Life Insurance Review Issues

1
Life InsuranceReview Issues
2
Factors That Cause Life Insurance Policies To Be
Reviewed

1. A review of the impact of declining interest
   rates or dividend scales on the non-guaranteed
   assumptions of the in-force policy.
2. A decline in ratings of the in-force insurance
   carrier.
3. A Comdex review of the in-force carrier.
4. Keep in mind that where a promise of future
   performance is sold for present dollars, the
   buyer is at the sellers mercy.
5. Industry-wide product and pricing improvements
   (i.e. improved mortality assumptions, lower cost
   of insurance charges.)
6. A change in company structure, financial
   stability and ability to meet its ongoing
   obligations.

3
Factors That Cause Life InsurancePolicies To Be
Reviewed (Continued)

1. A proper review will assist your insured to get
   the most insurance for their money and make
   certain that the insurance product is high
   quality and appropriate policy for their need.
2. Improvements in underwriting allow better
   distinction of risk class. Examples include
   super-preferred risk class, and Table Shave
   programs.
3. Regulations require that the relationship between
   insurer and policy holder remain reasonable and
   every effort has been made to maintain policy
   holder expectations. A review of policy
   provisions confirms that this relationship is
   clear and fair.

4
Factors That Cause Life InsurancePolicies To Be
Reviewed (Continued)

• Guarantees are only as good as the guarantor. A
  thorough evaluation of the carrier should be
  paramount to selection of contracts promising
  long term guarantees.
• Review the laws of your state on the fiduciary
  responsibilities of trustee owned policies.
• Change in planning goals or circumstances. Risk
  tolerance and planning goals change as the client
  ages. A more appropriate product or financial
  vehicle may be available.

5
General Rules OfA Trustees Duty
6
General Rules Of A Trustees Duty - To Review
Insurance That IsNo Longer Prudent

1. General rule A trustee must review investments
   on a regular basis and dispose of investments
   that are no longer prudent within a reasonable
   time- this applies to life insurance policies.
   (As per Uniform Investors Act, 1995)
2. A trustee who violates their fiduciary
   responsibility can be held personally liable for
   any loss to the investment. (As per Uniform
   Investors Act, 1995)
3. This rule applies to investment management both
   inter vivos and testamentary (during and after
   lifetime).
4. Every state has different statutes and/or case
   law interpretation of a trustees duties under
   specific fact situations.

7
General Rules Of A Trustees Duty - To Review
Insurance That IsNo Longer Prudent (Continued)

1. In most states, the trust document trumps state
   law unless trust provisions are clearly illegal
   or against public policy.
2. The majority of states have statues that read it
   is the duty of the trustee to exercise prudence
   in determining whether to retain investments made
   by the settler (prudent man rule).
3. Professional responsibility is to review the
   investment to determine if the fiduciary
   responsibility has been compromised. The courts
   have ruled a trustee is not justified in
   retaining investments that are no longer
   appropriate.

8
Selected Issues In1035 Exchanges
9
Exchanges In LifeInsurance Contracts

• Section 1035(a) of the Internal Revenue Code
  provides that no gain or loss will be recognized
  on the exchange of a life insurance contract for
  another life insurance contract, for an annuity
  contract or for an endowment contract. As the
  following will indicate, certain conditions will
  apply and the transaction may have other
  implications that should be understood
• Contract with an Outstanding Premium Loan
• Exchange of the policy following a partial
  surrender
• Exchange of a Modified Endowment Contract
• Exchange of a pre-June 21, 1988 single premium
  life insurance contract
• Policy loan limits- Exchange of a pre-June 21,
  1986 Business-owned contact
• Grandfathered loan limits
• Business Exchange rider
• Change of ownership in a policy exchange
• Exchange for a Survivorship policy
• Exchange into an existing contract

10
A Life Insurance Analysis
Sample Client Issue Age 47, Current Age 65
XYZ. Co. Universal Life 1,000,000 30,000
284,823 January 1, 1989 Estate
Liquidity/Planning Evaluate Performance and
Possible Alternatives
Current Insurance Company Product Death
Benefit Current Annual Premium Year End
Projected CSV (1035) Policy Date Objective
Audit Objective
11
Ownership, Funding and Beneficiary
XYZ. Co. Universal Life Policy Issue Age 47,
Current Age 65

1. This policy is currently owned by the XYZ Family
   Trust, 1989, ABC serves as the trustee.
2. The XYZ Family Trust is the listed Beneficiary.
3. Sample Client gifts 30,000 annually to the trust
   in order to fund the policy. The year end
   projected surrender value is 284,823.
4. It is recommended that the legal and tax counsel
   assist in reviewing these arrangements.

12
Rate Class Review
XYZ. Co. Universal Life Policy Issue Age 47,
Current Age 65

1. The 1989 Sample policy indicates that the policy
   was issued as a non-smoker classification.
2. Based on the medical information provided, using
   current underwriting criteria, a few select
   companies are likely to offer a Preferred
   Non-Smoker classification.
3. Medical testing will be required to validate rate
   classification.
4. A reduction in policy cost if Preferred
   Non-Smoker rates are obtained.

Lower Cost
Higher Cost
Preferred Plus Preferred Risk Classes
Standard Non-Smoker Risk Classes
Preferred Smoker Risk Classes
Standard Smoker
Risk Classes
Rated and Substandard Risk Classes

13
Policy Performance Assessment
XYZ. Co. Universal Life Policy Issue Age 47,
Current Age 65

1. The current net death benefit is 1,000,000
2. The annual premium is 30,000
3. The year end projected surrender value is
   284,823
4. At the current funding level, COI and current
   interest crediting rate, the policy is projected
   to remain in-force to Age 83.
5. At the current funding level, Maximum COI and
   minimum interest crediting rate, the policy Is
   projected to remain in-force to Age 73.

Continued.
14
Policy Performance Assessment
XYZ. Co. Universal Life Policy Issue Age 47,
Current Age 65
Continued.
Non-Guaranteed Assumptions Non-Guaranteed Assumptions Non-Guaranteed Assumptions Non-Guaranteed Assumptions Non-Guaranteed Assumptions
Policy Year Premium Outlay Net Policy Value Net Surrender Value Net Death Benefit
18 0.00 284,823 284,823 1,000,000
19 30,000 305,466 305,466 1,000,000
20 30,000 325,105 325,105 1,000,000
21 30,000 343,500 343,500 1,000,000
22 30,000 360,233 360,233 1,000,000
23 30,000 375,232 375,232 1,000,000
24 30,000 388,158 388,158 1,000,000
25 30,000 398,697 398,697 1,000,000
26 30,000 406,301 406,301 1,000,000
27 30,000 410,139 410,139 1,000,000
28 30,000 386,022 386,022 1,000,000
Age 83 30,000 86,758 86,758 1,000,000
15
Policy Performance Assessment
XYZ. Co. Universal Life Policy Issue Age 47,
Current Age 65
Continued.
Guaranteed Assumptions Guaranteed Assumptions Guaranteed Assumptions Guaranteed Assumptions Guaranteed Assumptions
Policy Year Premium Outlay Net Policy Value Net Surrender Value Net Death Benefit
18 0.00 265,739 265,739 1,000,000
19 30,000 263,707 263,707 1,000,000
20 30,000 256,599 256,599 1,000,000
21 30,000 243,495 243,495 1,000,000
22 30,000 223,193 223,193 1,000,000
23 30,000 193,979 193,979 1,000,000
24 30,000 153,435 153,435 1,000,000
25 30,000 98,193 98,193 1,000,000
26 Age 73 30,000 23,566 23,566 1,000,000
27 0.00 0
28 0.00 0
16
What Can I Do?
1035 The Net Cash Surrender Valuefrom the
current XYZ Company to aFully Guaranteed
Universal Life Policyand never worry about your
policy lapsing again.
17
This report should only be used in conjunction
with the complete illustrations, reports, and
professional interpretation of a properly
licensed representative.

• This is not tax or legal advice.

18
Summary of Alternatives
Current Policy
Company Name Rate Class Current DB
Current Prem. Ratings
Guaranteed To Projected To
XYZ Co.
Preferred
1,000,000
30,000
A AA
Age 73 Age 83
The alternatives assume a 1035 exchange of
284,823.
Objective Increase and Extend Coverage Objective Increase and Extend Coverage Objective Increase and Extend Coverage Objective Increase and Extend Coverage Objective Increase and Extend Coverage Objective Increase and Extend Coverage Objective Increase and Extend Coverage Objective Increase and Extend Coverage Objective Increase and Extend Coverage
Rank Company Name Rate Class Benefit Amount Premium A.M. Best SP Guaranteed To Projected To
1) Company A Preferred 1,725,700 30,000 A AA Lifetime Lifetime
2) Company B Preferred 1,612,801 30,000 A AA Lifetime Lifetime
3) Company C Preferred 1,602,976 30,000 A AA Lifetime Lifetime
4) Company D Preferred 1,513,243 30,000 A AAA Lifetime Lifetime
19
Summary of Alternatives
Current Policy
Company Name Rate Class Current DB
Current Prem. Ratings
Guaranteed To Projected To
XYZ Co.
Preferred
1,000,000
30,000
A AA
Age 73 Age 83
The alternatives assume a 1035 exchange of
284,823.
Objective Reduce Cost Objective Reduce Cost Objective Reduce Cost Objective Reduce Cost Objective Reduce Cost Objective Reduce Cost Objective Reduce Cost Objective Reduce Cost Objective Reduce Cost
Rank Company Name Rate Class Benefit Amount Premium A.M. Best SP Guaranteed To Projected To
1) Company A Preferred 1,000,000 7,677 A AA Lifetime Lifetime
2) Company B Preferred 1,000,000 9,221 A AA Lifetime Lifetime
3) Company C Preferred 1,000,000 9,466 A AA Lifetime Lifetime
4) Company D Preferred 1,000,000 11,844 A AAA Lifetime Lifetime
20
Summary Comparison
Objective Cost Reduction Increase Guarantees Objective Cost Reduction Increase Guarantees Objective Cost Reduction Increase Guarantees
XYZ Co. (Current Company) Company A
Annual Premium 30,000 7,677
Death Benefit 1,000,000 1,000,000
Years Guaranteed 8 Lifetime
Underwriting Class Standard Non-Smoker Preferred Non-Smoker
Company Ratings
A.M. Best A A
S P AA AA
Moodys Aa3 Aa1
21
Conclusion

1. Mortality class could be improved from Standard
   Non-Smoker to Preferred Non-Smoker based on
   current underwriting criteria.
2. Policy is projected to lapse at Age 83 at current
   funding levels of 30,000 annual premium with a
   Death Benefit of 1,000,000.
3. Policy will lapse at age 73 at current funding
   levels and guaranteed assumptions of 30,000
   annual premium with a Death Benefit of
   1,000,000.
4. The Cash Value of the 1035 Exchange is presently
   284,823.
5. By using a No Lapse Guarantee product, can now
   provide a Lifetime guarantee and the annual
   premium is reduced from 30,000 to 7,677
   utilizing the 1035 cash value. The Death Benefit
   is the same as the present policy of 1,000,000.

22
Appendix

1. No Lapse Guarantee The latest generation of No
   Lapse Guarantee UL products offer flexibility in
   premium and the ability to catch-up if premiums
   paid are less than illustrated.
2. Information about the Trustee Due Diligence
   Requirements With Respect to Trust Owned Life
   Insurance Policies this is just general
   information about trusts due diligence in
   regards to owning a life insurance policies.
3. Letter for Life Insurance Review of Current
   Policies this sample letter is used to write to
   clients that own older policies to make them
   aware that new products have been introduced
   which might be more beneficial than their current
   policy so they should review their current
   situation.
4. Letter of Authorization to Release Policy
   Information this letter is used for agents that
   are in need of information in regards to their
   clients current policy which they are not the
   agent of record.
5. Letter of Trust this letter is used for policies
   owned by a trust that are looking to receive
   information on their current policies for their
   annual review of coverage. The review is required
   in order to fulfill the trusts fiduciary
   responsibility to regularly monitor the
   performance of all investments owned by the trust.

23
How Do Changes in Premium Effect the No Lapse
Guarantee?

• The no lapse guarantee duration is driven by the
  amount of premium paid into the policy. If
  premiums are paid late or not at all, the
  guarantee period could be shortened.
• Product enhancements have been made to allow for
  greater premium flexibility and more liberal
  catch-up provisions. It is possible to skip a
  year of premium without voiding the guarantee
  entirely.
• Each company handles their catch-up provision
  differently. Some even offer a no-interest, no
  penalty catch-up feature.
• Annual monitoring will ensure the no lapse
  guarantee is not accidentally lost or shortened.
  Flexibility in premium demands regular policy
  review.

24
Trustee Due Diligence Requirements With Respect
to Trust Owned Life Insurance Policies
Introduction The Uniform Prudent Investor Act
(the Act) was developed by the National
Conference of Commissioners on Uniform State Laws
in 1995 and has been adopted with various
modifications by all 50 states. The Act sets
forth standards of prudence to be followed by
trustees in establishing investment policy and in
the selection and monitoring of trust
investments. The Act measures prudence in terms
of the process by which investment decisions are
made as opposed to classifying categories of
investments as prudent or imprudent per se (the
so called legal list standard). The General
Standard The Act requires that the trustee
design and implement an investment policy and
select investments to carry out this policy in a
manner that is consistent with the trusts unique
purposes and properly reflects the needs and
circumstances of the trust beneficiaries. In this
regard, the trustee should invest and manage
trust assets as a prudent investor would, taking
into consideration the purposes of the trust, its
terms and conditions, distribution requirements
and other circumstances. In satisfying this
standard, the trustee is required to exercise
reasonable care, skill and caution. Failure to
adhere to this standard could subject the trustee
to personal liability not only for losses
sustained but also, mere failure to exercise
reasonable care, skill and caution even though no
actual economic loss is demonstrated. In
addition, trustees are required to confirm to
fundamental fiduciary duties of loyalty and
impartiality, be prudent in deciding whether and
how to delegate authority in the selection and
supervision of agents and incur only those costs
that are reasonable in amount and are appropriate
to the trustees investment responsibilities. 

25
Trustee Due Diligence Requirements With Respect
to Trust Owned Life Insurance Policies
(Continued)

• Due Diligence Standard for Trust Owned Life
  Insurance
• In the absence of language to the contrary in the
  trust instrument, the Act mandates that the
  trustees duties and responsibilities with
  respect to life insurance policies purchased by
  the trust or contributed by others are to be
  governed by the same standards as apply to any
  other trust investment. Thus, in the selection of
  life insurance policies to be acquired by the
  trust, in the evaluation of policies contributed
  to the trust and in the ongoing monitoring of the
  performance of these policies, the trustee will
  be held to the same standard of care, prudence
  and due diligence as applies to any other trust
  investment.
• In this regard, the trustee has the initial duty
  of acting prudently in selecting the life
  insurance policy that reflects the risk and
  return objectives of the trust. If life
  insurance policies are contributed to the trust,
  the trustee has the affirmative duty to review
  these policies to make certain that they meet the
  standards enumerated above. Once acquired by or
  received by the trust, the trustee has an ongoing
  responsibility to periodically monitor these
  policies and when appropriate, take such actions
  with respect to such policies are necessary to
  protect the interests of the trust and its
  beneficiaries.
• Circumstances where a change in the structure of
  an existing policy, a replacement of an existing
  policy with another issued by the same or another
  carrier or the surrender other disposition of an
  existing policy include but are not limited to
  the following.
• an adverse change in the financial strength of
  the current carrier
• a change in the investment or economic
  environment or economic environment which will or
  has the potential to adversely impact the
  underlying investment performance of the policy
• a change in the circumstances of the trust, the
  settler or its beneficiaries
• a change in the tax, legislative or regulatory
  environment which impacts the need the policy as
  intended to address
• product enhancements, pricing improvements and
  other favorable product changes which could
  result in reduced costs or increased benefits if
  the change is made

26
Trustee Due Diligence Requirements With Respect
to Trust Owned Life Insurance Policies
(Continued)

• Conclusion
• The requirement that the trustee act prudently
  and exercise reasonable care, skill, and caution
  in carrying out investment responsibilities
  applies to life insurance policies as well as
  other trust investments. In the event that the
  trustee determines that a change is appropriate,
  an analysis should be undertaken to determine
  what action will serve the purpose of the trust
  and the best interests of its beneficiaries.
  This analysis should include an evaluation of the
  expected future performance of the existing
  policies, the financial circumstances of existing
  carriers, the current health status of the
  insured(s), the purpose for which the insurance
  was originally purchased and such other matters
  that are relevant to this analysis.
• Failure to adhere to the required standard of
  prudence can be significant. A trustee can be
  held personally liable for failing to act
  prudently in carrying out its duties and
  responsibilities under the terms of the trust.
  Such duties and responsibilities include the
  initial evaluation and periodic review of life
  insurance policies purchased or acquired by the
  trust. Failure to take appropriate action with
  respect to such policies in light of changes in
  policy performance, deteriorating carrier
  financial integrity or changes in beneficiary or
  other circumstances could be considered a breach
  of the trustees duty of prudence.

27
Date MM/DD/YEAR   Mr. Mrs. Valued
Client Street Address City/ State/ Zip   Re Life
Insurance Policy Review     Dear Mr. Mrs.
Valued Client   The life insurance industry has
gone through some dramatic changes in the past
several years in the design and pricing of its
products.   These changes are a direct response
to consumer demand for products that are more
flexible and more readily adaptable to changes in
the insureds circumstances, the fact that actual
mortality experience has been significantly
better than what was originally expected when the
products were priced, improved expense
management, better than anticipated investment
performance and a greater range of investment
alternatives to choose from.   As a result of
these changes, it is not uncommon to encounter a
situation where an existing life insurance
portfolio put into place before these changes
took effect can be dramatically improved upon in
terms of coverage, cost, investment alternatives,
investment performance and/ or product
flexibility.   If you own (or have in force) life
insurance coverage on your life that is more than
5 year old, it is possible that such coverage can
be restructured on a tax favored basis to
increase the amount of available death benefit,
lower the cost for the same amount of coverage,
provide a wider range of investment choices,
improve investment performance and/ or provide
you with greater flexibility to adapt the
coverage to future changes in your personal and
gamily circumstances.   In order to determine
whether you life insurance portfolio is capable
of being improved, we will need to obtain basic
information regarding your existing policies and
your current health status. Once we have
completed our analysis, we will be able to
quantify for you whether a change would be in
your best interest taking into consideration the
expected future performance of the existing
policies, your current age and your current
health status.   Sincerely,   Your Name Click
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Authorization to Release Policy
Information     Date MM/DD/YEAR   To Name (If
Insurance Company) Attention Policy Owner
Service Department Street Address
City, State ZIP     Re Policy Number
xxxxxxx   To Whom it May Concern   Please be
advised that I (we), _____________________________
_____, have retained the right to review the
above listed life insurance policy(ies). In order
to conduct this review for we will need to
evaluate certain information regarding the past
and expected future performance of the listed
policy(ies). I herby authorize the release of any
and all information pertaining to the listed
policy(ies) including, but not limited to
original illustrations upon which the original
purchase was base, current policy values, loans
outstanding, current projections of future
performance, illustrations of projected
assumptions, policy forms, rider and amendments
and such other relevant information that deems
relevant with respect to the evaluation of these
policy(ies).   I agree that a photocopy or
facsimile of his Authorization shall be as valid
as the original. I further agree that this
Authorization shall be valid for the longer of
lifetime of the undersigned insured (or the last
to die of the insureds if there are two or more
insured under the policy) or the maximum period
permitted under the laws and regulations of any
state having subject matter jurisdiction over
this Authorization. Policy Owners   Signature
________________________ Date _ _/ _ _/ _ _ _
_ Print Name ___________________   Signature
________________________ Date _ _/ _ _/ _ _ _
_ Print Name ___________________
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Date MM/DD/YEAR Name of Life Insurance
Company Street Address City/State/Zip   Re Name
of Trust   To Whom It May Concern Please be
advised that I (we) are conducting an annual
review of the life insurance policy(ies) listed
below which are owned by the Trust. The review is
required in order to fulfill my (our) fiduciary
responsibility to regularly monitor the
performance of all investments owned by the trust.
In order for us to complete our review, we will
require the following information For each whole
life policy, please provide an in force
illustration showing projected policy performance
based upon current dividend crediting rate and
assuming the same duration of premiums payment as
was illustrated when the policy was originally
purchased. Second, please provide an illustration
of the amount and duration of premium payments
that would be required to maintain this policy in
force to maturity bases upon current dividend
crediting rates and assuming that dividends are
applied in the same manner as was originally
illustrated. For each universal life policy,
please provide an in force illustration showing
projected policy performance based upon the
current interest crediting rate and assuming the
same duration of premium payments as was
illustrated when the policy was originally
purchased. Second, please provide an illustration
of the amount of additional premium, if any, that
would be required to maintain each policy in
force to maturity at current interest crediting
rates again assuming that premiums will be paid
for the same duration as was illustrated when the
policy was originally purchased. Third, please
provide an illustration of the amount of annual
premium that would be required to maintain this
policy in force to maturity based upon current
interest crediting rates assuming that premiums
are paid annually to maturity. Finally, Please
verify that each policy includes a maturity
extension rider or similar policy features that
will allow such policy to continue in force
beyond maturity without further expenditure of
premium and describe the terms and limitations of
such rider or similar policy features. For each
variable universal life policy, please provide an
in force illustration showing projected policy
performance based upon actual historic investment
performance (and assuming that such performance
is maintained to the maturity of the policy) and
assuming the same duration of premium payments as
was illustrated when the policy was originally
purchased. Second, please provide an illustration
of the amount of additional premium, if any, that
would be required to maintain each policy in
force to maturity based upon historic investment
performance (and assuming that such performance
will continue until maturity) again assuming that
premiums will be paid for the same duration as
was illustrated when the policy was originally
purchased.   Signature of Trustee
____________________________Date _ _/_ _/_ _ _ _
Signature of Trustee
____________________________Date _ _/_ _/_ _ _
_ Signature of Witness __________________________
_ Date _ _/_ _/_ _ _ _
Signature of Witness __________________________
_ Date _ _/_ _/_ _ _ _   Name of Trust
__________________________________________________
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format
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The Life Insurance Review Agent Checklist

• Client and policy summary
• Review of the structure of the policy, ownership,
  beneficiaries, and payment methods, relative to
  your objectives.
• Re-evaluate the underwriting rate class.
• Asses the possibility of a rate-class
  improvements.
• Evaluate the effect of changes in interest
  rates/sub-account performance, increase in cost
  of insurance, or any combination of these.
• Fair market value assessment of the policy, if
  applicable.
• Evaluate the financial stability of the insurance
  company.
• Objective and comprehensive evaluation of
  potentially cost effective or beneficial
  alternatives.
• List of Options.

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