A collection of insightful and informative articles from Myerson Wealth's “Recipes for Success” newsletter
I was recently introduced to the most wonderful 93-year-old gentleman. The work we did for him transformed me from a convert to a crusader on a particular cause, and compelled me to share the message with anyone who cares to listen:
“Fred” bought a life insurance policy in the comparatively “heady” days of the early ‘90s. Most of you reading this piece will remember the 7% – 9% yields being generated on our fixed income portfolios. And these were the same yields being credited to the cash value inside a life insurance policy. Fred purchased his policy in 1993 using a single-premium structure, and in his mind the policy was “paid-up” with the death benefit of $5 million to be paid upon his death–no matter when that should occur.
For the next 20 years, Fred received his annual statement from the carrier, and duly filed it away, without concern. But as we now all know, prevailing interest rates on non-guaranteed policies (of which Fred’s was one) began to plummet, and behind the scenes, Fred’s cash value in his policy was dramatically different from the original projection. And then in 2014, at the age of 91, Fred received a premium notice in the amount of $240,000. A shock to say the least!
Why hadn’t Fred’s insurance agent advised him of the possibility of a future premium? Well, that may have been difficult, since the agent had passed away in 2004. Fred’s policy was now effectively an “orphan.” While orphaned policies do get assigned to a replacement agent, for the most part the adopter is reluctant to go out of their way to provide servicing as they are not compensated for what can end up being an extensive amount of work. And without a pre-existing relationship they don’t feel any moral or emotional need to do so. Worse still, there is no obligation on a carrier to provide service on orphaned policies beyond the annual statement, and insufficiently trained telephone support.
If you think this case is rare, think again. It is estimated that orphaned policies represent 50% of all policies in force.
Hence my crusade . . . to get the word out to non-clients, friends and professional advisors to make sure they regularly review their insurance portfolio in concert with their changing needs.
Aside from Fred’s situation (which we helped alleviate but could not completely rectify) there are a number of other important reasons why I’ve become a crusader on insurance policy reviews. Stay tuned for a glimpse of these reasons . . . and by the way, Whole Life is not immune to my concerns and will be on the list!
And as always: Eat Well, Drink Well, Live Well!