Just like any life insurance policy, a policy that is taken out for the purposes of charitable giving, whether it’s for your church or your university, has to be reviewed annually.
Too often there’s a big commotion around setting up a trust and getting a life insurance policy in force and making sure that all of the IRS i’s are dotted and t’s are crossed, and then it’s left alone to work the way it was planned, or in far too many cases, not work at all.
Most charitable giving is done with permanent life insurance, either through whole life or universal life insurance and therein lies the reason for remaining vigilant. Far too many permanent policies implode due to lack of guarantees and/or cash value, a problem that can be resolved if a policy is monitored on a regular basis.
That’s not to say that by monitoring a poorly constructed policy on a regular basis you can keep it from falling apart, but if, through annual reviews, you see the early stages of collapse, replacing it with a healthy, fully guaranteed policy is much easier.
A classic case in point was a Mass Mutual whole life policy a client came to me with. He was paying $89,000 annually for the $5 million policy and was sure that it was good forever. At that point it had $1.2 million in cash value.
When we pulled an in force illustration it showed that starting the very next year the cash value was going to start decreasing and that by age 92 his premium was going to be $500,000+ and rising every year. We were able to put that cash value into a fully guaranteed to age 121 UL and his annual premium went from $89,000 down to a guaranteed level $32,000. Estate planning attorneys should push clients to demand this kind of service from their life insurance agents. Being party to sticking a finger in the hole in the dike like the one just described will go a long way toward letting a client know that their best interests are second to nothing else.
Whether it’s for charitable giving or as in the case above, for estate tax purposes, the absence of an agent to keep an eye on the trend of the policy and it’s possible demise, is a real problem. Left unchecked this guy would have put nearly $2 million into this policy when it imploded and left him with nothing. No insurance and no cash value.
Bottom line. There is no substitute for service on at least an annual basis. You should expect it from your agent if you have a $50,000 term insurance policy or a $10,000,000 universal life policy.