BSMG Blog: Protecting the Future of Families and Businesses

Impaired Risk Series Iss. 1 - Approach to a Severely Under Water Plan

Posted by BSMG on


The Challenge:

The client, a highly successful business owner in his 70’s, was sold a permanent life insurance policy funded through a Premium Financing arrangement. He had become concerned about the current performance and whether or not it was still the best product for his situation. With a shared concern, his agent dug deeper. What he found as he dug into the details of the case was a very challenging situation, one which needed fixing.

At this point, the agent engaged BSMG to start the process of auditing the current plan.

What we found was a current plan that was severely “under water”, not performing as projected, and most likely would not “self-complete” at the end of the agreement terms, resulting in significant funds coming out of pocket to pay off the loan. The client needed a better option and the agent seized the opportunity to reposition his client into a more appropriate solution.

The Strategy:

There were three major factors which dictated the approach taken with this case.

  1. The client’s need was death benefit driven, not accumulation.
  2. He needed coverage for a finite period of time.
  3. He had sufficient cash-flow to pay the premiums out of his personal income.

Based on this information, we devised a plan whereby the client would “unwind” the premium financing arrangement and replace the permanent policy with a more appropriate term product. Quotes were provided based on standard rates and an application was submitted for 15yr Level Term Insurance with a significant death benefit.

The Presentation:

Large cases on older clients often do not proceed from application to issue without underwriting challenges, and this case was no different. There are inherent risks associated with this age client. As the underwriting file was being built new information was discovered which could have unraveled the whole case. Fortunately, our highly seasoned underwriting team, utilizing our proprietary solution to impaired risk life insurance the Risk Differentiation Underwriting approach. They had been actively working the case and watching it every step of the way. Through a combination of artful maneuvers and leveraging our strong carrier relationships BSMG was able to not just secure an offer for coverage, but actually received an approval at Preferred rates. The case was issued with a $354K annual premium, nearly $100K less than originally projected, and less than half the cost of the original plan.

The Result:

The Client Wins by being able to maintain the coverage he needs, with a more appropriate product type, at a much lower cost, and with less volatility, all while incurring no additional debt.

The Agent Wins by becoming a hero in the eyes of his client, having provided significant value in a truly unique way, and was compensated for “Doing The Good And Right Thing.”

The goal of Risk Differentiation Underwriting is not to change the way Home Office Underwriters and Medical Directors assess risk.  Rather the aim is to recognize when a particular case exhibits qualities which are inherently different from a more standardized version of the same risk.

Topics: Underwriting, Risk Differentiation Underwriting