Audits On Life-Insurance Policies Can Detect Problems

Copyright 2010 ProQuest Information and LearningAll Rights ReservedCopyright 2010 Central New York Business Journal Business Journal - Central New York, The

August 20, 2010 Friday

SECTION: Pg. 4 Vol. 24 No. 34 ISSN: 1050-3005

ACC-NO: 12918

LENGTH: 1112 words

HEADLINE: Audits on life-insurance policies can detect problems

BYLINE: Reinhardt, Eric

ABSTRACT

An in-force policy audit, as it is known, is a review of a life-insurance policy, as it currently stands, to see how the policy is actually performing. Besides performing audits for its clients, Wealth Resources Network has been offering life-insurance policy audits as a free service for about six years, Layhew says, but he also notes many insurance companies perform the same service for their clients. FULL TEXT

SALINA - When was the last time you checked your life-insurance policy?

"Unless you just got a bill recently, when do you really think about your life insurance," asks Jeffrey Layhew, a wealth-enhancement specialist and co-owner of Wealth Resources Network, an independent financial-advisory firm located at 406 Old Liverpool Road in Salina.

Wealth Resources Network says it recently conducted a life-insurance policy audit for a new client and discovered the policy was in jeopardy of lapsing unexpectedly.

An in-force policy audit, as it is known, is a review of a life-insurance policy, as it currently stands, to see how the policy is actually performing.

Besides performing audits for its clients, Wealth Resources Network has been offering life-insurance policy audits as a free service for about six years, Layhew says, but he also notes many insurance companies perform the same service for their clients.

The audit includes a review of what has happened since the policy took effect, and a projection of what could happen several years into the future.

"An illustration is just an illustration. This is what we think will happen in the future," Layhew says.

The auditor will also look at what has happened with interest rates and with the values of mutual funds, if the audit is for a variable-life insurance policy.

To perform the audit, a client provides a financial planner or agent a declaration page for the client's life insurance, which includes the contract-anniversary date, the client's name, and contract number, according to Layhew. The client then signs a document allowing the insurance company to release the information to the auditor.

"And then we'll analyze the data and see what the cash value is 20 years from now. [Or] what is the cash value now?" he adds.

The audit also includes a review of the life-insurance beneficiaries, in case the names need changes due to life events, such as a marriage or a divorce, Layhew says.

Reasons for an audit

An audit of a life-insurance policy can help detect if the policy is at risk of lapsing at some point in the future, says Layhew. With a lapse, the policy would cease to exist, "meaning if it lapses and the next day you die, you get nothing," he says.

A life-insurance policy will lapse if the policy owner doesn't pay the premiums when they're due, according to the website LifelnsuranceHub.net, a life-insurance quote and information site.

If a client misses a payment, the carrier generally allows about a month-long grace period. If the policy holder still fails to make the payment, the policy goes into a state of lapse, the website says.

But a lapse can also occur because declining interest rates have reduced a policy's projected cash value, requiring more premium payments to make up the difference.

A life-insurance audit can help determine if a client's premium is too low to maintain the cash value of an insurance policy, Layhew says.

For example, he says a client may have purchased the policy several years earlier expecting a 7 percent interest rate, but the policy may only be generating a 3 percent return. At the time of purchase, an insurance carrier may have offered a lower premium, figuring the interest rate at that time would hold up.

As interest rates fell, the premiums weren't adequate to maintain the plan's cash value.

If a policy isn't earning the interest a client is expecting, "there is a chance the policy could lapse later in life, maybe [at] 85 years old, when you need it the most," he says.

Layhew notes the audit process looks back at the history of the policy to see what actually took place.

Besides the changes in interest rates, a policy holder might seek a life-insurance audit if a medical condition has improved since starting the policy.

For example, if a client bought a policy 10 years ago, and has since lost weight and quit smoking, then an audit could be beneficial.

"You'd want to go back to the insurance company and see if you can get your rates lowered," Layhew says.

To make sure a client is "insurable," a life-insurance company will provide a client a rating based on factors, such as cholesterol levels, weight, and height-to-weight ratios.

A life-insurance audit can also determine if a client has more coverage than he or she needs.

For example, in the late 1990s, people may have purchased life-insurance policies to pay their estate taxes, which Layhew notes was "a common strategy" since the estate-tax exemption was low ($1 million total) and estates had high values. However, by 2003, in the months following the terrorist attacks in New York City and Washington, D.C., people's estates may have been worth 40 percent less than their worth in 1999.

"They would want to look back at that and say 'am I carrying more than I need'," Layhew says.

A client could lower his death benefit with the existing carrier, lower the premium he's paying, and perhaps eliminate paying the premium by lowering the death benefit due to the policy's accumulated cash value, Layhew adds.

Layhew would like to see people start treating their life insurance as an "asset" the way they would their mutual funds or 401(k) accounts. He recommends this line of thinking: "I bought it one time for a reason. I should at least pay some attention to it yearly [or] every couple years," he says.

About the firm

Layhew and his father, James, founded Wealth Resources Network in 2003. The father and son partnership previously operated Jeffrey James Financial Planning in Liverpool from 1993 to 1999. The Layhews then merged their company with United Financial Services in 1999, before deciding to strike out on their own again with Wealth Resources Network.

Wealth Resources Network currently employs eight people, including the Layhews. The firm wants to add a ninth financial professional in the next six months, Jeffrey Layhew says.

Layhew declined to disclose the firm's revenue information. He did say the firm generated a "small increase" in its revenue in 2009 and projects its revenue will grow "just a little," perhaps about 2 percent, in 2010.

The company, along with a neighboring tenant, J.S.D. & Assoc., Inc. Financial Planning, owns the 3,400-square-foot building in which they operate. Wealth Resources Network occupies about 1,800 square feet of the structure.

LOAD-DATE: September 15, 2010