Policy Review: Turning Old Policies into New Business

Policy Review for Life Insurance

One of the biggest mistakes that a life insurance advisor can make when trying to grow their business is ignoring the business that they’ve already earned.  Your clients rely on you for your guidance and knowledge concerning their policy.  You are their life insurance expert.  While many people purchase a life insurance policy and never think of it again, the best advisors maintain their relationships with their clients and, over time, use policy reviews to turn old policies into new business.

The Primary Reasons to Conduct a Policy Review

A policy review is a periodic meeting with your client where the primary objective is to go over their current life insurance policy and see if it is still aligned with their life and goals.  It is an opportunity to reconnect with them and discover what has changed in their life since they originally purchased the policy from you.  

The Policy Review Process Steps: What to Do and When to Do it

Your relationship with your client is all about consistent reach out and connection.  Every 1 or 2 years, refreshing both yourself and your client on their policy can lead to many discoveries where coverage is either lacking or no longer appropriate for their needs today.  Through your partnership with RMIN, the policy review process is very straight forward and our team of insurance experts will ensure that you don’t miss out on opportunities for both you and your client regarding the latest products and regulations that can impact their coverage as their life changes.  Here’s the basic breakdown of how to initiate a policy review.

  1. Once you’ve identified the client and policy that you would like to review, reach out to them.  We can help you with email templates that handle the language you need to request the review meeting.  Ultimately the meeting will be conducted on the phone or in person.
  2. During this meeting, you will obtain information about your client’s current life situation and identify any life events that could be reflected in their current policy.  
  3. Once you’ve spoken with your client, you will have them sign an Authorization form that allows RMIN to conduct the review.
  4. We’ll do the heavy lifting of contacting insurers and obtaining the in-force information and all illustrations.  
  5. Once we have conducted the actual review, we will send you an email confirming the status. 
  6. We will call you to go over our findings and send you a comprehensive review package to go over with your client containing the pertinent illustrations and information about their policy.
  7. If we recommend a replacement, all applications and illustrations for the new policies will be sent to you for your client’s approval. 

While a policy review doesn’t always result in replacement or additional coverage, we have found that over half (50%) of the cases we’ve reviewed resulted in the need for improved coverage that benefits both you and your client. 

Life Rarely Sits Still, Why should Life Insurance?

Policy Reviews for Individuals:  Life Rarely Sits Still

For individual clients, their life insurance policy should always reflect their current life needs and goals.  Life can change on a dime and it isn’t unusual for major events to require a shakeup in their coverage.  Let’s run down a list of common life events and how they might affect a need for an updated policy review.

  • Changes in income
    • New Job or Business
    • Loss of Job or Income
    • Recently Retired
  • Change in Family
    • Birth or Adoption of a new Chid
    • Aging Parents that you Care for
  • Change in Living Situation
    • Purchase of a new home
    • Recently paid off the mortgage on current home
  • Change in Relationship
    • Recently Married
    • Recently Divorced
  • Change in Health 
    • Quit Smoking, Lowered Blood Pressure or Cholesterol
  • Older Policy based on Outdated Inflation
    • If a policy is 10, 20 years old or more, recent inflationary data may alter life insurance coverage effectiveness

These are some of the considerations that should be taken into account when conducting the policy review conversation with your client.  The best relationship with a client is one where they can share these life events and the new goals and challenges that they present with you.  Your ability to analyze them in terms of policy implications will go a long way to uncovering new opportunities for both of you.

Common Life Insurance Policy Mistakes

Some Common Mistakes to Look for On Your Client’s Original Policy

Nobody is perfect and a general misunderstanding of life insurance can lead individuals (and businesses) to make several unforced errors when setting up their life insurance policies.  RMIN covers these at length HERE.  For the purpose of this article, let’s go over some of the most common mistakes and what to look for in your initial pre-meeting review of your client’s policy.

  1. Naming the estate as the beneficiary
    1. When naming beneficiaries, leave the estate out of it and instead encourage your client to select actual people or organizations that they want to receive the death benefit.  Estates are too often subject to state taxes that will diminish the benefit and waste your client’s investment.  Taxes bad.  People good.
  2. Not having any backup beneficiaries
    1. The sad truth about life is that it ends.  This is also true for the lives of policy beneficiaries.  By not naming a few backups for each beneficiary in a policy, your client risks leaving the benefit in limbo if that beneficiary passes away before they do.  
  3. Your client never reviews your beneficiaries
    1. Let’s face it, sometimes the person that your client wants to benefit from their policy today is not the person they will want to benefit 10, 20, 30 years from now.  Review their beneficiaries with them to make sure that new children are included if so desired and that ex-spouses who they may no longer wish to benefit do not.
  4. A business purchases a policy and doesn’t update with new vehicles and solutions
    1. There are policies for businesses today that didn’t exist 20 years ago.  Help your client stay on top of the new products that may help them and their business realize their investment in a more efficient and productive way.  Explore the latest options and update, update, update.
  5. Your client has the wrong insurance for the wrong situation
    1. Term life insurance eventually runs out and becomes more expensive.  The benefits of lower premiums vanish over time.  Regular reviews can pinpoint the best moment to either purchase more insurance or convert them to a more suitable vehicle for their investment.  Remember, life doesn’t sit still and neither should their policy.

Policy Review for Business Entities:  Staying on Ahead of Changing Guidelines

Businesses are subject to different rules governing how life insurance policies for employees can be distributed.  It is not uncommon for business owners to make mistakes when putting together their initial life insurance policy.  There are many pitfalls that may go unnoticed resulting in unnecessary taxation of death benefits, inaccurate beneficiary assignments, and inequitable distribution of premium payment responsibilities.

Additionally, if certain guidelines are not followed, for example, as outlined by The Pension Protection act of 2006, then in some cases your client’s death benefit will be subject to income tax.  This would result in the loss of tens of thousands of dollars or more that could have been avoided with a comprehensive policy review to catch these errors and mistakes.  

In the world of business-owned life insurance, there are forms that must be filed every year along with taxes, consent between the owners and the employees must be obtained and detail-oriented accounting is required to navigate the regulations that govern benefits and payouts.  

Reviewing policy for business entities can be tricky in itself.  As a business grows, its employees’ coverage needs also change.  In addition to catching pitfalls accidentally woven into the original policy that could cost owners hundreds of thousands of dollars, the investment vehicle aspect of policies must be addressed as markets shift.  Utilizing a strong team of professionals can be the difference between success and failure of a policy as we will outline with some examples in the next section.

Real-World Examples of Businesses with Troubled Policies

At RMIN, we have helped advisors uncover opportunities for their own bottom line through helping correct mistakes in the insurance policies of the companies and owners that they advise.  Here are some scenarios that have played out in a win-win situation for both the advisor and the business.  

We reviewed the policy of a mid-size software company that had upwards of $32 million in key man term life insurance.  In this case, the company in itself was the policy owner, the premium payor, and the sole beneficiary. 

Upon further research and inspection, we discovered that the policy was not 101(J) compliant, meaning that the signed Notice and Consent of Form 8925, which must be filed annually, had not been maintained.  This required us to recommend a total plan replacement.  The result?  Compliant company coverage which assured the client met the benefits and goals that they initially desired and over $150,000 dollars of new premiums.  

In another scenario, an auto dealership had a cross-purchase buy/sell agreement between two owners.  After our review, we discovered that the first owner had 60% of the coverage while the other owner had %40 percent.  The problem? The policies were owned, paid for, and benefitted the corporation itself.  It was a C-corporation.  Under the initial cross-purchase agreement, the policy should have been owned and paid for by the other owner.  Without that, there were seriously damaging tax implications waiting down the road.  

Once again, a total replacement was required to prevent unnecessary taxation and save the company a lot of money.  

In a nutshell, non-compliance creates incredible tax burdens on poorly crafted policies.  Whether it is non-compliance with the buy/sell agreement or the missed compliance of the 101(j) regulations, without a policy review, a company may have no idea that they will be in hot water later on.

The Prudent Investor Act

The Prudent Investor: Policy Reviews for Trustees

With the advent of Universal Indexed Life Insurance and other life insurance accumulation products, the Uniform Prudent Investor Act of 1992 was an update to the Prudent Man Rule.  Large trusts that contain relevant life insurance policies as part of the overall portfolio must maintain compliance with this Act.  

A policy review meeting with the trustees from time to time is necessary to inspect this compliance in order to prevent running afoul of the prudent principles designed to foster transparency and fairness in the investment vehicle. 

These trusts can be complex and a team of professionals is the best way to ensure that no stone is left unturned when keeping up with compliance.  

The Takeaway:  Policy Review will Increase your Earnings While Helping your Valued Clients

There isn’t much more to say than that.  If you want to find the simplest path towards higher commissions and sales, the best way forward is through providing outstanding service to your existing client base.  Part of that excellent service is by making certain that no matter where they are at in their lives, their insurance is moving along with them.  In most cases, this means obtaining more insurance from you or augmenting their policy to cover their new and growing needs.  Never sit idle on a client.  They will not have the time in their life to focus on what their life insurance can do for them.  That is your job.  If you do it well, you will conduct regular policy reviews with all of your individual, business, and trustee clients.  Your partnership with our team will ensure that you always have the right answers to maximize both your client’s investment and your business simultaneously.  So go through your client list and ask yourself, when’s the last time you talked to each of them.  Odds are certain that their lives have grown.  Help their insurance grow along with them.