The importance of life insurance policy reviews

Life insurance is an important part of an overall financial strategy.

Its many uses include protecting a family in case of a premature death, funding a buy or sell agreement between business partners and ensuring a family business passes successfully from one generation to the next. Policies, especially those for the affluent, are designed around a specific set of goals and objectives that can change over time.

For example, a large liquidity event may mean the insured requires a larger death benefit to offset future estate taxes. Marriage or divorce may necessitate a change in beneficiaries and crediting rates may change minimum funding levels.

These are among the many factors to consider that could impact the performance and suitability of a life insurance policy. But for many, life insurance is a “set it and forget it” transaction.

After the sale, the policy is filed away and never to be revisited until it is too late. Regular life insurance reviews, performed by an experienced professional, can determine whether the policy is performing according to expectations and meeting financial objectives. It is important to review and determine that both product and planning objectives are being met. Some of the other significant reasons to conduct regular life insurance policy reviews include:


• Policy Funding Adequacy : Policies that have been underfunded may require additional premiums, adjustments to the benefits or other corrective action. Overfunded policies may require fewer premiums.

• Loans and Withdrawals: Lifetime distributions from permanent cash value life insurance products will affect policy performance. Periodic monitoring and review is essential to help ensure policies are meeting the intended objectives and to help avoid unexpected tax consequences.

• Crediting Rate and Charge Assumptions:Life insurance policies are illustrated under certain assumptions that may change over time, both positively and negatively. This may impact policy performance.

• Product Enhancements: New product types, features and riders may provide increased planning opportunities.

• Policy Maturity1: Older life insurance policies may have a maturity date of age 95 or 100. A policy review can help mitigate this problem.

• Favorable Tax Treatment on Exchanges2: Life insurance is a unique asset class that receives special treatment under the Internal Revenue Code. If an opportunity exists to improve on an existing life insurance policy, in most instances, a permanent life insurance policy may be exchanged, allowing the policyowner to obtain a new permanent life insurance policy while continuing to defer income taxation on any accumulated gain.


• Changes to Needs and Objectives:Risk tolerance can change over time and life insurance should be reviewed periodically to make sure the product type and design continue to be appropriate. Additionally, it is important to review policy ownership and beneficiary designations to ensure the objectives of the life insurance policy will be met.

• Regulatory Changes: State and Federal laws change over time and may impact planning objectives and results.

• Carrier Financial Strength: Like other major financial institutions, life insurance companies are reviewed by rating agencies to analyze strength and stability.

• Medical Advances: Improvements in how conditions are detected and treated may impact the underlying mortality assumptions used to price life insurance products. Newer products may provide superior overall financial performance.

Footnotes: 1 Coverage terminates and the cash value is paid 2 Section 1035 of the Internal Revenue Code

Rick Thomas is Chief Executive Officer of Thomas Financial, a financial services agency that provides life insurance, retirement planning, wealth management, and employee benefits to high net worth individuals and businesses. After graduating from the University of Tampa in 1972, Rick became a Top of the Table member of the Million Dollar Round Table, an elite organization recognized as the standard of excellence for financial services professionals. Rick is Chairman Emeritus of the Board of Trustees of the University of Tampa and supports a variety of civic and charitable organizations. To contact Rick, please call (813) 273-9416 or email rthomas@ Disclosure: Securities and investment advisory services offered through M Holdings Securities, Inc., a registered Broker/Dealer and investment advisor. Member FINRA/SIPC. Thomas Financial is independently owned and operated.

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