THE CHALLENGE:
A planner reached out to us with a client who had a $1,000,000 Variable Whole Life insurance policy. The client had just received the most recent annual policy statement and the planner asked us to review it. Through their insurance analysis, the planner informed us that the client was underinsured and did not have the appropriate type of insurance. In addition to reviewing the current Variable Whole Life policy, we were asked to provide term insurance quotes for comparison.
THE ANALYSIS:
The client completed the authorization form for us to go to the carrier to obtain the current Variable Whole Life Insurance policy information, the informal inquiry, and the authorization to obtain medical records for new term quotes.
We obtained the information on the Variable Whole Life policy and our analysis showed that the policy, obtained as part insurance part investment, was performing poorly as an investment and carried with it very high management fees. In addition, we obtained and summarized the medical records to send out to the marketplace without any of the client’s personal information, something we call a blind market test.
Through the blind market test it was uncovered that the client had a specific health issue related to elevated protein levels in his urine which he was currently being treated for by his physician – as a result the insurance carriers came back with offers in the Table B and Table D area effectively doubling the premium for someone rated with a standard risk.
THE RECOMMENDATION:
We recommended to the planner that the client work with his physician to bring the levels back into the normal range and maintain them for at least 12 months – this way the carriers would no longer see it as a risk.
Flash-forward to 18 months later and the client has maintained his levels within the normal range for 12 months. At this time, we recommended that the client go through the underwriting process. Since we initially ran the blind market test, there was no indication in any system that the client had previously applied for coverage and ended up being rated. The client ended up received preferred underwriting and was able to maintain $3,000,000 of laddered term insurance. By running the blind market test and discovering and fixing the health issue before going to underwriting – the client was able to save close to 250% on what his rated premiums would have been! He was also able to surrender the Variable Whole Life policy without any tax implications because the cash value was below the cost basis.
