It’s interesting to see where people put effort and concern and where they don’t.
Take life insurance and underwriting. Where’s all the focus? Quality of carrier, competitiveness of premium, relationship with agent – it’s true that all these are not unimportant. Yet in too few situations is underwriting the driving factor.
Here’s a simple example. Assuming death at age 85, the IRR on premium to death benefit is 5.24%, assuming preferred rates, and 4.02% at standard rates. That’s a 122 basis point improvement on the deal. Can your financial advisor get you an assured 122 basis point improvement on your investments? What’s that 30% improvement in performance worth?
Let’s assume we can’t negotiate from standard to preferred with carrier A. Will another insurance company look at it differently? Sure! Suppose another insurance carrier showed preferred rates at $105,000, which was overlooked, as $100,000 looked better. If we could get that other insurance carrier to prefer preferred, then, all other things being equal, $105,000 is meaningfully better than $130,000.
The same dynamics apply for survivorships. When two preferreds turn into a preferred and standard, the premium goes up by 15%. With one at table D, it’s a 30% increase. Some research and negotiating to find a 50-100 basis point improvement in return will be worth some effort.
And so, if that no-so-great-offer is from the insurance company on the agent’s card, ask him to find a company that will do better. Don’t let anyone tell you “I have a 30-year relationship with this underwriter, and if they won’t give you better, no one will.”
For more information, please read:
Stronger Focus Needed on Underwriting in Insurance Planning | Wealth Management