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Pinnacle Resource Center

Is your insurance coverage right?
By J. Scott McPherson, CTFA, Investment Consultant, Pinnacle Asset Management and Raymond James Financial Services, Inc.

If you are like most people, a detailed examination of your insurance coverage probably doesn't top your list of priorities. Yet most people who have been through an insurance review would probably tell you that uncovering and addressing the potential risks and opportunities in existing policies is well worth the time.

If you bought your policy years ago, it may be time to get the documents out of the lockbox and ensure that the policy's assumptions are still valid and that you still have the most cost effective strategy.

Declining interest rates. Twenty years ago, many illustrations were produced using 8-10% interest rate assumptions. Interest rates have declined since then and the cash values of older policies have oftentimes failed to keep pace with the projected values, leaving the policy in danger of collapse.

Changes in insurance costs. Over time, many issuers have experienced higher or lower levels of claims and corporate investment results, which can lead to changes in insurance costs. Higher costs are certainly reason for concern, but lower costs can also offer opportunities as insurers seek to offer more innovative policy structures. For instance, a recent survey of bank trustee-owned policies found that 84% of the policies were eligible for an increase in the death benefit for the same premium cost, with an average increase in death benefit of over $800,000, which represented an increase of 54%. In other words, you may be able to increase your coverage for the same cost, or maintain your current coverage for lower premiums.

Changes in the value of your business. Many family-owned businesses maintain substantial policies for business succession purposes or to fund a buy/sell agreement. A growing, thriving business may be worth much more today than when you first got the policy. If the policy does not keep pace with the value of the business, the beneficiaries may find that they have less than sufficient cash to buy out the interests of the deceased, leaving a serious liquidity crunch.

Changes in family status. In too many cases, the death benefits of a policy are paid to an ex-spouse simply because the beneficiary was never changed. Other reasons for beneficiary adjustments may include taking on a new business partner, a birth or death in the family or adjustments made to estate planning documents.

Securities and investment advisory services offered through Raymond James Financial Services, Inc. Member NASD/SIPC NOT FDIC insured NOT GUARANTEED by Pinnacle National Bank Subject to risk and may lose value.

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