Life Insurance Awareness Month: Buying a Policy Is Only the Beginning

September is Life Insurance Awareness Month, an annual effort focused on helping individuals and families better understand the role life insurance can play in protecting financial security. At TRC Financial, we believe there is another important part of the conversation that receives far less attention:

Life insurance is a long-duration financial asset, and owning it successfully requires ongoing management.

A policy purchased today may remain in force for 20, 30, 40 years or longer. During that time, financial markets change, interest rates move, insurance products evolve, tax and estate planning strategies change, and most importantly, your personal and financial objectives may look very different. The life insurance strategy that made sense when a policy was purchased should not simply be placed in a drawer and forgotten.

Life Insurance Is Not a "Set It and Forget It" Asset

Life insurance is illustrated using assumptions about premiums, interest rates, investment performance, policy expenses and longevity. But those assumptions do not always play out exactly as originally projected.

Depending upon the type of policy, actual results can be affected by factors such as:

• Interest or crediting rates

• Investment performance

• Cost of insurance and policy expenses

• The timing and amount of premium payments

• Policy loans or withdrawals

• Changes in life expectancy

• Changes in a family’s estate, business or financial planning objectives

This is why simply reviewing an annual statement is not always enough. A statement tells you where a policy is today. Good policy management should also help answer a more important question:

Where is the policy going?

At TRC Financial, we use forward-looking policy analysis and in-force illustrations to evaluate whether coverage remains properly funded and whether the policy continues to accomplish its intended purpose.

The Importance of a Long-Term Life Insurance Partner

Unfortunately, life insurance has historically been an industry where much of the attention is focused on the initial transaction. A policy is designed, underwriting is completed, the policy is issued, and the relationship can become increasingly reactive from that point forward.

We believe that approach misses one of the most important responsibilities of a life insurance advisor.

The sale of the policy should be the beginning of the relationship, not the end.

For a long-duration asset, servicing requires discipline. It means monitoring policies, maintaining accurate records, communicating with trustees and advisors, reviewing premium requirements and periodically testing whether actual performance remains aligned with the original strategy.

It also means being willing to recommend changes when circumstances warrant them.

Sometimes that may mean increasing premium funding. Other times, a policy may be unnecessarily overfunded and premiums can potentially be reduced. An investment-oriented policy may require allocation or death benefit changes. Estate planning objectives may change. A business may no longer need the same amount or type of key person coverage. The right answer today may not be the right answer 10 years from now.

Small Changes Can Have Significant Long-Term Consequences

Because life insurance operates over such long periods, relatively small deviations can compound over time. Consider premium funding. A flexible-premium policy may allow a client to change how much is paid from year to year. That flexibility can be valuable, but it also requires monitoring.

Paying less than originally illustrated may affect long-term policy values or durability. Conversely, continuing to automatically pay the originally scheduled premium may not always be necessary if policy performance or circumstances have changed.

In one recent TRC Financial policy review, we evaluated two existing trust-owned policies and determined that their premium structure could be significantly improved. By modeling the policies using current in-force information, annual premiums were reduced by more than $276,000 while preserving the intended duration of the coverage. No policy replacement was required.

That is an important distinction.

Good policy management is not about constantly changing policies. It is about making sure the policies you already own continue to work efficiently.

Some Life Insurance Relationships Last for Generations

The importance of long-term stewardship becomes even clearer with sophisticated estate and business planning strategies. TRC Financial recently completed the administration of a trust-owned split-dollar life insurance arrangement originally established in 2003. More than two decades later, following the death of the insureds, the company recovered its contributions and the family received the remaining death benefit through the trust as the strategy had originally intended.

That type of outcome does not happen simply because a policy was purchased.

Complex insurance strategies often require decades of recordkeeping, premium administration, policy monitoring, trustee coordination and ultimately assistance with the death claim.

That is why choosing who will help manage the policy can be every bit as important as choosing the policy itself.

Life Insurance Awareness Month Should Continue Beyond September

Life Insurance Awareness Month is an excellent reminder to evaluate whether you have the appropriate protection in place. We believe it should also be a reminder for existing policy owners to ask:

When was the last time someone truly reviewed my life insurance?

Life insurance can be one of the longest-held financial assets an individual, family, trust or business will ever own. Whether the objective is family protection, estate liquidity, wealth transfer, business continuity or tax-efficient accumulation, the policy may ultimately need to perform decades after it was originally purchased.

At TRC Financial, our role extends well beyond designing and placing life insurance. In our fifth decade of serving clients, we remain committed to the ongoing servicing, analysis and management of the policies entrusted to our firm. Because with life insurance, the policy you buy matters, but how it is managed over time matters just as much. Contact us for a life insurance policy review.

This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. The tax and legal references attached herein are designed to provide accurate and authoritative information with regard to the subject matter covered and are provided with the understanding that neither TRC Financial, nor M Financial are engaged in rendering tax, legal, or actuarial services. If tax, legal, or actuarial advice is required, you should consult your accountant, attorney, or actuary. Neither TRC Financial, nor M Financial should replace those advisors.