Most physicians own life insurance and probably are overpaying for it. If your insurance policy is two or more years old and/or you’re paying more than $10,000 per year in premiums, you may be paying for an underperforming product. Improvements in insurance products, pricing, underwriting technology, and mortality assumptions, along with changes in the insurance marketplace, have created large discrepancies in the performance of various policies.

A simple solution is a thorough, independent, third-party audit of your existing insurance coverage. An individual insurance provider or financial adviser is technologically incapable of adequately performing an audit (as opposed to a “policy review”). You are little better off if you use a trustee. According to a study in the May 2003 issue of Trusts & Estates, only 16.5% of the people surveyed had a formal process for reviewing their trusts’ life insurance policies.

The good news is that, according to one auditor, more than 60% of the cases examined resulted in a significant—greater than 30%—improvement recommendation. In other words, you are likely to lower your premiums or increase your death benefits by more than 30%, simply by undergoing a consult.

A true audit of your policy should consist of, at a minimum, the following six components:

1. Underwriting Analysis—Mortality costs are the most expensive part of a life insurance policy. The availability of testing bodily fluids has driven rapid advancements in underwriting technology with tests for liver function, kidney function, illegal drugs, nicotine, PSA, HDL/LDL, glucose levels, and EBCT. Use of updated mortality tables also can result in significant premium reduction. The expertise to skillfully negotiate mortality risk is a differentiating factor among auditors.

2. Thorough Carrier Assessment—Get beyond “acceptable” S&P, Comdex, or Weiss ratings. Have consolidations, merger & acquisitions activity, or Wall Street imperatives changed the way your company is managing your block of business?

3. In-Force Ledger Examination—Verify policy projections, funding levels, and guarantees to ensure your policy will remain in force for as long as you need it.

4. Case Design Review—Reassess financial planning objectives considering updated policyholder circumstances and tax law changes. Often underemphasized and consequently overlooked, this is a vital aspect of a true audit. The most expensive life insurance policy is the one for which you are paying, but no longer need.

5. Product and Carrier Review—Your auditor must have access to, and the technological expertise to review and compare, hundreds of insurance carriers and their thousands of products.

6. Fair Market Value Determination—Your policy may have a fair market value that is significantly higher in the secondary market than its cash surrender value indicates. In coordination with Step 5, this part of the process can yield hundreds of thousands of dollars to the participant.

The following case study is representative of the type of improvements that can be made after your policy undergoes a consult:

Current Policy Facts—
Universal Life Policy issued in 1990
$1 million level Death Benefit, with a policy and cash surrender value of $317,309
Current annual premium, $30,000 (Standard, non-smoker)
Policy guaranteed to age 83, projected to remain in-force to age 92

Post-audit recommendations—
Policyholder can obtain preferred nonsmoker status with a different, comparable (A++) carrier
$1 million level Death Benefit
Annual premium of $10,400 (65% reduction in premiums)
Policy guaranteed for life

Alternatively, the policyholder could maintain premium payments in return for enhanced death benefits. The same highly rated carrier offered:
$1,538,750 level Death Benefit (54% and $500,000+ improvement)
Annual premium, $30,000 (Preferred, nonsmoker)
Policy guaranteed for life

Bottom Line: A thorough appraisal of in-force life insurance requires a simultaneous process to evaluate performance and negotiate risk. This is not a static or academic comparison, but an actual underwriting process, resulting in a binding offer—it’s a true second opinion. Is it worth going through the process? Judge the results for yourself.

Hippocrates said, “Those things which one has been accustomed to for a long time, although worse than things which one is not accustomed to, usually give less disturbance; but a change must sometimes be made to things one is not accustomed to.” Good advice.

Mark Boehm, CWPP™ is a TMA Insurance Trust Adviser. For more information (including tips on selecting an auditor) on the topic discussed in this article, contact him at 972-395-8464, or alphawealth@verizon.net.