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04/13/2011                                                          SAMPLE                                              Al...
Preface & Disclosures    The material in this report is designed to provide accurate and authoritative information regardi...
Table of Contents    Introduction – Page 4    Life Insurance Education – Page 6    Insured Underwriting and Life Expectanc...
LC                                                                     s, L    Introduction                           L E ...
Introduction    A life insurance purchase is a long term financial commitment and it is important to    purchase the right...
LC                                                               s, L    Life Insurance Education                         ...
Life Insurance – Carrier and Product Considerations    A variety of factors come into play when considering the purchase o...
Life Insurance – Overall Plan Costs    The required premiums associated with a life insurance purchase are usually only on...
Life Insurance – Replacements and 1035 Exchanges    If the new purchase will be implemented via a policy replacement or ta...
Life Insurance – Ownership Structure     If a life insurance purchase is for estate planning purposes and the desire is fo...
An Important Note For Trustees     Uniform Prudent Investor Act (UPIA):       If a life insurance policy is owned by an ir...
Ongoing Policy Management     Due to a variety of factors such as interest crediting rate changes and varying policy     c...
LC                                                            s, L     Insured Underwriting and Life     Expectancy Evalua...
Life Insurance - Underwriting     Perhaps the most misunderstood area of the insurance industry is the underwriting     pr...
Insured Life Expectancy (LE) Evaluations     Although it is impossible to know the life expectancy of any one person, it i...
Underwriting Classifications – Average LE     Although an insured may be classified at a particular underwriting class, th...
Underwriting Classifications – Confidence Level     One of the biggest risks of owning life insurance is outliving the pol...
Insured Life Expectancy Evaluations – Mr. Sample                                                                          ...
LC                                                             s, L                              L     Policy Under Consid...
Policy Under Consideration – Policy Details     Insureds:       Mr. Sample – 01/01/1956 – Current Age 55     Insurance Car...
Policy Under Consideration – Policy Details     Death Benefits:       Policy Face Amount - $1,000,000       Death Benefit ...
Policy Under Consideration - Performance Analysis                                                                         ...
Policy Under Consideration - Performance Analysis     Performance Analysis and Policy Summary:       Duration - The illust...
Policy Under Consideration - Carrier Information     An insurance carrier’s financial strength and claims paying ability a...
LC                                                             s, L                              L E     Coverage Alternat...
Term Insurance Alternative     About Term life insurance:       Term life insurance provides coverage for a fixed period o...
Guaranteed Universal Life (GUL) Insurance Alternative     About Guaranteed Universal Life insurance:       Guaranteed Univ...
Cash Accumulation Insurance Product Alternative     About Cash Accumulation life insurance:       Cash Accumulation life i...
Coverage Alternative Summary     Summary      For as long as the coverage is needed, a life insurance purchaser should com...
Life Llc Pre Purchase Review Sample Presentation Website
Life Llc Pre Purchase Review Sample Presentation Website
Life Llc Pre Purchase Review Sample Presentation Website
Life Llc Pre Purchase Review Sample Presentation Website
Life Llc Pre Purchase Review Sample Presentation Website
Life Llc Pre Purchase Review Sample Presentation Website
Life Llc Pre Purchase Review Sample Presentation Website
Life Llc Pre Purchase Review Sample Presentation Website
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Life Llc Pre Purchase Review Sample Presentation Website

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Sample Life Insurance Pre-Purchase Review

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Life Llc Pre Purchase Review Sample Presentation Website

  1. 1. 04/13/2011 SAMPLE All Names Removed And Information Modified To Maintain Confidentiality Life Insurance - Pre-Purchase Review For Mr. SampleKenneth W. Godfrey, CLU®, ChFC®, CFP®President & CEOKen.Godfrey@LIFEInsReviews.comLife Insurance Financial Evaluations, LLCTMwww.LIFEInsReviews.com5113 3rd Street NorthArlington, VA 22203(c) 704-315-8702 704- 315-
  2. 2. Preface & Disclosures The material in this report is designed to provide accurate and authoritative information regarding the subject covered. However, it is provided with the understanding that Life Insurance Financial Evaluations, LLCTM is not engaged in rendering legal, tax, or accounting services. This communication is not a covered opinion as defined by Circular 230 and is limited to the federal tax issues addressed herein. Additional issues may exist that affect the federal tax treatment of the transaction. The communication is not intended or written to be used, and cannot be used, or relied on, by the taxpayer, to avoid federal tax penalties. You should obtain the opinions of your attorneys and accountants on recommendations contained herein. LC s, L This proposal is conceptual in nature with hypothetical insurance illustrations that may include variable life insurance. Details L E and information regarding investment objectives and a description of ati alu ontypes of securities in which each Series may invest the can be found in the appropriate Prospectus for the product ultimately selected and should be reviewed carefully. Variable life ia l Ev P insurance involves an investment risk, including the possible loss of value. can Fin ce M rn Life Insurance Financial Evaluations, LLCTM is not aabroker or dealer or registered investment advisor and is not in the business nsu of selling any life insurance or securities products. Life Insurance Financial Evaluations, LLCTM is not liable for inaccurate Lif eI A information and any corresponding policy recommendations. Life Insurance Financial Evaluations, LLCTM recommends that the S policyowner(s) discuss the analysis with a licensed life insurance agent before making any policy decisions. Any insurance purchase or policy management decisions and potential policy modifications will be made at the sole discretion of the policyowner(s). “Life Insurance Financial Evaluations” and the LIFE logo are trademarks of Life Insurance Financial Evaluations, LLC. Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM2
  3. 3. Table of Contents Introduction – Page 4 Life Insurance Education – Page 6 Insured Underwriting and Life Expectancy Evaluations – Page 13 LC s, L Policy Under Consideration – Page 19 Policy Details L E al Ev alu ati on Performance Analysis Carrier Information Coverage Alternatives – Page 25 ife I nsu ran ce MP Fin anci Term Insurance Alternative L S A Guaranteed Universal Life Insurance Alternative Cash Accumulation Insurance Alternative Coverage Alternative Summary Sample Pricing Conclusions and Suitability Determination – Page 31 Appendix – Page 33 Additional Educational Information Policy Reviewer Information Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM3
  4. 4. LC s, L Introduction L E al Ev alu ati on MPI nsu ran ce Fin anci A e Lif S Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM4
  5. 5. Introduction A life insurance purchase is a long term financial commitment and it is important to purchase the right product type to meet the insurance needs. At Life Insurance Financial Evaluations, LLCTM, we believe a second opinion is important when considering a major life insurance purchase. The purpose of this presentation is to provide a thorough and constructive evaluation of LC s, L the life insurance policy from ABC Insurance nCompany under consideration for purchase. L E alua tio Ev ial the insurance decision making process and should MP The report identifies key areas of considerationc in eI nsu ran ce ina n provide the purchaser the knowledge to haveFa more informed interaction with the life insurance agent. The report provides a variety of Lif A educational material and pertinent commentary regarding the proposed life insurance carrier, product, pricing, policy design, and recommended future policy management. S The report provides a detailed financial analysis of the proposed insurance coverage and representative coverage alternatives to ensure the desired purchase objectives are met. Prior to finalizing the insurance purchase, our goal is for you to fully understand what you are buying, to be committed to the long term nature of the decision, and to understand the various tradeoffs and alternatives to feel assured you are making the best decision for your individual and family needs. In conclusion, we will make a suitability determination and categorize the proposed policy in one of three categories: Suitable, Suitable w/ Reservations, and Not Suitable. Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM5
  6. 6. LC s, L Life Insurance Education L ia lEEv alu ati on ina nc MPI nsu ran ce F A e Lif S Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM6
  7. 7. Life Insurance – Carrier and Product Considerations A variety of factors come into play when considering the purchase of life insurance coverage. Insurance Carrier Considerations: Insurance carrier financial strength Underwriting decision LC s, L Carrier policy service capabilities Availability of policy types L E al Ev alu ati on Product Considerations: Desired policy type eI nsu MP ran ce Fin anci Amount of coverage Duration of need Lif S A Policy pricing – Estimated premium amount and duration Estimated policy performance – (note: policy illustrations are hypothetical and based on current interest rate environment or assumption of future market performance. Actual results may be more or less favorable.) Product features such as guarantee amounts and riders Age determination (age nearest or age last) and backdating policy to save age Modified Endowment Contract (MEC) status Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM7
  8. 8. Life Insurance – Overall Plan Costs The required premiums associated with a life insurance purchase are usually only one component of an overall financial plan. Life insurance currently enjoys favorable tax and accounting treatment. Nevertheless, potential income, estate, and gift tax liabilities should be considered when evaluating a life insurance purchase. C LL s,the overall cost. For example, gift tax irrevocable life insurance trust (ILIT). L E Factors such as planned policy ownership may impact considerations may significantly impact the overallvalu ia lE ati on cost of purchasing life insurance owned by an When taxes are a potential issue, sura MP In n ce Fin anc there may be plan design considerations (e.g., split dollar life A if e insurance) that can reduce the overall financial costs of the transaction. These alternatives can be L sophisticated and should be discussed with your insurance agent and tax advisor. S Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM8
  9. 9. Life Insurance – Replacements and 1035 Exchanges If the new purchase will be implemented via a policy replacement or tax-free 1035 exchange, it is important to understand the rules and regulations of life insurance replacements. A policy replacement or tax-free 1035 exchange should only be considered if the transaction is in the best interest of the customer and current objectives cannot be met by continuing or modifying existing LC ,L coverage and/or buying additional insurance. Over time, a scustomer’s insurance needs and objectives may change for a variety of reasons. L E al Ev alu ati on Section 1035 exchange is recommended.n M eI P It is very important that the insured(s) and Fina nsu ra ce nci owner names are identical on the old and new policy if a Lif S A Existing policy loans can complicate a 1035 exchange. Extreme care is recommended in these situations to avoid unwanted taxation of cash surrender values. Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM9
  10. 10. Life Insurance – Ownership Structure If a life insurance purchase is for estate planning purposes and the desire is for the death proceeds to be received outside of the estate, certain steps should be taken to avoid personal incidents of ownership in the policy. An irrevocable trust (ILIT) is established for the benefit of heirs. The trust is a grantor trust for income tax purposes, meaning any trust income is attributed and includableLC the grantor’s personal income tax on L ns, E return. uatio val L of the policy, a “three year look back rule” on Fin ce an E The ILIT applies for life insurance coverage on theial of the grantor(s). Since the ILIT is the initial owner P c life transfer of assets is avoided for estate tax purposes. Grantors contribute assets (cash Lif or AM Ins uran eother assets) to the trust to finance the life insurance premiums. S Cash gifts to the trust may be subject to gift tax or may avoid a gift tax by using annual exclusions or lifetime exemptions. Alternatively, the cash contributed may be structured as a loan or a sale of existing assets. Another source of capital may be a transfer of existing cash value or convertible term life insurance policies to the trust which may be replaced for new coverage. To qualify for the annual exclusion, cash gifts should be “present interest“ gifts and should be held 30 days or longer. Each time a cash gift is made, the trustee notifies the trust beneficiaries of their withdrawal power via a written Crummey notice letter. Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM10
  11. 11. An Important Note For Trustees Uniform Prudent Investor Act (UPIA): If a life insurance policy is owned by an irrevocable life insurance trust (ILIT), the trustee has an important fiduciary responsibility to manage the policy for the benefit of the trust beneficiaries. Under the Uniform Prudent Investor Act, ILIT trustees must establish and follow a prudent process for determining the suitability of trust owned life insurance (TOLI) policies and managing the life insurance in response to LC changing market conditions. The Uniform Prudent Investor ActLwas adopted in 1992 and has been s, approved by most states. L E al Ev alu ati on MP Compliance with the Uniform Prudent InvestoraAct sur an ce Fin nci is determined by the trustee’s conduct in establishing and following a prudent process. The process should focus on monitoring the life insurance, investigating the suitability, and managing the life insurance to minimize and justify the expenses, while simultaneously maximizing the rates of return relative to risk. I n S L Aif e The prudent investor standard applies to fiduciaries ranging from the most sophisticated professional investment management firms and corporate fiduciaries (e.g., bank trust departments) to family members with minimal experience. In 2009, the Cochran vs. KeyBank case highlighted the risks that trustees face when dealing with the prudent management of TOLI. In this case, the trustee was sued by the beneficiaries of an ILIT for violation of Indiana’s Uniform Prudent Investor Act and breach of trust. Although KeyBank was the trustee and ultimately won the lawsuit, the case brings attention to the appropriate protocols that should be followed when managing TOLI. The March 2, 2009 ruling by the Court of Appeals of Indiana in the Cochran vs. KeyBank case highlights the importance of a trustee relying on guidance from “an outside, independent entity with no policy to sell or any other financial stake in the outcome.” Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM11
  12. 12. Ongoing Policy Management Due to a variety of factors such as interest crediting rate changes and varying policy charges, a periodic policy review is essential to ensure the policy is performing as expected and meeting your financial planning needs. An underfunded life insurance policy is a policy that is not performing as well as originally intended. There are significant risks that anLunderfunded policy will lapse or C expire worthless before the policy reaches maturity L(usually age 95 or 100) or before s, L E alu on death. This may result in a loss of coverage, cashtivalues, and premiums paid. a ia l Ev death benefit. There are a variety maturity. Some reasons include:I nsu ra MP ina nc According to a 2006 Time magazine article, 88% of universal life policies never pay a F nceof reasons why insurance policies lapse before A e Lif S Interest or dividend crediting rates lower than originally projected Premiums paid less than originally planned Premiums paid late Premiums paid via policy loans for whole life policies Policy surrenders, loans, or withdrawals of cash values Insurance company charges higher than originally projected An underfunded policy should be addressed and corrected immediately. As time goes on, the problem becomes harder and more expensive to correct. Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM12
  13. 13. LC s, L Insured Underwriting and Life Expectancy Evaluationsv L E c ia lE alu ati on ina MP n I nsu ran ce F A e Lif S Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM13
  14. 14. Life Insurance - Underwriting Perhaps the most misunderstood area of the insurance industry is the underwriting process. Insurance carriers categorize individuals who desire insurance protection into different classifications based on health and other factors. No single factor impacts the acquisition cost of insurance coverage more than the underwriting classification of the insured(s). LC s, L L E alu ati on New insurance policies are issued with Evnumerous underwriting classifications. al P longer than the average population. nce M eI nsu ra nci Individuals who receive preferred underwriting classifications are expected to live Fin a ALif For existing policies, an insurance carrier may consider upgrading the underwriting S classification if the insured is willing to undergo new underwriting requirements. Some of the issues an underwriter may consider include: Age Family History Personal Habits Medical History Vocation Travel Financial Status Avocations Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM14
  15. 15. Insured Life Expectancy (LE) Evaluations Although it is impossible to know the life expectancy of any one person, it is possible to estimate life expectancy or probability of survival to a given age based on a large number of individuals through actuarial tables. Life expectancies may impact the duration of the life insurance coverage needed. Many life insurance policies today can provide coverage toLLC 120 or later, even though the age ns, L E decrease the overall cost of the insurance. al Eva l tio probability of living this long is very small. uaA shorter duration of coverage may P i anc Fin ce Lf e AM The following pages detail the lifeanexpectancies of the insured(s) based on various Ins ur insurance carrier underwriting iclassifications: S The underwriting classification for the policy under consideration: Mr. Sample - Male Preferred Non-Smoker Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM15
  16. 16. Underwriting Classifications – Average LE Although an insured may be classified at a particular underwriting class, their actual health may be different than the insurance policy reflects. The insured’s health may change after the policy is purchased. C The agent may have been able to secure a better underwritingLclassification at policy issue due to table s, L L E shaving programs or agent’s status and relationship with theninsurance company. ia lE valua tio P significant impact on estimated life rexpectancy. Insu Man anc The charts show that one’s overall health and underwriting classification can have a ce Fin LAge S A ife 55 Male Non-Smoker LE - Underwriting Classes Class Super Preferred Avg. Years 27.7 Preferred 26.7 Standard 25.3 Table 1 23.4 Table 2 21.8 Table 3 20.6 Table 4 19.5 Life Expectancies based on the 2001 CSO Mortality Table. Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM16
  17. 17. Underwriting Classifications – Confidence Level One of the biggest risks of owning life insurance is outliving the policy. To avoid underpaying or overpaying, the policy can be actively managed to target a specific duration with a high probability of success. A life insurance policy designed or managed to have a duration estimated to meet the insured’s average LC or median life expectancy is very risky. An insured’s median life expectancy means that half (50%) of a s, L L E population with similar characteristics will pass away by theodesignated age or time period. al Ev alu ati n success. MP Insur an ce nci Using an estimated life expectancy calculationawith a higher probability of success is more appropriate. Fin For instance, the policy can be designed or managed for a higher confidence level (e.g. 80% or 95%) of underwriting classifications. L S A if e The charts show the estimated life expectancy of the insured based on various Age 55 Male Non-Smoker Confidence Level - Age of Mortality Class 50% 80% 95% Super Preferred 85 91 97 Preferred 83 91 96 Standard 82 89 95 Table 1 80 87 93 Table 2 78 86 91 Table 3 77 84 89 Table 4 76 83 88 Life Expectancies based on the 2001 CSO Mortality Table. Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM17
  18. 18. Insured Life Expectancy Evaluations – Mr. Sample Life Expectancies based on the 2001 CSO Mortality Table. Your Single Life Expectancy is: 26.7 years Probability of Survival This chart shows the probability of survival at each age. The chart indicates that at 100% least 9 out of 10 people who are Male Preferred Nonsmoker age 55 will die before 80% LC s, L age 94. 60% 40% L E al Ev alu ati on P Age 55 Male Non-Smoker anci Fin His Age Prob. 20% ce M 70 86.0% 0% ran nsu 75 76.1% 70 74 78 82 86 90 94 98 102 106 110 eI A 80 61.6% 85 41.8% Lif 90 95 100 20.8% 6.4% 1.0% S 10% Probability of Death in a Given Year The chart shows the probability of death in a 8% given year and illustrates that there is a very 6% high degree of uncertainty regarding the 4% actual year of death. The probability of death is no greater than 4.3% in any given 2% year. At least two thirds (2/3) of Male 0% Preferred Nonsmoker age 55 insureds will 70 73 76 79 82 85 88 91 94 97 100 103 106 109 die between the ages of 71 and 92. Age Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM18
  19. 19. LC s, L L Policy Under Consideration E ia l Ev alu ati on ina nc MPI nsu ran ce F A e Lif S Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM19
  20. 20. Policy Under Consideration – Policy Details Insureds: Mr. Sample – 01/01/1956 – Current Age 55 Insurance Carrier: ABC Insurance Company LC s, L Product Type: L E al Ev alu ati on Guaranteed Universal Life Policy Ownership: MP nsu eI ran ce Fin anci Lif A The policy is to be owned by the Sample Family Irrevocable Trust dated 01/01/2003 Policy Beneficiaries: S Primary – Sample Family Irrevocable Trust dated 01/01/2003 Contingent – None listed Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM20
  21. 21. Policy Under Consideration – Policy Details Death Benefits: Policy Face Amount - $1,000,000 Death Benefit Option – Level Policy Premiums: Levels - $12,434 per year (premiums required for first five years) LC s, L Mode – Premiums to be payable annually L E Duration – Premiums illustrated to be payable for alll years ia Ev alu ati on Insur an ce Fin MP anc Lif e S A The life insurance policy information included in this report is a supplemental life insurance illustration. Please refer to the computer generated illustration for more information. Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM21
  22. 22. Policy Under Consideration - Performance Analysis ABC Insurance Company Guaranteed Universal Life Policy Under Consideration 4.00% Crediting Rate Policy Cash Surrender Non-Guaranteed IRR on Non-Guar. Guaranteed Death His Age LE* Annual Premium Account Value Surrender Charges Year Value Death Benefit Death Benefit Benefit* 1 56 $ (12,434) $ 6,910 $ 6,910 $ - $ 1,000,000 7942.5% $ 1,000,000 2 57 (12,434) 14,018 14,018 - 1,000,000 748.2% 1,000,000 3 58 (12,434) 21,138 21,138 - 1,000,000 293.6% 1,000,000 4 59 (12,434) 28,343 20,799 7,544 1,000,000 167.7% 1,000,000 5 60 (12,434) 35,662 16,399 19,263 1,000,000 112.8% 1,000,000 6 61 (12,434) 43,031 15,600 27,431 LC 1,000,000 82.9% 1,000,000 s, L1,000,000 11 16 21 66 71 76 (12,434) (12,434) (12,434) L E 81,172 134,200 177,133 - ia l Ev 11,100 5,599 a 70,072 n lua tio 128,601 177,133 1,000,000 1,000,000 31.4% 17.3% 11.0% 1,000,000 1,000,000 1,000,000 P 26 81 (12,434) 183,962 27 82 (12,434) 175,637 nc - 183,962 1,000,000 7.6% 1,000,000 28 83 50% (12,434) 162,331 F ina -- 175,637 162,331 1,000,000 1,000,000 7.1% 6.6% 1,000,000 1,000,000 29 84 (12,434) 143,190 e c - 143,190 1,000,000 6.2% 1,000,000 30 31 32 33 34 85 86 87 88 89 (12,434) (12,434) (12,434) Lif e (12,434) (12,434) AMI ran 116,810 nsu 81,721 35,637 - - - - - - - 116,810 81,721 35,637 - - 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 5.8% 5.4% 5.1% 4.8% 4.5% 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 35 36 37 38 39 40 41 90 91 92 93 94 95 96 80% 95% (12,434) (12,434) (12,434) (12,434) (12,434) (12,434) (12,434) S - - - - - - - - - - - - - - - - - - - - - 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 4.2% 4.0% 3.8% 3.5% 3.3% 3.1% 3.0% 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 46 101 (12,434) - - - 1,000,000 2.2% 1,000,000 51 106 (12,434) - - - 1,000,000 1.7% 1,000,000 56 111 (12,434) - - - 1,000,000 1.2% 1,000,000 61 116 (12,434) - - - 1,000,000 0.9% 1,000,000 66 121 (12,434) - - - 1,000,000 0.6% 1,000,000 TOTAL $ (820,644) This illustration depicts elements of life insurance which are not guaranteed and is considered a supplemental illustration. Please refer to the NAIC Basic Illustration or the hypothetical compliant variable life insurance illustration and prospectus which include information about the guaranteed elements of the illustrated policy. Actual policy performance may differ from this illustration. Totals for “Annual Premium” columns equal to total potential scheduled premiums paid over life of policy. * If premiums are paid as illustrated and on time and no withdrawals and/or loans are taken, the insurance carrier guarantees the death benefit will be in force for the life (lives) of the insured (insureds) or specified period. * LE = Life Expectancy based on the 2001 CSO Mortality Table. The percentages shown are the probability of survival at a given age. If the policy is inforce, the percentages can be used as a confidence level that the policy will outlive the insured(s). Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM22
  23. 23. Policy Under Consideration - Performance Analysis Performance Analysis and Policy Summary: Duration - The illustration shows that the policy is designed assuming the current crediting rate of 4.0% and the policy is projected to carry to policy age 121 on a non-guaranteed basis. Guaranteed Values – The death benefit is guaranteed to age 121Cbased on guaranteed interest rates and LL charges. If premiums are paid as illustrated and on time and, no withdrawals and/or loans are taken, the L E insurance carrier guarantees the death benefit will be inforce for ia lE valua tio ns the specified period. MP For GUL products, higher increased uran Ins anc Sensitivity of Interest Crediting Rates – Illustrations should be run at varying interest crediting rates to show how the policy is expected to perform e Fi n c under different market conditions. crediting rates will have some impact on cash value accumulation but little to no impact on death benefit coverage amounts. A e Lif S Surrender Charges – Surrender charges will be levied against the policy cash values if the policy is surrendered or 1035 exchanged in the first 20 policy years. Policies with surrender charges may provide a cheaper premium than alternatives without surrender charges. However, surrender charges may limit the available options if policy changes are desired in the future. Outstanding Loans – There are no policy loans illustrated. Policy loans create a negative drag on policy performance and should be avoided if possible. The policy is classified as a Non-MEC contract which provide favorable access to cash values. Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM23
  24. 24. Policy Under Consideration - Carrier Information An insurance carrier’s financial strength and claims paying ability are very important when purchasing life insurance. For permanent life insurance policies, all cash surrender values allocated to the company’s general account are subject to the credit risk of the insurance carrier. LC Death benefit proceeds are also subject to the claims paying s, L ability of the insurance carrier. Financial Strength Ratings: L E al Ev alu ati on Ins u Fin a MP nci The Comdex is not a rating itself, but a composite of all the ratings that a company has received. The ce Comdex ranks the companies, on a scalenof 1 to 100, in relation to other companies that have been rated ra by the services. According to the eComdex, the insurance company ranks in the 94th percentile of all insurance companies. ABC Insurance Company Lif S A Ratings A.M. Best Company (Bests Rating, 15 ratings) A+ (2) Standard & Poors (Financial Strength, 20 ratings) AA- (4) Moodys (Financial Strength, 21 ratings) A1 (5) Fitch Ratings (Financial Strength, 24 ratings) AA- (4) Comdex (Percentile in Rated Companies) 94 NOTE: A company needs to be rated by at least two rating services to receive a Comdex. The Comdex is based on the ratings issued by the following rating services: A.M. Best, Standard & Poors, Moodys Investors Service and Fitch. Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM24
  25. 25. LC s, L L E Coverage Alternativescial Ev alu ati on ina n MPI nsu ran ce F A e Lif S Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM25
  26. 26. Term Insurance Alternative About Term life insurance: Term life insurance provides coverage for a fixed period of time. When the term period expires, the policy either ends or coverage converts to annual renewable term (ART) insurance with increasing premiums. ART rates can be cost prohibitive to continue the coverage. LC ,L E When purchasing Term insurance, it is desirable to purchase scoverage for the maximum duration needed. on Although premiums increase with the duration, obtaininguthe ati proper duration of coverage can avoid al L significant issues from lack of coverage later on. ial P F ina nc Ev nce insurance coverage requires going through new L eI M When the term period expires, obtainingrnew nsu a underwriting and can become veryifexpensive (especially if there has been a decline in health status). A S Some Term insurance policies offer conversion features to “permanent” products. There may be limits on how long the policy is available to be converted and it is important to monitor when the conversion privileges expire. Term insurance may not be available to older individuals and the maximum period is usually 30 years. Insurance carriers determine insurance age differently. Some use an age nearest calculation while others use an attained age calculation. Backdating a Term insurance policy may result in lower pricing. Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM26
  27. 27. Guaranteed Universal Life (GUL) Insurance Alternative About Guaranteed Universal Life insurance: Guaranteed Universal Life insurance products are similar to Term insurance products in that they provide guaranteed life insurance coverage for a specified duration. The policies usually have little to no cash surrender values. LC s, L If premiums are paid as illustrated and on time and no withdrawals and/or loans are taken, the insurance L E al Ev alu ai on carrier guarantees the death benefit will be in force for the tlife of the insured or specified period. M eI P Since Term insurance may not be available fornolder nsu ran ce Fi anci individuals or for the desired duration, Guaranteed Universal Life insurance products offer unique alternatives. Lif A Many GUL products offer coverage to age 120 or later. In addition, many GUL products allow you to S target the desired duration (e.g., age 90 or age 100). Guaranteed Universal Life products are “permanent” products and offer increased flexibility. If the desired duration changes over time, premiums can be increased or decreased to lengthen or shorten the coverage duration without evidence of insurability. However, an increase in coverage amount involves new underwriting requirements. Survivorship or second-to-die policy options are available for Guaranteed Universal Life insurance products. Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM27
  28. 28. Cash Accumulation Insurance Product Alternative About Cash Accumulation life insurance: Cash Accumulation life insurance products are “permanent” products and come in many flavors. Cash Accumulation life insurance products are often referred to as Whole Life, Variable Life, or Equity Index Life. LC s, L between guaranteed vs. non- E With these products, it is important to understand the differences au ati on guaranteed values and how interest credits will apply to laccount values. Account values can be allocated L l Ev to the insurance carrier general account, insuranceasub-accounts that operate similar to mutual funds, or MP equity index options that trade some upside growth suran ce Fin anci potential for downside market protection. Many Cash Accumulation productsfe In some level of guaranteed life insurance coverage for a specified offer Li A duration if premiums are paid as illustrated and on time and no withdrawals and/or loans are taken. S Cash Accumulation products offer an increased risk/reward for planned premiums. If policy performance is better than expected, future premium requirements to maintain the policy may be minimized. Conversely, if policy performance is not as expected, higher premiums may be required to maintain the policy. Cash Accumulation products require a higher commitment level on behalf of the policyholder to actively manage the policy (e.g., account allocation for Variable Life insurance) and policy performance should be periodically reviewed. Survivorship or second-to-die policy options are available for Cash Accumulation life insurance products. Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM28
  29. 29. Coverage Alternative Summary Summary For as long as the coverage is needed, a life insurance purchaser should commit to paying the scheduled premium amounts each and every year. Otherwise, the purchaser risks the policy lapsing and ultimately wasting their money. The insurance contemplated includes premium payments in all Cpolicy years and well past normal retirement L some people. s L ages. Shorter premium durations may be more appropriate, for L E Term insurance products offer the cheapest premiums al alu ati on Ev but the coverage is for a limited duration. A 30 and outlive the coverage. MP year Term insurance product provides coverage until ce Fin anci age 85. Based on preferred nonsmoker underwriting, there is a 58% probability that Mr. Sample will be alive at age 85 eI nsu ran Lif S A Guaranteed Universal Life insurance products are more flexible than Term Insurance and offer the ability to specify the desired duration and make adjustments over time. For Guaranteed Universal Life insurance products, it is important to determine the appropriate policy duration while considering life expectancy calculations and design the policy accordingly. Cash Accumulation insurance products may be more appropriate than term insurance or GUL depending on the purpose of the insurance, risk tolerance of purchaser, and policy management commitment level. Diversifying insurance carriers, product types, and product duration via policy stacking (i.e., the purchase of multiple policies) may provide a more balanced insurance portfolio and increase flexibility for future unforeseen cash flow limitations. Confidential – For Client or Advisor Use Only © 2011 Life Insurance Financial Evaluations, LLCTM29

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