NLEC continues to provide leadership on the Board of M Financial.

NLEC congratulates and offers a heartfelt thank you to Mac Nease for his 32 years of service on the Board of M Financial. A true pioneer and visionary in the life insurance industry, Mac devoted countless hours to serving clients and the broader insurance community via the M Financial Board – all for the greater purpose of client advocacy. Many prominent families in the country would not have access to sophisticated, customized insurance solutions without Mac’s input and guidance. His stewardship, particularly in the areas of product development and working directly with carriers, may never be duplicated again.

While Mac has ended his board service at M Financial, he remains quite engaged at NLEC as one of our founding principals. All of us at NLEC are thrilled to have his continued guidance as a leader in our firm.

At the same time, we offer congratulations to Brent Eden who was recently elected to the Board at M Financial. Brent joined NLEC 10 years ago after practicing law for several years. In a short period of time, Brent has assumed leadership roles in the firm, and at M Financial. We are excited for this new chapter in Brent’s career, and grateful for his willingness to serve the broader life insurance community.

Life Insurance in the Covid-19 era

In the Wall Street Journal (WSJ) article dated May 10, 2020, the Journal highlights some of the rapid changes occurring in the life insurance industry. The author implies that US insurers are turning away business that they normally might accept; and the reasons can be traced back to the impact of the Covid-19 virus on the economy and the mortality of individuals who have contracted the virus. While one of the economic impacts of the Covid-19 virus has been the exacerbation of a 20-year trend – the continued low interest rate environment which shows no signs of abating in the near future, insurance companies have been grappling with this issue for several years.

In this market environment, client representation is absolutely critical. The insurance advisor must be able to access the broader market to ascertain which insurance companies and products make the most sense given a client’s individual circumstances. A “one size fits all” approach doesn’t make sense and should not be accepted. Carriers are constantly assessing their risks, and making changes to their products, processes, and underwriting. Some of the transitions that are occurring now can be described as a “knee jerk” reaction and are likely to be temporary. In fact, we have already seen instances where insurance companies have postponed accepting applications for certain advanced ages, and then reinstated their willingness to do so. The insurance advisor must have the resources to stay abreast of these changes and advise the client accordingly.

Despite the current economic turmoil, it’s important to remember the following about the life insurance industry:

• The life insurance industry continues to accept new clients at a robust pace.
• The industry is well capitalized and continues to pay claims.
• Those claims represent tax advantaged liquidity at times when families and businesses need and desire them most.
• There are no pandemic exclusions for payment of claims.
• Enhanced and accelerated underwriting programs are emerging, making the onboarding process much easier and less time consuming.
• HNW individuals, families, and corporate entities can still take advantage of select risk pools that offer products with superior pricing.

The life insurance industry, like any other during these turbulent times, is adjusting to the new realities all of us face. Financially, they are well positioned to do so. Clients should remain confident in the strength of the industry, and with appropriate representation, clients will have access to the insurance products and companies that best suit their needs.

Medical Underwriting for the Affluent Client

Life insurance medical underwriting is a carrier’s assessment of mortality risk associated with an individual’s medical history and the pricing associated with the assessment. Underwriting guidelines differ among insurance companies. It is not unusual to receive inconsistent offers from the carriers – i.e. Preferred, Standard, etc. – even though they all reviewed the same medical history.  Some companies may specialize in or have more experience with certain medical conditions than others – e.g. Parkinson’s, diabetes, sleep apnea, HIV, hypertension, etc.

There are many misconceptions about life insurance medical underwriting. Often people believe they are too old or have too many adverse health conditions for them to obtain new coverage. New coverage is regularly obtained for those in their 70’s and 80’s. Their underwriting classification is determined based on their health compared to others of the same age and gender, not to those 20 or 30 years younger. Some individuals with certain heart conditions (e.g. stents, bypass, open heart surgery) and cancers (e.g. breast, skin, prostate) have been able to obtain attractively priced new coverage.

Additionally, affluent individuals exhibit more favorable mortality characteristics than the general public, and some insurance companies take these characteristics into account during the underwriting process. There is hard data proving that affluent individuals take better care of their health and live longer than the general public. Certain companies have separate risk pools for affluent individuals to take advantage of these favorable characteristics both in medical underwriting and in product designs.

It is important for an individual to be represented by one source (preferably an advisory firm) to successfully manage the life insurance medical underwriting process. Otherwise, the carriers get confused as to the representation and can become overly cautious with their offers. The source/firm should understand an individual’s health conditions and have experience with multiple companies and underwriters to receive the most favorable underwriting result. Underwriting classifications can be obtained prior to a physical exam via a confidential and preliminary process to assist in making informed decisions about coverage with accurate information. Sometimes, companies will improve their underwriting classification for an individual after negotiation and prior to the placement of coverage. The source/advisory firm should have experience with this negotiation process and a strong track record in obtaining favorable results. A life insurance advisory firm with an open architecture model, deep working relationships with a variety of insurance companies, and a managed approach to underwriting should be engaged to provide the most effective representation for clients.

Third Party Premium Financing

What is Third Party Premium Financing?

Third Party (or “Commercial”) Premium Financing is the borrowing of funds from a financial institution for the purpose of funding a life insurance contract. The borrower may be an individual, a trust, or a business. The primary benefit of premium finance is the ability to obtain needed life insurance coverage without liquidating other assets.

Loan Elements

Lenders offer a variety of programs to fit different situations. Each program will have the following standard elements, which will vary among lenders:
• Minimum Net Worth Requirements
• Financial Documentation Requirements
• Origination Fees
• Loan Term
• Interest Rate and Payment Options
• Prepayment Penalties
• Collateral Requirements

Minimum Net Worth Requirements

Premium financing is intended for wealthy individuals with a presumed familiarity with more sophisticated arrangements and investments. Each program has a minimum net worth requirement, which can be as low as $1,000,000 and up to $25,000,000 or more.

Financial Documentation

Lenders will request verification of financial net worth from multiple sources. Minimally, current tax returns and financial statements will be required.

Origination Fees

Some programs will charge an origination fee for establishing the loan. This can be a flat fee or a percentage of the total loan amount. In many situations, the origination fee can be added to the loan balance.

Loan Term

Most premium finance programs available today offer a loan term between 1 and 10 years. Often, the borrower will be allowed to re-qualify for the loan at the end of the term and establish a new loan with new terms.

Interest Rate & Payment Options

Premium finance programs most often use a benchmark rate plus a “loan spread”. Usually, the benchmark rate used is either Prime (the lending rate most commonly used by U.S. Banks) or LIBOR (the London Interbank Offered Rate), an internationally accepted lending rate published daily by Thomson Reuters on behalf of the British Bankers’ Association. The loan spread varies from lender to lender, but typically falls between 1.5 and 4.0%. Interest rates that are tied to a benchmark rate are usually variable, and are reset on at least an annual basis. Some loan programs offer a fixed rate for the life of the loan, and may use a different method for determining the interest rate. Interest may be allowed to accrue and become due at the end of the loan term. More commonly, loan interest is paid at the end of each year of the loan.

Prepayment Penalties

Some programs will charge the borrower a penalty fee if the loan is repaid prior to the end of the term.

Collateral Requirements

The primary collateral for the loan is almost always the cash surrender value of the policy. Additional collateral is required and must be in a form acceptable to the lender. This can include cash or cash equivalents such as a letter of credit, certificate of deposit, or securities. In some instances, a less liquid form of collateral, such as real estate, may be acceptable.


• Should the value of collateralized assets decrease, the lender may require additional collateral from the borrower.
• The lender has the right to call the loan at the end of the term.
• If the interest rate index used for the loan benchmark rises, the total interest charge on the loan will also rise. The life insurance could be subject to forfeit if the borrower is unable to keep up with the interest payments on the loan.
• Downgrades in the credit rating of the carrier may result in the lender terminating the premium finance arrangement at renewal and/or call the collateral for the loan.
• The illustrated performance of a life insurance policy is based on a series of assumptions. Should actual conditions be less favorable for the policy, the growth of cash value within the policy may suffer. As a result, the lender might require additional collateral to be posted.

Exit Strategy

When entering into a premium finance arrangement, it is wise to have a definitive plan on when and how the loan will be repaid. If the intent is to use the cash value or death benefit from the policy to repay all or a portion of the loan at a future date, the policy should be carefully monitored to ensure that it is performing as expected. A contingency strategy should also be developed which may involve the possible planned liquidation of other assets to repay the loan.

Diagram of Third Party Premium Financing


No Lapse Guarantee (NLG) policies, or policies with NLG riders are attractive to some insureds. Many of these Guaranteed policies were issued by a number of carriers since the early 2000’s. The premise is that as long as the premium is paid on time each year, the death benefit is guaranteed. Thus, many insureds, advisors, and trustees are under the impression that these policies do not require ongoing review. This is an incorrect notion, and the following case study will show one reason why.

NLEC was recently asked to review a $5m Survivor (2nd to Die) policy. The policy was acquired in April 2001, with an annual premium of $39,634. The crediting rate in the cash value account was 6.30% at the time of acquisition. The Guaranteed duration of the policy was to ages 105/100 for the husband and wife, as long as the premiums were paid timely.

When NLEC initially reviewed the policy, we discovered that the no lapse rider was no longer in effect because the insured had transposed numbers on the most recent premium payment. Instead of paying $39,634, the client had paid

$39,364…a shortfall of $270.

What was the result? Instead of a Guaranteed duration to ages 105/100, the policy’s duration was now to ages 94/89 (an 11 year difference!) Why did this occur? The primary factor involved here is the fact that the no lapse rider was impaired due to a seemingly small error – an underpayment of only $270. Additionally over the past 13 years, the crediting rate in the cash value account had decreased from 6.30% to the guaranteed minimum floor of 4%. In other words, without the Guarantee rider attached to the policy, the cash value account was not sufficient to support the original duration of the policy. So despite the fact that the insured had paid over $500k into the policy, a simple transposition of numbers had impacted the Guarantee severely. Neither the original agent who placed the policy, nor the insured was aware of the error. This was a function of a lack of reporting and ongoing review of the policy, which had never taken place.

So what is the lesson? Very few carriers notify the policy owner if the guarantee has been adversely impacted. Therefore, these types of policies should not be treated like a bucket item list; once they are acquired it can be checked off the list and forgotten. We learned that policy guarantees are based on certain factors that must occur within a specified time period. So in this case, it’s really guaranteed…IF. If the insured pays the correct amount of premium and on time, then the guarantee should remain in place. Other factors that can negatively impact the guarantees include paying premiums too early, too late, taking loans from the policy, and making changes to the death benefit.

What should be done on a go forward basis on all policies with premium based Guarantees? NLEC’s procedure is to send premium reminder notices 60 and 15 days in advance. Each year after the policy anniversary date, we request confirmation from the carrier that the guarantee remains in place. Adherence to these procedures will provide the reporting safety net necessary to protect the client’s long term interests.

No Lapse Guarantee policies are extremely rigid and unforgiving in their design. As a result, clients are often making an irrevocable decision when they acquire them. Before doing so, we suggest thinking about the need for future flexibility as one’s circumstances, objectives and estate plan will change over time. Since these policies are very inflexible, careful consideration should be given during the decision making phase to determine IF it is a fit. If your plan is going to change, shouldn’t your life insurance be designed with the ability to change with it?

Life Insurance Basics: Life Insurance Pricing and Policy Mechanics

The pricing of life insurance policies is complex and dynamic. There are four factors that primarily drive pricing and policy performance: mortality, investment earnings, expenses, and persistency. The impact of the varying pricing factors on policy performance will vary in importance depending on the type of policy design. Each pricing factor is based on current experience, usually from the insurer itself but sometimes complemented by data from actuarial consulting firms, public sources, or reinsurers.

Life Insurance Pricing Factors

A policy charge intended to cover the death claims paid by the insurance company. Mortality charges are primarily based on insurance company recent historical mortality experience. For Universal Life, the mortality charge is transparent (i.e., unbundled) and defined as the cost of insurance (COI) charge. For Whole Life, the mortality charge is not explicitly revealed, but is included in the guaranteed values and dividends (i.e., bundled). Specifically for Universal Life, the COI charge is a function of a COI rate multiplied by the net amount at risk (NAR). The COI rate is equal to the probability of death and loaded for deviation contingencies, profit, and potentially to cover other insurer expenses. The NAR equals the total death benefit less the cash value. Consequently, mortality charges will be higher for lower premium funding due to the lower resulting account values (and higher NAR) and vice versa.

Interest Credit

Universal Life provides a crediting interest rate applied to the underlying cash value. Whole Life provides a dividend interest rate not applied to the underlying cash value but bundled within the dividend. Both rates are subject to guaranteed minimums and are typically backed by the issuing insurance company’s portfolio of high-quality fixed income instruments such as bonds and mortgages. Variable contracts are different in that their credited investment earnings are based on sub-account allocations, which may include investment options, such as equities and fixed income, chosen by the policyholder and are not subject to a guaranteed minimum (i.e., 100% of the investment risk is transferred to the policyholder). Index UL contracts credit interest based on the gain of an underlying index (e.g., S&P 500) and subject to a participation rate (e.g., 100%), cap rate (e.g., 12%), and floor (e.g., 0%).

Loading Charges

Policy charges intended to cover insurer expenses, taxes, and contingencies; for Universal Life these can come in a variety of forms:

  • A flat dollar amount assessed per month
  • A percentage of premium charge
  • A charge per $1,000 of face amount
  • And sometimes an asset-based fee (percentage of account value)

For Whole Life, the loading charges are bundled in the guaranteed values and dividends and are usually not transparent, but they are certainly being applied.

Surrender Charge

Some policies include an additional charge assessed against a policy’s cash value and only applied if the policy is terminated early (i.e., surrendered).


Persistency is another pricing factor that typically is not disclosed whether the product is bundled or not. Persistency reflects the ratio of policies that stay in force (i.e., do not lapse or are not surrendered). Typically, strong persistency helps policy pricing and performance as it supports ongoing insurer earnings from the policies remaining on the books.

In both unbundled and bundled policies, the insurer uses the policyholder charges to cover death claims and expenses, and credits interest to the policy based on investment earnings. The margins and spreads are incorporated by the insurer to provide contingencies for deviations in experience and provide profit. The entire package of loadings and credits determines insurer profitability and policy performance.


Life Insurance Policy Mechanics

Some products, such as Universal Life, are unbundled where the interest credits and charges are transparent and represent current insurer experience. The underlying policy contract specifies the individual credits and charges and most carrier illustration systems can provide specific details.

Other products, such as Whole Life, are bundled where the interest credits and charges are not transparent, but all the pricing factors still apply. For Whole Life, the dividend represents a bundled credit for current experience that is more favorable than other conservative guaranteed factors. The individual components impacting the dividend are not reported.

For Universal Life, which has flexible premiums, policy coverage remains in force as long as the cash value remains positive (the policy lapses when the cash value goes to zero). For Whole Life, the fixed premium schedule ensures a positive cash value for life. For both policy types, the cash value is simply an accumulation of premium (policy owner payment made to an insurance company to place and maintain an insurance contract in effect), interest credits, and loading charges



Life insurance pricing components can be, and are, mixed in different ways (i.e., product designs) by insurers to accomplish different marketing and profit objectives. The precise mix will be driven by the competing interests of policy performance and profitability, coupled with the insurer’s underlying mortality, investment, expense, and persistency experience. Strong results in each category can lead to positive policy performance and lower overall charges.

Life Insurance Due Diligence

Critical Questions for Clients to Ask


The following is a set of questions designed to help families evaluate life insurance advisors and find the right fit for their specific needs and objectives.


How does the advisor represent the clients’ interest?

An advisor should be an advocate for clients – not an insurance carrier – with interests aligned appropriately. Advisors should have the demonstrated experience and ability to proactively work with various insurance carriers to present solutions that are in the best interests of clients.

For example, if an advisor only has access to one carrier’s products, it is impractical that this one carrier will always offer the best product for the client’s plan – and difficult for the advisor to truly advocate on the client’s behalf.


Does the advisor have a solid business structure?

A life insurance advisory firm should welcome the opportunity for potential clients and their attorneys and other advisors to examine its business model, including an onsite evaluation.

A visit will allow for an assessment of the depth and breadth of services provided by the firm. Clients should be presented with the opportunity to meet with the manager of each department, including underwriting, planning and client service. Clients should feel secure that the insurance advisory firm has considered its own long-term viability by developing a formal and sound continuity plan.


What is the advisor’s market focus?

It is important to choose an advisor that has extensive experience providing solutions for situations similar to those of other affluent families.

Ultra-high net worth families have unique challenges, and family offices present unique circumstances for planning. Typically, a number of professionals will be involved in the effective placement of life insurance plans. The advisor/advisory firm should have a successful history of dealing with multiple client advisors, including attorneys, accountants and the family’s representatives.


Does the firm have advanced planning capabilities?

Life insurance planning for ultra-high net worth families requires both expertise and time from professionals with appropriate experience in both the insurance industry and the estate planning arena. It is important for these professionals to have a comprehensive understanding of the client’s objectives. It also is important for the firm to have a depth of internal resources to allocate to client needs – well beyond the client relationship contact.

Many of the techniques used in the estate planning process are very sophisticated, and it is imperative for families to be serviced by professionals with advanced degrees, industry designations, relevant experience and a history of success.


Is the advisor able to offer propriety products that are focused on the ultra-affluent community?

When it comes to statistical experience, ultra-high net worth families who purchase life insurance generally share some common characteristics, including superior mortality and persistency. Stated differently, family members tend to live, and have the means to maintain their life insurance policies, longer than the general population.

Through strong carrier relationships and an ability to segregate this superior experience, carriers can create proprietary products with better pricing and in-force management, which can significantly improve a policy’s performance over time.


Can the advisor influence insurance carriers?

It is a misperception that life insurance is a commodity. Insurance carriers do have guidelines to follow when placing a large insurance policy; however, when issuing a policy, carriers also have some flexibility on many decisions.

An experienced and well-respected advisor can influence the carriers on behalf of clients. This influence is supported by the firm’s history of quality business, strength of client and advisor relationships, and ability to service the business after it is placed. To effectively advocate on behalf of clients – and achieve favorable outcomes – the advisor should have access to the executive management teams of multiple carriers.


How can the advisor’s policy management philosophy favorably benefit the client?

The placement of an insurance policy should not end the representation by the advisor. In fact, it should be the beginning of a long-standing relationship. Advisors should provide periodic in-force illustration reviews.

If a sophisticated planning technique was utilized, analysis should be performed on a regular basis to ensure the original design continues to be viable. And if changes are appropriate, the advisor should be able to make adjustments that preserve the ability of the client to meet objectives going forward.


What is the advisor’s representation in the estate and business planning community?

Advocacy extends beyond the work an advisor does directly with a client. Top advisors should represent their firm and the industry through active participation in both local and national associations committed to preserving clients’ ability to plan with certainty. The Association of Advanced Life Underwriting, for example, is an organization of select insurance advisors. Its mission is to promote, preserve and protect advanced life insurance planning for the benefit of its members, their clients, the industry and the general public.

Leading insurance advisors also influence tax legislation by cultivating strong relationships with leaders in Washington D.C, serving on committees and testifying before Congress on the potential consequences of proposed legislation for life insurance, and proactively providing ideas and insight to shape legislation that affects clients.

If you have any questions or comments, please contact Peter Fleming at 770.956.1800 or

Choosing Life Insurance Products

Purchasing life insurance in the high net worth marketplace is a complex and at times, difficult process.  From product selection to product performance, there are many factors to consider when buying life insurance. The ongoing volatility in the financial markets can create additional challenges.

This Bulletin will address factors to consider when comparing various product types.

Insurance is risk transfer. In its purest form, Term insurance, the risk of death (i.e., mortality), is transferred to the insurance company.  The premium and death benefit for the policyholder is known and guaranteed. If mortality results are better than expected, the insurance company makes an additional profit beyond the original assumptions. If mortality results fall short of expectations, the insurance company’s profit declines. Policyholders have little uncertainty (other than the future claims paying ability of the insurance company), but also no upside if results are better than expected (e.g., reduced premiums), and no flexibility to access value prior to death should needs change.

Over the past half century,  the industry has developed new forms of insurance in which  the policyholder shares some of the downside risk and upside potential with the insurance company. For example, in Participating Whole Life (WL) contracts, policyholders share  in favorable mortality, interest, and expense results through policy dividends, which can be used to suspend premiums or increase the face amount. Policyholders also assume some downside risk since dividends are not guaranteed. If experience is worse than expected, dividends may be reduced, potentially requiring additional premiums. However, there is a guaranteed floor to downside performance via the base contract.

Whole Life then gave way to Universal Life (UL). With UL, the same risks and opportunities are shared with the policyholder, but they are “unbundled,” and more transparent than the “black box” dividend calculations inherent in Whole Life. UL also includes a guaranteed floor for downside performance.

Variable Universal Life (VUL) takes the risk and opportunity sharing even further. VUL allows the policyholder to almost completely assume the investment allocation control and investment risk (i.e., no guaranteed floor for investment earnings credited to the contract); in so doing there is a significant upside and downside potential to policy performance. In addition, since the account value of VUL is held in a Separate Account, it enjoys a degree of protection from insurance company creditors that does not apply to policies invested in the General Account for WL and UL. Note that a Fixed Account option is generally available with VUL; funds allocated to the Fixed Account are included in the General Account and therefore do not have creditor protection.

Equity Index UL (EIUL) is essentially a UL/VUL hybrid, with a risk transfer profile that is a combination of the two (equity market participation but with a guaranteed floor and possibly a cap on earnings credited).

No-Lapse Guarantee Universal Life (NLG), with its guaranteed premium and death benefit, acts much like Term insurance (but with guaranteed coverage for life).

Even in cases where the policyholder assumes some risk, there is often a guarantee provided by the insurance company. For example, Universal Life policies have a guaranteed minimum interest rate, and guarantee mortality and expense loads cannot exceed a specified maximum. It is important to keep in mind that product guarantees are subject to the claims-paying ability of the issuing insurance company. The following table summarizes the different policyholder risks/opportunities and guarantees by product type.


Which Risks/Opportunities Are Assumed in Whole or Part by Life Insurance

Insurance is transfer of risks but also a transfer of opportunities. The risks/opportunities transferred vary depending on the type of policy, and can include mortality, interest, investment selection, investment return, and expenses.

The appropriate product choice should, as always, be based on the policyholder’s comfort with the risks/opportunities involved. In general, as the policyholder takes on a greater share of the downside risk, they increase their share of the upside potential. Better than expected experience can result in lower premiums or higher surrender values and death benefits than illustrated at issue. Worse than expected experience can result in higher premiums or lower surrender values and death benefits than anticipated at issue, or even a policy lapse (if additional premium is not paid).

Considerations for Financial Flexibility (Cash Value)

In addition to the amount of required premium, an important consideration is the flexibility of the chosen product—that is, the ability to access value in the contract prior to death (i.e., cash value), should the policyholder’s needs change over time. Although insurance is a long-term investment, having access to cash values can provide emergency cash or income if needed. Additionally, cash values can be used to fund a policy exchange into a product with better potential performance. Withdrawals will decrease the death benefit and cash value and may be subject to policy limitations and income tax.

Different product types, and even different products within a product type, can have significantly different levels of cash values. Some products have surrender charges, which can significantly reduce cash values in the early policy years; other products contain cash value enhancement riders, usually available for an additional fee, which typically increase cash values in the early policy years and slightly reduce cash values in the later policy years. Of the different product types, NLG typically has the lowest cash values, often producing zero cash values in the early policy years and zero cash values in the later policy years. There are some NLG products that provide enhanced cash values, but the offset is increased guarantee death benefit premiums.


Product Planning and Risk Mitigation

The current economic environment makes it even more critical that policyholders understand product type risks and opportunities, and plan and review accordingly. At the time of purchase, it is important to understand risks and guarantees, which may be quantified with illustrations run at downside scenarios (including guarantees). Understanding the impact of funding policies at different levels, including more conservative premiums that will provide a cushion in the policy to withstand a downturn, is also beneficial.

For insurance that has already been purchased, inforce illustrations can provide an early warning as to whether adjustments in funding or death benefit, or even a policy replacement (i.e., 1035 exchange) may be necessary. Inforce reviews may need to be more frequent for aggressively funded policies or for products that contain more risk. Note that inforce reviews may show actual policy performance that is ahead of schedule, providing opportunities for reduced future premiums or for taking cash distributions.


Life Insurance Company Due Care

Company financial strength is always an important consideration, but it is even more critical in today’s environment. Reviewing and understanding insurance company financial strength ratings help clients and their advisors become comfortable with the claims paying ability of the company. Consider the value of diversifying your insurance across multiple insurance companies to spread the claims paying risk. Some advisors may even provide ongoing reviews of insurance company financial strength, a valuable service in the current economic cycle.



Regardless of the chosen product or strategy, decisions are enhanced when made in conjunction with an insurance advisor who understands the complexities of the landscape and the mechanics of the products available. Inforce service—which is provided after the plan is implemented and policies are purchased—is also critical. In a volatile environment, it is essential to continuously monitor policy performance and assess the impact of emerging trends.

Your insurance advisor should be well positioned to deliver these valuable services:

  • Serve as your advocate for product, policy, and insurance company due
  • Emphasize in-force management (i.e., treating in-force policyholders as well as new policyholders), including involvement in in-force repricing improvements— especially in the institutionally priced product portfolio—affording more transparency, control, and communication of potential repricing
  • Access to a multi-insurance company platform with financially strong insurance companies providing the ability to diversify cases across multiple insurance companies.

Remember that life insurance can be tailored to meet your risk profile and can be an efficient tool for transferring and mitigating risks.


Variable universal life policies are offered by prospectus only, which can be obtained by calling 770.956.1800. The prospectus contains information about the product’s features, risks, charges, and expenses, and the investment objectives, risks and policies of the underlying portfolios, as well as other information about the underlying funding choices. Please read the prospectus and consider this information carefully before investing.

Chasing Basis Points

In the wealth management world, basis points mean everything. Hedge funds may charge 100 to 200 basis points plus a performance fee. Fund of funds typically charge 50 to 100 basis points plus a performance fee. The model for wealth management firms could be 50 basis points for managing a $10 million portfolio.

Based on our observations, we know wealthy individuals and families pay close attention to basis points. We have all seen administrative platforms trying to find greater efficiencies for their business model so they can lower their basis point charges. It is not uncommon for an asset manager to be fired over 5 to 10 basis points – either via performance or administrative costs. The bottom line is this: basis points matter.

Life insurance is no exception.

There is an opportunity to have meaningful basis point reductions inside your life insurance policy. Many affluent families are unaware of the impact lower basis point charges can have on this asset class and how to take advantage of the possibility.

The potential solution can be found in the genesis of life insurance products designed specifically for the affluent buyer and the ability to segment experience to create a separate risk pool for those insureds.

In 1978, a group of life insurance advisors approached product manufacturers (i.e., carriers) with an intriguing opportunity. These advisors served wealthy individuals who exhibited superior experience in three areas at the heart of life insurance product design and pricing. These affluent clients had better mortality (they lived longer primarily because of access to the best healthcare), they purchased larger amounts of insurance (which created efficiencies via lower unit costs for the carriers), and they kept their policies in force for longer periods of time (because they purchased life insurance for a specific need and have the resources to pay the required premiums). Based on these characteristics, these clients deserved to be treated differently, specifically with products priced with these advantages.

The carriers listened and agreed the opportunity was intriguing. But they needed proof to justify the lower pricing for these clients.

So the advisors began collecting data—through a reinsurance company they created with their own capital—that proved the original theory: wealthy clients demonstrate experience characteristics—mortality, expense, persistency—that justify lower pricing.

These advisors now have several decades of data showing that:

  • the mortality of the affluent market is 30% less than that of the generally insured public;
  • the persistency of the affluent market is 60% higher than the generally insured public;
  • the average policy size of the affluent market is seven times greater than the generally insured public, which creates expense efficiencies for

This led to the creation of life insurance products that recognize the superior experience of the affluent market segment with institutional pricing that was superior to the retail products available to the general public. But these advisors didn’t stop there.


With the database of experience—collected through the reinsurance company—the advisors had unique insight on product profitability. Typically, when product profits exceed expectations, carriers keep the money and create new versions of products with better pricing (based on the better mortality). These advisors saw an issue with this. Why wouldn’t you reward the current policyholders who created the value?

When life insurance companies design a product series, they typically seek to earn a profitable return. A large influence on this is the mortality of the insurance pool. If the pool of insureds lives longer than originally forecast, then the carrier is taking in more premiums over a longer period of time. In addition, the carriers are also subtracting monthly mortality and expense charges from the cash value portion of the policies for longer periods of time. Bottom line—better mortality results in more profit for the carriers.

When this occurs in the retail market, the carriers keep these excess profits and they may create a new version of the product. This new version will have better pricing since it reflects the newer mortality experience of that particular carrier’s block of business. So policyholders of the new version get the benefit of the more profitable experience generated by policyholders of the previous version. To take advantage of the better pricing, policyholders of the original policy would have to surrender their policy, go through underwriting again (which may be an issue based on changes in health), and buy the new version of the product.

Again, the advisors saw an issue with this and presented a compelling case that a portion of the profits in excess of original projections should be returned to existing policyholders. This return of profits manifests itself in the reduction of costs to the existing policy holder.

We are also seeing persistency bonus credits where policy holders may get as much as a 50 basis point increase in their return for staying on the carrier’s books for a long period of time. All of this can represent permanent reductions in the internal costs of the products.

The impact of lower charges can be significantly positive for the policyholder. Take the example of a 65 year old male who obtained an institutional policy in June 1997. The policy was designed to have an 8% net rate of return with a premium outlay of $85,985 for ten years. During the ensuing years, the policy experienced three cost of insurance charge reductions and three reductions in asset-based charges. As a result, instead of requiring a premium of $85,985 for 10 years, the same objectives could be achieved with a premium of $74,065 for 10 years. This represents a 14% premium reduction.

Another way to look at it is instead of needing an 8% net return, the policy needed only a 6.68% net rate of return to achieve the same result. This represents a 132 basis point difference. Imagine the impact this would have for a family with significant life insurance holdings.

While past experience is no guarantee of future performance, the principals are solidly in place. From the pricing of the product at the outset to the in-force management of an existing policy when even more favorable experience emerges, these advisors established a level of client advocacy that remains unmatched in the life insurance industry.

When evaluating product options, in some instances a wealth management lens can be a good way to view your life insurance portfolio—particularly when issues of efficiency and effectiveness are important to a family. Affluent individuals can take advantage of their socio-economic demographics to join a risk pool with an opportunity to participate in future mortality gains and expense reductions. As we have seen, sometimes the return of these basis points can have  an important influence on the performance of the policies. This is critical when considering the various factors affluent families evaluate when purchasing life insurance. Given the opportunity, affluent families often, if not always, want the opportunity to chase those basis points.

Institutionalize Your Life Insurance Portfolio

An article published in the July/August 2013 issue of Private Wealth Magazine entitled “Taking a Cue  From Institutions” suggests that family offices should mimic institutions and adopt an institution-like disciplined and process-oriented approach when managing their investment portfolios. The  idea is that through a process-oriented approach institutions, and family offices, can be more effective and produce more efficient long term  results.

While this concept is often discussed in an investment context, family offices should consider a similar process-oriented  approach when managing  other family assets, such as life  insurance.

For advisors of UHNW families to achieve and maintain the most efficient and effective life insurance portfolios, we recommend a similar institution-like seven step process. During this process, selecting a life insurance specialist who can align the family’s specific needs with the proper insurance is of the utmost importance.  Wealthy families and their advisors need an  expert life insurance advisor they can rely on to objectively assess existing life insurance portfolios and recommend  targeted, efficient solutions to accomplish their objectives.

  • Information gathering and analysis: Family advisors should collaborate to thoroughly assess the family’s situation and needs specific to the family’s perspective, facts, and objectives.  This includes quantifying financial needs to determine strategies and/or financial products that present viable solutions. In the best case scenario, the life insurance advisor has the proper consent to work collaboratively with the other key advisors to the family to develop those strategies that effectively assist in achieving the family’s goals. It is imperative that the family advisors and insurance specialist work together to analyze the financial consequences of each potential alternative, always keeping in mind the family’s planning goals, objectives, and risk tolerance.
  • Product selection: The family’s advisors and the insurance specialist should evaluate various alternatives to determine the most competitive products and planning


The product design and selection process involves reviewing confidential client data that is used during the underwriting process. Both medical and financial information can have a direct impact on the final recommendation. Risk tolerance (includes market and interest rate risk, carrier selection, guarantees vs. flexibility) and the use of sophisticated designs (GRAT’s, FLP’s, CLT’s, private financing, split dollar, etc.) must be weighed and considered. The insurance specialist should provide an executive summary with a complete analysis of suitable products along with overarching planning  and economic implications.

It is important to note that UHNW families can take advantage of their size, scale, and overall better health characteristics by accessing a suite of institutionally priced life insurance products. The design and cost of these restricted access products reflect the three key areas where the UHNW community demonstrates superior characteristics: mortality, average policy size, and persistency. The result is typically lower premiums and policy expenses vs. the retail products. Selecting an insurance specialist who can properly analyze and utilize these products is critical to serving as an effective steward for the family.

  • Carrier selection: The insurance specialist should identify the appropriate company(ies) for placement of the desired  financial Factors to consider include: Is the advisor captive to  a particular company or function independently? Does the advisor understand that carriers often specialize in particular product lines, thus affecting price and commitment to policyholders?  Does the advisor have access to institutionally priced products that have been customized for the UHNW market? Has the advisor worked with senior level management of the carriers regarding the feasibility and design of new products? Does the advisor understand the impact of the reinsurance market on  pricing?
  • Underwriting: This is where a clients’ insurability is assessed by the insurance companies. This is also where pricing is determined. To begin, medical records must be gathered, and this can take approximately 4-6 weeks. An experienced advisor will review the records for accuracy and consistency, and point out discrepancies where they Often, such discrepancies can be resolved before a formal submission takes  place.

Family offices can avail themselves to a process whereby their medical  records  are simultaneously sent to various carriers informally. This allows the advisor to obtain preliminary feedback as to probable underwriting classifications, and gives the family a sense of what the pricing may begin to look like. When a new placement or a restructure of current coverage is being considered, this informal process begins to address whether or not it is in the family’s economic interests to retain or consider changes. Many families appreciate having this knowledge before any medical exams have taken place. Again, selecting an insurance specialist who is experienced in working with UHNW families and their advisors will go a long way in insuring this part of the process is strategically  followed.

When a family decides a change may be appropriate, underwriting advocacy is absolutely critical. The insurance specialist must have a deep understanding of all facets of the underwriting process, including carrier negotiations, how best to present a family’s case, managing a carrier’s capacity limits for larger placements, etc. It’s important to note that the first offers are on occasion, not the final answers. Factors that can have a positive impact on the negotiations include the advisors credibility with the carriers, the history  of the relationship,  the amount and type of business  placed, and in the case of a select group of UHNW  life insurance advisors, the ability to participate in the underwriting  risk itself.

  • Policy delivery: This encompasses implementation of the plan, including a summary of the coverage placed, and the ongoing administration of the coverage. It is important that the insurance specialist and family advisors verify the current ownership and insured information, along with underwriting classes and product types, beneficiary designations, and premium amounts (if any).
  • Periodic reviews: Evaluations of in-force performance should be conducted at selected intervals.  The insurance specialist should continue to work with the family’s advisors to compile a detailed listing of all policies, contacting each carrier to collect the current data (death benefit, cumulative premiums, cash values, and any outstanding policy loans) and assist in analyzing  policy performance. Actual policy performance should be benchmarked  against the original design, as well as the market place. Discrepancies should be researched and explained, and then corrective steps taken if necessary.

Ongoing service and administration: Proactive ongoing servicing of the implemented portfolio should collaboratively continue between the insurance specialist and the family’s advisors. In addition to the ongoing reviews, the insurance specialist should have the capability to understand and report on fiscal year end values, reportable income related to split-dollar arrangements, and information required under IRC Section 101 (j). The life insurance specialist should continue to work closely with the family’s advisors when  coordinating planned annual funding, coordination  of payments for gift tax purposes, beneficiary withdrawal rights, and cash flow planning. In-force pricing improvements,  if any, should be tracked and communicated  as well.

Finally, a claim is the culmination of the process-oriented approach. The insurance specialist should control this process in-house, and expedite the claims process by processing of the required forms for payment. This is often a difficult process for many families, and the life insurance specialist  should endeavor to make this as seamless as  possible.



By following a more disciplined, and process oriented approach, families have a tremendous opportunity to improve their results, and drive much greater efficiency and effectiveness into the management of their life insurance portfolios. When following these guidelines, and by selecting an insurance  specialist who adheres to these principles, families can have an institutional and customized relationship …far different  from the retail,  transactional  model  that permeates the life insurance industry.