A
High A A A
Very Good B B
Adequate
BBB
BBB
BBBpi
BBB
Baa
Baa
Baa
BBB
BBB
BBB
Vulnerable/Fair B B
Vulnerable
BB+ to R
Not Rated
Weak
Ba1 to C
Not Rated
Non-investment grade
BB+ to CCC
Not Rated
C++ to F
Not Rated