I’ve had the privilege of meeting countless individuals with unique financial stories. One encounter, in particular, stands out, highlighting the critical role of well-structured life insurance – a cornerstone of our work here.
Years ago, on a flight back from California, I met a gentleman named Larry. He was returning from an international basketball tournament in Australia. A successful man, he had built a comfortable life, including homes for his children near his own riverside property in Annapolis, Maryland. Yet, despite his success, Larry faced a common financial challenge: ensuring his wife’s and grandchildren’s financial security.
Larry had existing cash value life insurance policies, but he was concerned about their ability to meet his long-term goals. His concern was valid. As I suspected, his existing policies were interest-sensitive, and due to declining interest rates, their performance was significantly below expectations. In fact, they were on the verge of lapsing.
This situation is a stark reminder of how economic changes can impact even seemingly solid financial plans. His policies, originally designed with a $22,000 annual premium, now required a staggering $76,500 to remain in force until a reasonable age. This underscores the potential risks associated with policies tied to fluctuating interest rates.
At The Fiduciary Firm, we specialize in helping clients avoid such pitfalls. We understand the importance of guaranteed life insurance policies, especially when planning for long-term security.
Key Takeaways from Larry’s Story:
- The Risks of Interest-Sensitive Policies: Economic shifts can significantly impact policies tied to interest rates.
- The Importance of Guaranteed Policies: Policies with guaranteed death benefits and premiums offer stability and peace of mind.
- The Need for Expert Review: Regular reviews of existing policies are crucial to ensure they align with current financial goals and economic conditions.
- Estate Planning and Life Insurance: Integrating life insurance into estate planning is vital for protecting beneficiaries.
- Guaranteed Universal Life Insurance: In Larry’s case, we were able to transition him to guaranteed universal life insurance policies. These policies fixed his premiums to $36,000 annually, and guaranteed that the policies would last until age 121, and would not lose value due to market fluctuations, or interest rates.
- For more information on life insurance, and how it can be utilized in estate planning, please refer to the IRS website regarding Estate tax.
- For information on universal life insurance, and how it works, resources from the NAIC are very helpful.
Larry and his wife, Sharon, were relieved to have a solution that provided long-term security. At The Fiduciary Firm, we’re committed to helping clients navigate these complex decisions, ensuring their financial legacies are protected.
Key Summary:
Cash value life insurance policies, while offering benefits like potential cash accumulation, are subject to various risks, including fluctuating interest rates and market performance. Regular reviews are essential to ensure these policies remain aligned with your financial goals and are not at risk of lapsing. Factors like current interest rates, policy performance, and evolving financial needs should be considered.
5-Point Checklist for Reviewing Cash Value Life Policies:
- Policy Performance Analysis:
- Review the policy’s historical performance, paying close attention to interest rates, investment returns, and any associated fees.
- Compare the actual performance to the initial projections provided when the policy was purchased.
- Determine if the cash value accumulation is meeting your expectations and financial goals.
- Premium and Lapse Risk Assessment:
- Evaluate the current premium requirements and assess their affordability in light of your current financial situation.
- Determine if the policy is at risk of lapsing due to insufficient cash value or increased premium demands.
- Calculate the potential future premium increases and assess their impact on your long-term financial plan.
- Beneficiary and Estate Planning Alignment:
- Ensure that the policy’s beneficiaries are up-to-date and reflect your current wishes.
- Evaluate how the policy fits into your overall estate planning strategy, particularly regarding potential estate tax liabilities.
- Determine if the current policy is still the best vehicle for your estate planning needs.
- Policy Features and Flexibility:
- Review the policy’s features, including loan provisions, withdrawal options, and death benefit guarantees.
- Assess the policy’s flexibility to adapt to changing financial circumstances, such as retirement planning or unexpected expenses.
- Confirm that the policy still meets your needs.
- Professional Consultation:
- Schedule a consultation with a qualified financial advisor or insurance professional to review your policy.
- Seek expert advice on potential alternatives, such as guaranteed life insurance policies, if your current policy is deemed unsuitable.
- Obtain information about current regulations, and how they effect your policy.
How we can help you
Are you concerned about the long-term stability of your life insurance or annuity policies? Do you want to ensure your financial legacy is protected, regardless of economic fluctuations? At The Fiduciary Firm, we understand that navigating the complexities of financial planning can be daunting. That’s why we offer personalized, fiduciary-level advice to help you make informed decisions.
We invite you to schedule a complimentary consultation with one of our experienced advisors.
We’ll review your current policies, assess your financial goals, and develop a tailored strategy to ensure your peace of mind. Whether you’re considering guaranteed life insurance, exploring annuity options for retirement, or seeking to integrate life insurance into your estate plan, we’re here to help.
Don’t wait until it’s too late. Take control of your financial future today. Contact The Fiduciary Firm to schedule your consultation and discover how we can help you build a secure and lasting legacy.
How to reach us
You can reach us by:
- Phone at 410 989 1993
- Email at [email protected],
- Booking a meeting slot here.
We look forward to partnering with you on your financial journey.