1. 1 Life Insurance Replacement Good or Evil? Copyright 2008 The Wealth Preservation Institute 3260 S. Lakeshore Dr. St. Joseph, MI 49085 269-216-9978 www.thewpi.org

2. 2 Duties and Responsibilities The Wealth Preservation Institute is all about making sure advisors are educated so they can provide the “best” advice to their clients. It is The WPI’s opinion that every financial planner and insurance agent should have a process by which they review new and current client’s life insurance policies. It is The WPI’s opinion that every CPA/EA/accountant and attorney who provides “estate planning” advice should have a process by which they review new and current client’s life insurance policies.

3. 3 Is life Insurance Replacement Evil? No. In fact, not only is it not evil, The WPI believes it is the duty of a quality advisor to review policies on a periodic basis. To do otherwise could leave clients with life policies that are not sufficient, not competitive, not the proper kind, not owned by the right person or trust, or are simply too expensive.

4. 4 Paramount Principle To ensure that all clients have the best possible life insurance solutions available. Is your client’s insurance up to P.A.R?

5. For All Recommendations… Always put the client first Highest ethical standards Gather all of the facts Abide by the “golden rule” – provide the same service and recommendations to clients which, in the same circumstances, you would apply to yourself

6. Purpose – Take A Good Look at the Policy! Assure that the insurance need hasn’t changed Uncover changes in underwriting status, good or bad Review policy performance Review policy provisions Review beneficiary status Review loan status (if appropriate)

7. Issues You May Uncover Amount No Longer Appropriate For Clients’ Needs Change in Clients’ Needs or Objectives – Family situation has changed – Client may have new goals – Business need has changed – Changes in lifestyle

8. Clients May Own Life Insurances Policies That: Need no changes, giving client peace of mind Need beneficiary designations updated Could be more efficiently consolidated into a single policy Are under-funded Issues You May Uncover

9. Clients May Own Life Insurances Policies That: Don’t have desired features such as: – Secondary guarantees (did not exist prior to 2001) – Preferred Plus underwriting – Extended maturity (did not exist prior to 1999) – Low cost or zero spread loans – Accelerated Benefits Rider Are not meeting clients’ current needs Issues You May Uncover

10. Some Policies May be in Danger of Lapsing Because:  Low interest rate environment/ low interest crediting rate  Lower than anticipated investment performance (VUL)  review subaccount allocations More premium may be needed to fulfill the original goal. Issues You May Uncover

11. Some Policies May be in Danger of Lapsing Because:  Reduction in Dividend Rates (WLP)  Increasing Premium (Term)  Direct recognition -- Loans on participating whole life that have lower dividends on policy loans More premium may be needed to fulfill the original goal Issues You May Uncover

12. Some Policies May be in Danger of Lapsing Because of Policyholder’s:  Taking multiple policy loans  Making excessive withdrawals  Not making premium payments  Changing the face amount or death benefit More premium may be needed to fulfill the original goal Issues You May Uncover

13. Some Policies May be in Danger of Lapsing Because of Policyholder’s:  Adding riders  Resistance to paying escalating premiums  Term Insurance and Blended Policies (combo of term and permanent)  Lower cost initially, but can be more expensive later More premium may be needed to fulfill the original goal Issues You May Uncover

14. Why a Review of all Policies? If Your Client Owns Multiple Policies, All Policies Should be Reviewed.  Determine why there are multiple policies.  Each policy should efficiently contribute to the coordination of the client’s comprehensive insurance program.  Consider group as well as individual coverage.

15. Why a Review?  Provide Value to Client  More Competitive Products  Significant Reduction in Mortality Costs over the last 5-10 years  New Business & Referrals  Avoid a Complaint

16. Re-evaluation of Underwriting  More history since health occurrence  Improved health, lost weight, healthier lifestyle  Change in smoking status  Do they qualify for one of the new, improved underwriting classes available today?  Change in avocation status  More experience (Example: pilots, divers)  Age of traffic violations Why a Review?

17. If Under-Funded… Possible Solutions  Increase the future premiums to make up for the shortfall.  Improve underwriting class, if eligible  Drop unnecessary riders  Decrease face if need has decreased

18. Problems With These Solutions  Clients may not want to pay more  Increased premiums to ILIT’s may create taxable gifts  Reluctance to contribute to policy in economic environment of low interest rates (UL) or low subaccount growth (VUL) If Under-Funded…

19. Problems With These Solutions  If policy has an existing loan and client making further loans to make premium and interest payments, problem only becomes worse  Need for current level of insurance remains  Desired changes may not be available nor meet planning objectives If Under-Funded…

20. 20 A New Policy… But Be Cautious: Ensure that every client has the best possible life insurance solution based on the client’s needs and wants – whether it is keeping and adjusting his/her current policy or replacing it with a more appropriate policy. Another Possible Solution

21. Potential Solutions Reasons to Keep Current Policy  Surrender of an existing policy may incur a surrender charge; purchase of a new policy would impose yet another surrender schedule  Need for life insurance is temporary  Higher guaranteed minimum interest crediting rates may be available in the current policy

22. Reasons to Keep Current Policy  Adverse health change  New contestable and suicide periods  Limits on transferring loans  Tax consequences  Tax benefits issues  New acquisition costs Potential Solutions

23. Reasons to Consider Exchange or Replacement  Company strength – has the existing Insurer had significant recent drops in ratings  Has company increased mortality costs, lowered crediting rates or modified bonuses on current policy?  New benefits/riders may not be available on older plans  Term insurance getting expensive and need continues Potential Solutions

24. Case Study # 1 Existing Policy Male 66, UL Issued in 1986 Premium = $7,200 Death benefit = $500K $74,890 Cash Surrender At current assumptions, policy will lapse at age 79 New Policy New Generation UL Premium = $7,200 Death benefit = $500K $74,890 1035 Exch. Guaranteed to age 96 Results: 17 additional years of coverage (guaranteed) for the same premium! Option #1

25. Existing Policy Male 66, UL issued 1986 Increase premium to $9,694 Death benefit = $500K At current assumptions, policy will lapse at age 82. New Policy New Generation UL Premium = $9,694 Death benefit = $500K Guaranteed for life $178,269 of cash value at age 82 Results: Lifetime coverage for the same premium and strong cash values! Option #2 Case Study # 1

26. Husband and wife (ages 71/68) bought 4 SUL policies from 1992-1996 Purpose of sale was estate liquidity Total premiums = $260,374 Total cash value = $147,694 $10M death benefit total Both husband and wife issued standard Case Study # 2

27. Review Revealed Clients:  Wanted cash value in policy in case estate tax repealed  Would like to lower gifts to trust  Could qualify for preferred non smoking rate  Some policies would lapse soon without increased premium Case Study # 2

28. Action Proposed: 1035 all 4 policies into $10M New Generation Survivorship Life Policy Results: Lower annual premiums to $162,128 (client saves $98,246 per year) Cash surrender value on current non- guaranteed factors = $844,499 in year 2011; almost $2.4M at age 100 Case Study # 2

29. Underwriting Enhancements Male, age 56, Standard in 2002 $400,000 face amount – High cholesterol, overweight – Lost weight, lowered cholesterol – 2004: Upgrade to preferred plus Result: Existing Policy Retained Client Saves $5,494 per year Case Study # 3

30. Avocation or Risk Changes Male, age 40, preferred non-tobacco, issued in 2001 Multiple speeding violations within 3 years prior to issue $1M face amount Reviewed in 2004 – clear MVRs and all other factors Upgrade to preferred plus rates Result: Existing Policy Retained Client saves $810 per year Case Study # 4

31. Points To Remember Life Insurance is like a home mortgage, you do need to compare and evaluate from time to time. –If you ever refinanced your mortgage you know the importance of interest rates. Inaction could cost your clients thousands of dollars.

32. With changes in interest rates, and for variable products, fluctuations in subaccounts, many life insurance contracts are not performing as originally expected. Old policies could die before the client does. Points To Remember

33. New policy designs are coming out all the time from the insurance industry. For example- –Revolutionary Life offers several riders (some for free) like: Points To Remember Accelerated Benefits –Terminal Illness –Chronic Illness –Critical Illness Accidental Death Benefit Children’s Term Disability Income –2-year –5-year Extension of Benefits Guaranteed Insurability Long-Term Care Other Insured Unemployment Waiver of Target Premium

34. The Review Process 1. Who should receive a review? All of your clients should receive a periodic life insurance needs analysis and evaluation of their existing policies. We recommend that this service be provided at least every 1 to 3 years.

35. A life insurance needs analysis is also appropriate for those policyowners where:  The need for insurance may have changed  Insureds have had a change in health status  Policies have large outstanding loans, withdrawals or other activity affecting policy performance The Review Process

36. A life insurance needs analysis is also appropriate for those policyowners where:  Term policies have become expensive with age, the need for insurance has become permanent  Policies in trusts that haven’t been reviewed in several years  Policies from insurers that have experienced significant recent drops in ratings. The Review Process

37. 2. Send out pre-approach letter and follow up. Perform a complete needs analysis to determine clients’ current and future needs. Request and review one or more in-force illustrations from existing carrier. The Review Process

38. 1.Review the existing policies. 2.Compare all of the alternatives. 3.Help clients make the right decision. If new policy is recommended, submit the appropriate application. Do not replace existing insurance until replacement insurance is in force and accepted by the client. The Review Process

39. Life Insurance Professional Analysis and Review... Why offer one? Deliver Value → Client satisfaction. Deliver Value → Client retention. Deliver Value → More referrals. Deliver Value → Enhance your professionalism.

40. P.A.R. program  Great for Networking With: CPAs, Attorneys, Trust Officers P&C firms Banks Policy Analysis & Review

41. ISN Marketing Material Pre-approach letters for –Clients –Attorneys –Trust officers –CPAs –Agents Producer Guide –Issues to discuss; pros/cons of keeping existing insurance versus new coverage Policy Analysis and Review Software See attached part of a typical sales presentation you would provide to your clients. Policy Analysis & Review

42. For Complete information on our Life Insurance Professional Analysis and Review, contact Jeffrey Berson; President ISN Network 800-338-1892 x 215 jberson@teamisn.com Policy Analysis & Review

43. QUESTIONS?