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Katt & Company is a national fee-only life insurance advising firm. The June 2002 Forbes magazine, and a July 16, 2003 Wall Street Journal article, name Peter Katt as one of only four nationally recognized advisors. The Forbes article states that, "…advisers are well worth the money… These savants are working for no one but you…" For references please contact us. Policy Replacement? Don't Skip the Analysis "So we are driving on I-75 at about 75 mph when I ask my son, Noah (10), whether he thinks a tree on the left side of the road is as large as one on the right side. Being a bright boy he says that is it tough to tell. Such a conclusion is often asked of life insurance owners when the policy replacement machine kicks in." Evaluating such situations is a common assignment we are asked to perform because the information provided by replacing agents is often less obvious than deciding which tree is bigger. John was approached by his long time financial / investment planning firm now boldly going where they hadn't been before with John, trying to sell him life insurance to replace his existing policies. They got information on these policies from the insurance company by telling them they were needed for the preparation of his taxes. The problem is that the replacement no lapse UL policy didn't match up with any of John's existing policies in terms of cash values transferred, amount of premiums and length of time the premiums would be paid. Finally, the existing policies' death benefits were increasing while the recommended replacement policy had level death benefits. This all left John, whose vocation is analyzing stocks for a major financial institution, bewildered. But of course an astute analysis is possible.
The first thing we did was to determine whether the recommended
no lapse UL was the most competitively priced. It was not, so we substituted
in the best priced alternative with a 10% advantage. The next thing
we did was to obtain an illustration from this most competitive UL company
that matched one of John's actual policy's cash values and premium
payments. We then determined his life expectancy that is important
as the following table indicates. We presented Tables 1 and 2 to John
so he could make an informed choice. Table 1 - Comparison of Death Benefits
@ $1,810 premium
guaranteed to fund UL death benefit
Table 2 compares cash values for the existing whole
life and recommended replacement UL. Table 2 - Comparison of Cash Values
Actual cash values will be higher or lower depending on interest crediting for UL and dividends for whole life
John now has data that he can compare and make a rational choice whether he wishes to replace his existing policies. He can tell that there is likely to be a high probability that his existing policies will provide better death benefits because they are increasing and he knows that the no lapse UL has low if any cash values. Finally, a new policy will start anew the two year clock for the policy being contested based on a material representation during the underwriting process. The existing policies are well beyond two years. Unfortunately, life insurance is mostly pitched
without a clear understanding of the issues that need to be considered.
A much better process is possible.
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