Fee Only Life Insurance

Permanent insurance is very complex but life insurance companies and agents direct almost all of their resources to sell new policies. Managing and detecting problems with existing policies is not something insurance companies or salespersons have much interest in. Nearly all existing permanent policies are vulnerable to a myriad of potential problems. Some of these problems are:

• Almost all universal life policies are overpriced and underfunded. Overpriced because companies have the bad habit of continually developing new versions of the policy you bought with every newer version getting better pricing leaving your policy a pricing dud. Overpricing, lower interest rates and lack of attention means most universal life policies are in danger of collapse within your life expectancy;
• Many so-called vanishing-premium policies are underfunded and in danger of collapse;
• Policy loans are almost always a bad idea because they substantially reduce a policies performance. Policy loans can often be eliminated without repaying the loan;
• Policy ownership and beneficiary designations can be inappropriate or the cause of potential problems;
• Almost all variable life policies have the wrong design because agents have consistently not allowed for the fact that equity investments can go down. In fact, the illustrations used to establish these designs are not allowed to show how investment losses can affect policy performance. Poorly designed variable life policies alternate between being overfunded or underfunded and can collapse if too much underfunding occurs;
• Almost all life insurance associated with so-called 419 plans need immediate review because most are nothing more than clever tax-avoidance schemes that will be very costly to its victims if discovered by the IRS;
• Split-dollar life insurance is almost always a sales gimmick that has few benefits when all of the factors are considered. In addition, ongoing actions by the IRS make split dollar even less attractive. All split-dollar plans should be reviewed; and
• Pension owned life insurance isn't the great tax deal that salespersons claim. Most pension life insurance is a four-of-one-half-dozen-of-another proposition. Whether the potential benefits are more worthy than the potential problems needs to be assessed with individual clients making their own decisions on continuing it.

Yes life insurance agents are professional sales people. Whether they have the skills, incentives and approach to be more than that has to be taken on a case by case basis, but it is not the norm. As former license holders we can assure you that the vast majority of agent training is devoted to selling skills. It is due to our frustration with the traditional model that we have sought out Peter’s help to supplement our planning skills with his expertise on insurance design, eliminating commissions and other sales costs where possible, and adding his experience to our insurance planning team. Agents learn and master the rhetoric of life insurance but generally don't understand the complexities that would get in the way of selling policies. In fact, there is a name for agents that conscientiously learn and explain the complexities of permanent life insurance - they are called ex-agents. Even if they did understand the complexities there aren't any financial incentives to manage permanent life insurance. Almost all of their commissions are made when the policy is sold.

No, life insurance should be professionally managed because permanent policies have many moving parts, clients financial and family situations can change and insurance company financial strength and pricing quality must be monitored. Once the first review is done future management can be relatively simple, but still needs to be done. How much management is needed depends on the kind of policy design.

No, perversely insurance companies create extraordinarily complicated permanent policies but have inadequate systems or personnel to assist with policy management. Policy service departments are good at shuffling paperwork and sending out information that is requested, but are sometimes incapable and uninterested in providing astute reasoning about life insurance planning and policy analysis.

Professional management of very complicated assets brings extraordinary value relative to the fee costs. However, at Thompson Creek Wealth Advisors the cost is generally part of our overall service, so no additional cost should be assumed. In unusual cases where it is expected that the complexity may result in additional fees we will discuss the matter ahead of time to insure it is in line with your desires to go forward. We expect in those instances the need would be quite compelling and result in substantial savings or avoid significant problems.

Absolutely, a fiduciary advisor explains the potential advantages and disadvantages of various alternative planning and policy options. Clients then make informed choices. Implementing policy purchases is done with most of the commissions eliminated (none of which go to the advisor in any event) by creative policy structuring. Eliminating most of the commissions produce enormous savings.