Monitoring Your Life Insurance

Summary:

Insurance is a key safety net for many. If your portfolio
is down by 40%, your insurance may be even more vital. The economic meltdown
has had profound impact on insurance coverage itself and the companies issuing
your policies. NYC based insurance guru Lee Slavutin, of Stern Slavutin 2, Inc.,
offered the following checklist of ideas to help guide you in reviewing your
life insurance.

Risks.

You face at least two
important risks relating to your life insurance portfolio in 2009 and beyond:

1.  Policy lapses because of investment
losses in the stock market. This will be an issue for some variable life
policies invested in equity sub-accounts. Variable life is a type of life
insurance in which you can select mutual-type funds from those offered by the
insurer within your policy. You thus assume the benefits, or lately the risks,
of the performance of those funds. If the funds were hammered in the market
decline, you policy will have been as well.

2.  Insurance company impairments or
failures.

Reviewing and
Monitoring.

Monitoring your insurance
policies will require greater vigilance in 2009. Here are some of the steps you
should take:

1. Evaluate more frequently
(e.g., monthly or quarterly) your variable life insurance policy investment accounts
and values.

2. Re-test your policies.
This means obtaining a current “in-force illustration” for each of your
policies. This is a projection of where your policy is today and how it will
perform based on its current status, not the assumptions used when you first
purchased it long ago. Those assumptions, especially in light of the recession,
may not be panning out. Use this information to determine if the current
premiums you are paying are adequate to maintain the policy.

3. If you need to goose up
your premiums, can you afford to do so? If the policy is held in a trust,
consider the need to have additional gifts made to the trust. Have your estate
planner determine whether there are adequate demand (Crummey) powers to permit
those gifts to qualify for the annual gift exclusion (now $13,000/year).

4. More frequent checks
(e.g., monthly, or even weekly you have reason to be worried) on the ratings
for the insurance company that issued your policy. Consider the ratings of all
the rating services, not just one. You can obtain ratings by visiting the
rating agencies’ web sites. This will requires you to register, but there is no
fee to obtain current ratings. Some companies have already been downgraded, and
others have been taken over by state regulators (e.g., Standard Life Insurance
Company of Indiana and Penn Treaty Network America Insurance Company).  The agencies and their websites are:  ◙ AM Best – www.ambest.com
; ◙ Fitch – www.Fitchratings.com ; ◙ Moodys – www.Moodys.com.
 ◙ Standard & Poors – www.standardandpoors.com.

5. Understand the limitations of the
ratings. The rating services are not perfect, but can be a valuable source of
information on the financial strength of the insurers. If a company is
downgraded and you are thinking of replacing your policy with a new policy from
another carrier, review carefully the following “replacement” issues:
◙ Is replacement really in your best interest? Are
there large surrender charges? Compare the surrender value with the account
value to see if there is a penalty. ◙ Are you insurable at favorable rates? Never cancel an old policy
until you have replacement coverage in place. You can pay a modest initial
premium to put the new policy into effect and later get the money from the old
policy transferred as a tax free exchange.