A framework for evaluating policy performance and promoting alignment with your overall wealth plan
Introduction
Life insurance often occupies a peculiar place in a family’s financial architecture. Once purchased, policies tend to recede into the background, reviewed only when premiums come due or when a significant life event prompts reconsideration. Yet for high net worth and ultra high net worth families, life insurance frequently represents a substantial commitment of capital and serves critical functions within broader estate and liquidity planning strategies.
An annual review provides the opportunity to confirm that your coverage continues to align with your objectives, that your carrier remains financially sound, and that the policy is performing as originally illustrated. The beginning of a new year offers a natural inflection point for this evaluation.
Assessing Policy Performance
The first area of inquiry concerns how the policy is actually performing relative to original projections. For permanent life insurance, whether whole life, universal life, or variable universal life, the internal rate of return assumptions and crediting rates illustrated at purchase may differ materially from actual experience.
Request an in force illustration from your carrier. This document projects the policy’s future performance based on current assumptions rather than the assumptions in place when you purchased the coverage. Compare the current projected death benefit and cash value accumulation against the original illustration. Significant variances may indicate the need for adjustments to premium payments or, in some cases, reconsideration of the policy structure itself.
For policies with investment components, examine how the underlying subaccounts or general account have performed. Market volatility, changes in interest rate environments, and shifts in carrier investment strategy can all affect policy values in ways that merit attention.
Evaluating Carrier Financial Strength
The financial stability of your insurance carrier matters considerably, particularly for policies designed to remain in force for decades. Review the current ratings from major rating agencies, including AM Best, Moody’s, Standard and Poor’s, and Fitch. While ratings changes do not necessarily require immediate action, a pattern of downgrades or placement on a negative watch list warrants a conversation with your advisor about potential implications.
Consider also the carrier’s overall business strategy and commitment to the life insurance market. Some carriers have reduced their presence in certain product lines or exited markets entirely, which can affect service quality and policy administration over time.
Confirming Beneficiary Designations
Beneficiary designations on life insurance policies operate independently of your will or trust. This characteristic makes them powerful planning tools, but also creates the potential for unintended consequences if designations are not regularly reviewed.
Confirm that primary and contingent beneficiaries remain appropriate given your current family circumstances and estate planning objectives. If you have established an irrevocable life insurance trust, verify that the trust is properly named as owner and beneficiary. Changes in marital status, the birth of children or grandchildren, and the death of originally named beneficiaries all create occasions for updating these designations.
For policies owned by trusts, confirm that the trust document itself remains current and that the trustee has fulfilled any required administrative duties, such as sending Crummey notices to beneficiaries.
Reviewing Premium Funding Strategy
How you fund policy premiums can affect both policy performance and your broader financial plan. If premiums are paid from a trust, ensure adequate liquidity exists within the trust to meet obligations. If premiums are financed through a premium financing arrangement, review the current interest rate environment and its impact on borrowing costs.
Consider whether your premium payment approach remains optimal. Some families find that paying premiums annually rather than monthly reduces administrative burden and slightly improves policy economics. Others may benefit from adjusting the premium amount, either increasing contributions to build cash value more quickly or reducing payments if the policy is overfunded relative to objectives.
Aligning Coverage with Current Needs
Life insurance needs evolve over time. The coverage amount appropriate when you were building a business or raising young children may differ substantially from what makes sense today. Consider how changes in your net worth, liquidity, estate tax exposure, and family circumstances affect your insurance requirements. For families subject to estate tax, review how current exemption levels and potential future changes in tax law affect the role of insurance in your estate plan. If you have experienced a significant health improvement since purchasing coverage, you may qualify for better rates through a policy exchange or new underwriting. Conversely, if health has declined, existing coverage becomes more valuable and ensuring its continuation becomes more important.
Questions to Bring to Your Advisor
As you prepare for your annual review, consider bringing these questions to the conversation with your insurance professional and wealth advisor. How does the current in force illustration compare to original projections? Have there been any changes to the carrier’s financial strength ratings? Are beneficiary designations current and consistent with my estate plan? Is my premium funding strategy still appropriate given current interest rates and my liquidity position? Does my coverage amount remain aligned with my estate planning and wealth transfer objectives? Are there any policy provisions or riders I should consider adding or removing?
A thorough annual review need not be burdensome, but it should be deliberate. The policies you own today represent decisions made under circumstances that may have changed. Regular evaluation can align your life insurance with your comprehensive wealth plan and the intended purpose of the policy..