How to Do a Life Insurance Policy Review (A Shortcut and Real-Life Examples Included)

 A great way to add value and attract new clients is to offer a no-cost life insurance policy review.

We’d coin an acronym for that — LIPR? — but I think we can all agree there are enough of those already.

This will give you everything you need to start evaluating existing life policies.

In this article, we will cover:

We will cover the following together:

• The Shortcut
• When should I do it?
• What do I need?
• What do I do with the statement?
• Why should I do it?
• How often should I do it?
• What about lapsing policies?
• What about taxes and taxable events?
• Are there any issues that might come up?
• 2 Real-Life Examples

The Shortcut

If you don’t want to know everything that goes into a life insurance policy review (or you’re short on time), you can still get started very easily.

All you need to do is get the client’s most recent statement and give me a call. Don’t worry — this is still your client, and you still receive all the commission. I can begin the process for you, and you can learn everything else as you go.

I can’t stress enough that you don’t have to know everything! We are your support team and will be alongside you every step of the way.

The bottom line: If you don’t know every detail just yet, find out why the client needs life insurance and get an annual statement of what they currently have.

I’ll partner with you to do the rest.

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OK, if you are interested in the full-blown process, keep on reading.

When should I do it?

 While you can do a life insurance policy review for any reason and at any time, we find that doing it while you fill out the Client Needs Assessment (CNA) is best.

When you get to Question #7 — “Are you currently carrying any life insurance and are you still paying premium on it?” — the conversation should start up naturally.

Your clients might feel a little defensive when you ask the first part of Question #7, but as soon as you add in the latter half — “are you still paying premium on it?” — they start to perk up.

And yes, there are cases where a client can get the same death benefit without paying any additional premiums. We’ll get to that later when we show you an example.

What do I need?

To do a life insurance policy review, you need to get a statement.

This can be:

• the latest annual statement or
• an in-force illustration.

It is important you have the actual statement, and not just the general policy information.

In essence, you’re looking for four things:

1. Policy number
2. Premium
3. Cash value
4. Death benefit

Additionally, you need some other basic information:

1. Name of client
2. Date of birth
3. Concept of client’s general health
4. Tobacco or non-tobacco

You want to be able to have a good idea if the client is insurable or not. If there are any major health issues, please make sure to note them so that we can determine insurability from the start.

We also need to know if they’re tobacco or non-tobacco so that we can run up the most accurate quote possible.

It’s also very important that you ask why the client has a life policy.

I cannot stress this enough. You need this information before making any recommendations.

• Are they wanting to cover funeral costs?
• Are they wanting to leave an inheritance to their children?
• Are they wanting to use a life policy to cover long-term care expenses?

Make sure you know the answer before moving forward.

If your client doesn’t have an annual statement, call their insurance company right then and there. It’s important you do this with your client, because the company will not give you any information if you are not the agent on file.

The company will need to speak to the policy owner. All your client needs to do is ask for an annual statement or an in-force illustration.

What do I do with the statement?

Once you have the statement and can see the folllowing, you can determine if they’re getting a good deal:

• what the client is paying on premiums,
• what the cash value is, and
• what the death benefit is

Keep an eye out for when the policy will lapse as well.

For example, we recently helped an 82-year-old man whose policy was set to lapse at age 90. He was in pretty good health, so we moved things around based on that information. (More on lapsing later in this article.)

If you have absolutely no idea if the client is getting a good deal or if you can offer a better solution, don’t worry.

That’s what I’m here for. Call me when you have the statement, and I will help you from there.

Why should I do it?

You’re not doing a life insurance policy review to put more cash in your pocket.

The only reason we do these reviews is to help the client. That’s my goal, and that should be your goal as well.

Sometimes, we can’t help someone. Perhaps their policy is just as good as what we can offer. It happens, and that’s OK.

No matter what, it’s important to make sure your focus is on benefiting the client, not yourself.

How often should I do it?

Just like a regular annual policy review, we suggest doing these about once a year.

If you’re an agent with a large book of business, this may not be possible. However, if you can, annual reviews are excellent.

You can work in the appointment when you receive the annual statement. Most insurance companies will send both you and the client a statement.

You can go over that statement together, and while you do this, you’re going to:

1. Reinforce the good work,
2. Encourage your client to not miss any premiums,
3. Remind your client of what they have and why they have it.

An annual review works to build loyalty with your client, and it can help reduce the number of people who cancel their policies (which also lowers your risk of chargebacks).

What about lapsing policies?

There are some old universal life policies from the 80’s and 90’s that didn’t perform like everyone thought they would. Interest rates dropped, and they are not as high as they were when the policy was issued.

It’s very possible the premium the client is paying isn’t supporting the current interest rates.

In short: a client could have bought a policy that should have lasted until age 120, and now it only lasts until age 79.

In general, a whole life policy shouldn’t have this problem but keep an eye out for those UL policies.

What about taxes and taxable events?

We can transfer the cash value from one company to another using a 1035 exchange. This ensures that your client will not face any tax penalties.

If the thought of a tax form has you feeling uncomfortable, don’t worry. We also take care of that for you.

Are there any issues that might come up?

One big thing you need to take care of is really educating the client about what you are doing.

If you do end up making a suggestion to switch their policy out for something else, explain very clearly why you are suggesting it.

Here’s a real-life example of why this is so important:

The 82-year-old I mentioned earlier in this article had a policy that was going to lapse at age 90. He was in good health, so we wanted to switch that out for something that would last until the end of time.

He was paying over $300 semi-annually for a $159,000 death benefit.

After a little research, we were able to offer this solution:

• The policy would last until age 125,
• He could use the cash value from his current policy to fund the new one, meaning he wouldn’t have any premiums,
• The death benefit would be lowered to $90,000.

We can see that the two big benefits here are:

1. The policy will outlive him and
2. He doesn’t have to pay any premiums anymore.

The big drawback is that the death benefit is almost $70,000 less than before.

If you don’t educate your client on every aspect of this type of situation, and they happen to pass away, you’re going to get nasty calls from family members. They will be wondering why you lowered their father’s death benefit by $70,000.

 In short, educate your client on exactly what you’re doing, and encourage them to explain this to their family members.

2 Real-Life Examples

Client 1: Betty

For the first example, we have a retired physician, Betty.

She was all set on her health insurance, so we couldn’t really help her with that. We could have just walked away, but instead we were able to uncover that she had some life policies.

We offered to do a free life insurance policy review for her to make sure she’s getting the best deal.

We got a hold of her statements, and here’s the breakdown of what she had:

In sum, Betty is paying almost $25,000 per year for almost a $900,000 death benefit.

We asked her what the purpose of her life insurance policies are (very important!).

Betty didn’t have any close family members other than her sister who lives a good distance away from her. And as you can see, her current policy is enough to cover a funeral 80x over.

So, then, what is the benefit of having a life policy for Betty?

She agreed that looking into a life with long-term care policy was a great solution.

I ran some numbers considering her age (born in ‘42) and her health status (Standard NT).

Here were her new options using her current cash value to fund them.

As you can see, even just switching out what she had—the same $25,000 per year in premiums—got her a policy that’s $600,000 more in death benefits.

That is a great place to start because the client immediately sees that even without switching the type of insurance, you are able to offer a better deal.

Now, we usually try to keep to three options, but in Betty’s case, we decided to also offer some options to include long-term care benfits with no additional premium.

In the end, Betty ended up choosing to pay no more premiums for the life with long-term care.

While her death benefit is slightly less than what it originally was, she no longer must pay into it and she’s reassured by the fact she’s covered in a long-term care situation.  

Client 2: George

George had two life policies, and we offered to review them for him for no charge.

Here’s what he had:

George was interested in seeing how much it would cost to also get long-term care benefits.

Just like we did with Betty, we ran the numbers and did an apples-to-apples comparison to show that we can do better right off the bat. From there, we showed some options that include long-term care benefits.

George knew he would probably need more insurance than $200,000, and he knew that he would need more long-term care benefits, so we also ran the numbers for a larger policy.

 After considering these options, George actually chose the 10-pay Life with LTC.

It is so important to show multiple options, as well as that apples to apples scenario. Even if you think the client would never pay 5x more than what they are now, you can see that is exactly what George ended up doing.

Sometimes, it’s not just about the annual premium. It’s about the value of and the need for the product.

A life review can uncover both of those — the value and the need — on your behalf.

At the end of the day, offering a life review can lead to a great deal for the client.

Also, please feel free to reach out to me with any questions. I’m here to help you with complicated life and annuity cases, and I review life statements all the time. Do not hesitate to reach out to me for help.

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