Thank you to everyone who stopped by the Veralytic booth at the 46th Annual Heckerling Institute last week.  The conference was a great way to successfully launch our new Veralytic brand (formerly THEInsuranceAdvisor.COM) and our new strategic alliances with Insurance Trust Monitor (ITM) and CrummeyService.

While the number of visitors to the Veralytic booth was double that of any prior yearyear, we were able to slip away to a couple of sessions.  One of these was Lee Slavutin’s “Monitoring Life Insurance Policies in ILITs – Guidelines for Trustees to Minimize Fiduciary Liability”. “It’s all about your files,” says Lee.  “Can a trustee demonstrate a prudent process for monitoring and managing the life insurance policies and therefore become ill-suited for litigation? Can the trustee document that the policies were regularly reviewed?”

Of course, whether you are a trustee, agent/broker, CPA, banker or attorney, if you are responsible for a life insurance policy, then Lee made clear that it is important to document that you are fulfilling your duty to investigate the “suitability of the product” in each client situation.  While financial strength is important, Lee also identified 5 “dominant attributes/qualities” (factors) of suitability of permanent life insurance, 1.“Price”, 2.“Costs”, 3.“Likely Long Term Benefit”, 4.“Access to Cash Value”, 5.“Investment Risk”.  These same factors of suitability are supported in our Veralytic Report as: 1. Financial Strength and Claims Paying Ability, 2. Cost Competitiveness, 3. Pricing Stability, 4. Policy Liquidity, 5. Historical Performance of Underlying Cash Value.

Lee discussed how the Uniform Prudent Investor Act (UPIA) applies to life insurance and specifically how Section 7 requires “a trustee may only incur costs that are appropriate and reasonable in relation to the assets…Wasting beneficiaries’ money is imprudent” which thus involves “[looking at] the internal charges” of the life insurance policy.  He also cautioned about comparing illustrations of hypothetical policy values for the purpose of determining suitability, and for good reason. 

Both financial and insurance industry authorities consider comparing illustrations of hypothetical policy values to be “misleading” and “improper” respectively.  Lee also reviewed various relevant case law including the Cochran case and observed the importance the Courts placed on including information from an “independent entity with no policy to sell or any other financial stake in the outcome” in suitability determinations. 

It’s all about having the right documentation. As a trustee, agent/broker, CPA, banker or attorney, if you are responsible for a life insurance policy, you need documentation that you are fulfilling your duty that policy is (still) suitable for your client. If your file includes a comparison of hypothetical illustrations or if the documentation is not from an independent source (with no economic stake in the transaction) either of these could violate industry regulations and/or established case law. Many consultants (including some vendors at Heckerling) claim to document life insurance suitability, but their services are based upon these hypothetical illustrations, individual expertise, and subjective opinion which if included in your files may invalidate the potential protection of precedential case law.

To know whether or not your policy review provider is compliant with both industry regulations and/or established case law, be sure to know the 3 questions to ask about EVERY policy review.  Visit Veralytic.com to learn more about the only independent, patented rules-based research report of life insurance policies that is compliant with both industry regulations and established case law. 

For far less than the cost of manually comparing illustrations, Veralytic research independently measures policy charges and performance, and documents the competitiveness and suitability of the inforce policy and/or product being recommended relative to the universe of peer-group product alternatives. Having this documentation can help protect your company or your clients against potential lawsuits, arbitrations and customer complaints. In addition, if your company or clients serve as ILIT trustees, Veralytic Reports help you document compliance with Uniform Prudent Investor Act (UPIA) Sections 7 and 2(c)(5).