Insurance: An Investment to Remember
Christopher J. Burns

Often one purchases life insurance pays premiums and otherwise forgets about a life insurance investment.  Like other investments, life insurance policies should be reviewed occasionally to determine that performance meets expectations.  We recommend that you periodically request from your insurance carrier a statement containing the following information:

1. Current death benefit.  This will confirm that you own what you think you own.
2. Current cash value (if any).  Life insurance policies often are based on projections which may no longer be realistic.  For example, it was not uncommon for insurance projections from prior years to forecast double digit rates of return.  Because the actual rates of return may have been much lower than projected, the current cash value of your policy may be considerably less than projected.  This shortfall may require you to pay additional premiums to sustain your policy.
3. Your premium cost basis.  This is the amount you have paid for your policy.  We recommend that you compare the amount paid for the policy to the cash value and the death benefit.  When making this comparison (especially when the policy has been owned for a number of years), you should remember that you have had the protection of the death benefit from the policy’s inception.
4. Present owners and beneficiaries.  Proper beneficiary designations are an important part of a complete estate plan.  A periodic review of your policy will show who the insurance company has recorded as your beneficiaries.  Be sure these beneficiaries are accurate and coordinated with your overall estate plan.

For whole life, universal life and variable insurance policies, you should also consider requesting:

1. The age (if any) at which the policy will become paid in full.
2. A year-by-year in-force ledger based on current rates.  This is a statement based on current rates that shows the current picture of your investment together with the future death benefit and cash value.  The in-force ledger should also show if an additional premium will be required to sustain the policy.

Typically, the premiums paid are greater than the cost of the insurance in the early years of your insurance policy. The amount that the payment exceeds the cost of insurance is typically invested in the stock market or mutual funds.  The stock market’s decline has dramatically affected these types of policies and the forecasted reserves have not developed.  The failure to develop early cash reserves is often hidden because, instead of something noticeable happening (e.g., your premiums increasing), something difficult to notice happens (e.g., the projected reserve on the policy never develops).

Your insurance was purchased to solve a particular need.  With time, many policies may no longer fit the need for which they were purchased.  An annual review of your insurance investment will help you determine the appropriateness of your life insurance investment.

Please contact an attorney in Henson & Efron’s Estate Planning, Probate, and Trust Administration Department if you need assistance obtaining information from your insurance company or analyzing the information that you have received.

This article has been updated from a similar article by the author that first appeared in print in Estate Planning Advisor, Spring 2003. Copyright 2009 Christopher J. Burns. All rights reserved.

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