Life Insurance Overpayments Costly For Consumers

Most consumers are probably overpaying for Life Insurance. Lack of information, hurdles to “comparison shopping” result in higher premiums and lower Death Benefits. A simple solution can result in significant savings.

(PRWEB) December 1, 2005 -- Most consumers are probably overpaying for Life Insurance. Why? Improvements in insurance products and pricing, underwriting technology and mortality assumptions, and changes in the insurance marketplace, have created large discrepancies among the performance of various policies. However, a lack of information, coupled with hurdles to “comparison shopping”, often results in higher premiums and lower Death Benefits.

If an insurance policy is two or more years old, and/or premiums are more than $10,000 per year, the risk of utilizing an “underperforming” product is significant. A simple solution to this problem is a thorough, independent, third-party audit of existing insurance. However, as Mark Boehm, a principal with Dallas-based Alpha Wealth Management points out, “For various reasons, an individual insurance provider or financial advisor is technologically incapable of adequately performing an ‘audit’, as opposed to a ‘policy review’.” Consumers are little better off if they use a Trustee. According to a study in the May 2003 issue of Trusts & Estates®, only 16.5% had a formal process for reviewing their trusts’ life insurance policies.

According to one auditor, over 60% of the cases examined resulted in a significant – greater than 30% - improvement recommendation. In other words, consumers can often lower premiums or increase death benefits by more than 30%, by simply scheduling a full-fledged audit.

Knowing what information to ask for is vital. According to Mr. Boehm, a true policy audit should consist of, at a minimum, the following six components:
1.   An Underwriting Analysis. Mortality costs are, obviously or not, the single most expensive portion of a life insurance policy. Medical technology has driven rapid advancements in underwriting. Use of updated mortality tables can also result in significant premium reductions.
2.   A Product and Carrier Review. An auditor must have access to, and the technological expertise to review and compare, hundreds of insurance carriers and the literally thousands of products they make available.
3.   A Carrier Assessment. “Acceptable” S&P, Comdex, or Weiss financial ratings are only part of the story. Consolidations, merger & acquisitions activity, or Wall Street imperatives have changed the way many companies are managing blocks of business.
4.   An “In-Force Ledger” Examination. Verification of current policy projections, funding levels, and guarantees ensures policies will remain in force for as long as needed.
5.   A Case Design Review. Current financial planning objectives considering updated policyholder circumstances and current tax law changes should be reassessed.
6.   A Fair Market Value Determination. A policy may have a fair market value that is significantly higher in the secondary market than its cash surrender value indicates.

Is an audit worth the effort? Arguably, the failure of most trustees, businesses, charities, foundations, and others, to thoroughly review their policy holdings demonstrates a potentially liable lack of fiduciary oversight. What about the individual consumer? “I’ve seen a case where, as a result of an audit, the client’s Death Benefit was increased from $1,000,000 to over $1,500,000 with no increase in premiums” says Mr. Boehm. “That’s certainly significant, and it demonstrates a hugely important point. The expertise to skillfully negotiate mortality risk is a differentiating factor among auditors.” In either case, the (potentially very large) benefits of an audit seem to far outweigh the cost, which is limited to the time invested.

Bottom Line: A simultaneous Life Insurance policy performance and underwriting evaluation, resulting in a negotiated offer, can result in significant bottom-line improvements. For more information on selecting an auditor, contact Alpha Wealth Management at 800-964-6503.

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