As the coronavirus crisis generates market volatility and threatens to change the face of life insurance as we know it, the job of the life insurance trustee to actively manage policies in the interest of the beneficiary.
That was the thesis of a piece written by Judith L. Pearson of Denver, Colorado-based Nomadx Solutions and Michael Brohawn, CFP, in a piece published by WealthManagement.com.
In reviewing the policies in their clients’ portfolios, the two said trustees should be reassured that insurance carriers are expected to retain their financial integrity. While higher mortality will affect insurers’ profitability, current projections suggest they’ll remain stable “as long as the population follows suggested and required guidelines.”
In-force policies are also expected to suffer a performance impact for the foreseeable future, particularly as the novel coronavirus’s economic effects weigh on investment assets, primarily consisting of fixed investments.
“All permanent life insurance policies under a trustee’s care should be stress-tested by a life insurance professional,” Pearson and Brohawn said. Past performance projections, which now are likely to be optimistic, must be compared with new re-projections using current as well as lower assumptions.
While fixed products’ returns will likely trend lower for the foreseeable future thanks to low interest rates, variable policies must be quickly reviewed, particularly as they are tied to equity market performance. “Policies with low cash values will be the most susceptible,” the two said, noting that some variable policies are showing cash value drops of 30% or more.
As some universal life policies offer death benefits that depend on continued on-time, in-full payments, trustees should also look for such policies and take steps to preserve their integrity. For whole life contracts, one might consider using dividends or policy loans to pay required premiums.
And as times of financial stress continue, trustees should also consider reaching out to grantors earlier than usual to determine whether any client funding issues exist.
After a full review of policies within their trust, trustees should have a discussion with their grantors to determine prudent steps to address any issues. Some policies, Pearson and Brohawn said, would likely need additional cash to reach policy goals.
“All trustees should appropriately review their clients’ life insurance portfolio,” they said. “A proactive approach to policy review will help mitigate a trustee’s liability and increase customer service.”