Does thinking about the cost of your life insurance premiums make you sick to your stomach? You may want to take a break here and head to the medicine cabinet, but please read on.
Are you paying too much for your existing life insurance policies? I bet I know your answer. Is there a way to get your insurance company to negotiate a premium reduction for your current policies? I bet I know what you think is the answer to that.
A knowledgeable, independent insurance professional can answer these and other questions by performing a life insurance expense reduction review. It determines ways to reduce the premiums you are currently paying on existing life insurance policies.
It often can be done:
- Without changing life insurance companies.
- Without surrender charges.
- Regardless of your age.
- Without taking a physical exam.
- Without reducing you current death benefits.
The life insurance industry, like many industries, has changed over the years due to increased competition, reduced expenses and improved mortality.
These changes have enabled many insurance companies to replace existing types of policies resulting in significant premium reductions to the policy holder.
Premium reductions many times can result from taking advantage of new insurance products that have become available since existing policies were written. Due to commission structures on insurance products and other factors, your insurance agent may not always proactively find premium savings for you.
A review by an independent insurance professional should be considered. That should include the examination of each existing policy to determine if it contains premium reduction alternatives that are not being used.
Each insurance company, with which you currently carry insurance policies, should be contacted to see if it has an internal exchange program that can be utilized to help reduce the current premiums.
Additionally, each policy being reviewed possibly should be restructured if the actuarial assumptions, which were used to determine the premium at the time the policy was applied for, have been updated to reflect new cost reduction measures the insurance company has adopted. Many insurance companies have unpublicized internal exchange programs that may be utilized to reduce your current premium. Gee, I wonder why they are “unpublicized.”
After all of the aforementioned items are considered, a formal report should be prepared that outlines the premium reduction techniques to be used along with an implementation schedule.
How successful have such reviews been? To date, more than 90% of the policies studied by one insurance professional have experienced a premium reduction. These premium reductions, which occur year after year, average between 35% and 50%.
Here are some actual results of reviews conducted by one independent insurance professional:
Dealer One and his wife purchased a $6.2 million “Second to Die” life insurance policy to offset estate taxes at death. A review of the policy showed that it was not very cost effective. Alternative products were reviewed and the dealer and his advisors elected to replace the current policy with a new policy that reduced the premium from $89,000 to $47,000 — an annual savings of $42,000.
Split dollar is many times one of the most misleading concepts in life insurance. Buyers think they're getting something for nothing. But this type of policy often increases the cost of buying life insurance without providing any real long-term benefit. Recently issued IRS Notice 2001-10 will have a negative effect on many split dollar plans. By replacing one with a Section 162 program, Dealer Two reduced his annual premium outlay from $46,724 to $16,500.
Dealer Three's dealership was paying about $80,000 per year for life insurance on the owner. A review reduced that amount to $30,000 per year and resulted in a $144,000 income tax-free refund from the insurance company.
What types of policies can be successfully reviewed? Almost any type of personal, estate planning or business-owned life insurance policy. The greatest success has been with policies that are at least five years old and without large outstanding loans.
Can a review reduce the premium outlay on policies covering older people? It depends on the policy. For example, Second To Die policies insuring individuals as old as 85 have experienced meaningful reductions.
What does the service cost? Many times nothing to the insured. A review is often on a contingency basis. If the review is unable to reduce premiums, there is no charge. If the review is successful, the insurance professional is paid out of the premium reduction — not out of the insured's pocket.
True win-win situations are rare. This is no exception. You win, the insurance company loses. Feeling better?
Don Ray is the president of the George B. Jones Companies, a national accounting and consulting group for retail automobile dealers. If you would like to know more about tax issues facing dealers, contact him at 901-684-5643 and [email protected].