Life Insurance Analysis & Policy Review

The due diligence for life insurance should include several areas of review:

  • Does the current life insurance policies still meet the trust beneficiaries' needs, or the purposes for which they were originally purchased?
  • Are there increasing premium requirements?
  • Are there newer policies available that may provide secondary death benefit guarantees, lower costs due to mortality improvements, additional rider options and/or improved underwriting classifications?
  • What are the financial ratings and stability of the life insurance carrier?

The Policy Review process is critical for all life insurance policy owners, but it is especially critical for trust-owned life insurance.

In recent years, the fiduciary responsibility and care standards for trustees have heightened. Several events have led to this current environment. One key event was the adoption of the Uniform Prudent Investors Act, along with enactment of various state regulations. Another influence is the standards set out by the Office of the Comptroller of the Currency that specifically outline for banking the responsibilities regarding the purchase of, and ongoing review/monitoring of, life insurance policies. This will have specific application where the bank is designated as the trustee. What each have in common is the need for trustees to provide ongoing due diligence on life insurance policies owned by the trust.

Failure to supervise or conduct ongoing asset reviews, including life insurance, and perform due diligence can open a trustee up to possible litigation from the trust's beneficiaries.

The Policy Review process is an integral part of providing the necessary ongoing due diligence records.