Life Insurance Financial Evaluations, LLC

Life Insurance Pre-Purchase Analysis




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Second Opinions & Suitability Evaluations for Newly Proposed Life Insurance Policies/Portfolios
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What is it?

A Second Opinion and Suitability Evaluation provides a comprehensive summary review of third party proposals of new life insurance plans that do not involve Section 1035 exchanges (see IMPROVE).  The analysis includes a description of the proposed plan, a synopsis of the reasonableness of assumptions used, validation of the financial projections and whether they can meet stakeholder requirements, other plan design and product configuration considerations, issues and risks, critical success factors and policy management recommendations, and an overall suitability determination.  This policy review may also provide an analysis to determine if other plans or products can provide similar benefits with lower risk.  In addition, this analysis may evaluate bids and proposals for multiple vendors and assist in the overall procurement process.

Why it is Important?

A Second Opinion and Suitability Determination can be very valuable for a number of reasons.  In the sale of life insurance products, life insurance projections are often presented in a way that skews the results in favor of the life insurance solution.  Illustrations may include a number of assumptions that are too aggressive and may impact the long term success of the plan.  Moreover, internal rate or return, equivalent taxable yield, and net present value calculations may be made in error or may include erroneous ownership or assumptions that do not accurately reflect the tax and accounting impact of alternative solutions.  This analysis should contemplate the results if the plan is surrendered or terminated prior to death.  Overall, this deliverable provides the unbiased insight needed to make an informed buying decision.

For most COLI Plans, it is important that policies are overfunded to maximize long term policy performance.  This task may also include an evaluation of the COLI funding strategy (i.e., cost recovery, cash value funding, pre-tax or after-tax P&L hedging strategy, etc.) to help ensure that steps are taken in the initial plan and funding design to maximize policy performance, reduce policy charges, thus resulting in a lower likelihood of underfunded policies.

How do we do it?

Life Insurance Financial Evaluations, LLC uses proprietary Microsoft Excel financial models to compare life insurance policies, calculate expected rates of returns, equivalent taxable yields, and net present value calculations on life insurance cash values and death benefits.  In addition, our proprietary models calculate nonqualified benefit plan projections on an individual participant basis (static environment) as well as project benefits on a dynamic basis (participants exit the plan and are replaced by new participants).  These models often utilize Visual Basic macros to efficiently make calculations for plans with hundreds or thousands of participants.  In addition, the financial impact of the plan on corporate financial statements is also included.  The results are then summarized into a written report.