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By Garry Burry
Estate & Business Planning Advisor

The realities of today’s economy demand that individuals consider every option for making the best use of available resources, no matter what their personal financial situation. That would be true at any time, but never more so than today.

One area that many people overlook is their life insurance policy. You may have bought a policy five, 10, even 20 years ago, paying your premiums in order to provide a source of funds to cover the Federal Estate tax or to feel assurance that your loved ones are cared for if something happens to you.

For many years, life insurance has been a great vehicle for accumulating savings and cash values. Your policy may also have a minimum interest crediting rate that you are guaranteed.

As you’ve no doubt surmised from the financial news these are uncertain financial times. And while your life insurance policy is likely to be safe, there’s no better time than now to take a look at how it is doing.

I’m recommending that clients write to their insurance company to order what I call an audit of the policy.

Most companies call it an in force illustration report of current policy values (“in force report”) or a “reillustration.”

Most cash value policy illustrations depict future death benefits and cash values based on non‐guaranteed assumptions. The assumptions are based on the then current interest rate being paid and the company’s then‐current expectation with respect to mortality expense and other internal expenses like underwriting expenses and commissions. It is always appropriate to evaluate how an existing cash value policy has actually performed versus how it was illustrated at time of sale. It is also advisable to learn how the policy would continue to perform under a continuation of updated current assumptions, and as an alternative, assuming economic conditions continue to deteriorate.

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With certain types of policies, the insurance coverage will only remain in force if the premium paid plus existing cash value is adequate to pay the ongoing policy charges. For example, it has been my experience that a significant percentage of Universal Life policies in force reports show the insurance policy lapsing with no value at some point in the future.

When our office analyzes these in force reports for clients, we request a year‐by-year to age 100 report, which shows the specifics and mechanics of what is occurring inside the policy.

As mentioned above, some Universal Life policies are illustrating that they will terminate or lapse in the future. Most people do not understand this because they assumed that the policy would stay in force until death. Another common problem with cash value policies is the need to pay more premiums out of pocket than originally illustrated. An in force report can show the policyholder how many more years’ premiums may have to be paid in cash based on the company’s experience today.

When some cash value policies were sold, the results may have been based on an assumed high rate of dividends, interest rates, market returns, or some combination of these. The problem is that dividends, current interest rates and investment returns may be lower than originally illustrated. As a result, the policy’s future illustrated results may not look as good. In some cases, as noted above, unless corrective action is taken, the policies may eventually lapse without value.

Here’s the good news. Once clients understand the status of their life insurance contract values, they can make an informed decision on what to do next. Options include keeping it, increase the payment, moving it (by doing a 1035 tax‐free exchange to another insurance company), or even reducing the coverage. In our evaluation of these policies, we have found that even if the planned premium is paid when due, the policy may still terminate in the future. The death benefit may not be there when the insured person dies. That’s not the kind of news one wants to learn first in a difficult emotional time. That’s why it is so important to take action.

If you have been holding one of these cash value life insurance policies for several years, now is the time to take another look at what you are really getting.

Garry can be reached at garry.burry@nmfn.com

Garry Steven Burry is a Representative of Northwestern Mutual Wealth Management Company®, Milwaukee, WI (WMC),a wholly-owned company of The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM), and limited purpose federal savings bank. Representative is an Insurance Agent of NM (life insurance, annuities and disability income insurance) and Northwestern Long Term Care Insurance Company, Milwaukee, WI, a subsidiary of NM (long-term care insurance), and a Registered Representative of Northwestern Mutual Investment Services, LLC (NMIS), 462 S 4th Ave. Ste 1900, Louisville, KY 40202-3477, 502-562-2400, a wholly-owned company of NM, broker-dealer and member FINRA (www.finra.org) and SIPC.