Today's Risk Mitigation Environment

The prudent risk management of “Trust-Owned” life insurance should not be confused with the customary life insurance marketing and policy service practices.  A lapsed TOLI policy usually documents trustee negligence and quantifies damages.  Approximately 20-25% of in-force TOLI policies are predicted to lapse prior to or within 5 years of insured life expectancy.

Today’s failing TOLI policy crisis should cause professional TOLI trustees to establish “best practice” risk management standard of care procedures, and professional advisors to update their practice management guidance for grantors, beneficiaries, and personal trustees.

Flexible Premium Non-Guaranteed Products

Since 1980, indeterminate “flexible” premium non-guaranteed death benefit policies (adjustable life, universal life, and variable universal life) have become the TOLI policy of choice for policy management flexibility and cost reasons.  By contract, these policy types transfer all performance risk to the policy owner/trustee who should annually affirm that scheduled premiums are adequate to sustain the policy to contract maturity or insured assumed mortality (life expectancy) as a minimum. 

In-force carrier illustrations for these policy types should be reviewed annually; however, in-force illustrations and sales illustrations by regulation disclaim predictive value and do not evaluate premium adequacy.  As a result, customary new and replacement life insurance policy marketing practices such as “policy spreadsheeting” and “minimum funded” premium payment designs are inappropriate for TOLI acceptance, remediation and restructure determinations.

The failing TOLI policy crisis results from inappropriate reliance on carrier illustrations and custodial care policy administration.  The steady decline of in-force policy crediting rates since the early 1980s is well-known and illustrates the need for active policy management and premium adequacy adjustment to realize a policy’s acceptance benchmark values.