Facts About Life Insurance

Why to use a Fee-Only Life Insurance Advisor--and not an agent--to help you find the right life insurance products for your needs.

Reasons to use a Fee-Only Life Insurance Advisor
What's Your Risk of Living Too Long?

The Armins founded a successful business that produced more than $100M of net worth. In order to make sure that their son and daughter-in-law were able to operate the business after their death, they followed the advice of their lawyer and bought more that $80 million of life insurance over 25 years to cover estate taxes.


They began to have doubts about their coverage when they found out that one $60 million variable life policy with a single carrier hadn’t performed to expectations—and the cash value of $10 million was actually less than the total premiums paid over the years. But their agent tried to placate their worries by telling them that if they earned 8% on the policy investments they’d only have to pay $30,000 per year to age 95. The Armins were 69 and 67 and in reasonably good health when they learned this. Or better yet, the agent suggested, would be to trade in the policy for one with a guaranteed death benefit of $60 million for a single payment of $11 million.


But better than both those suggestions was the Armins decision to hire a Fee-Only Life Insurance Advisor to help sort out their policies and help plan their next insurance move.


First the advisor educated the Armins about managing the risks of living too long. Coverage to age 95 might not be enough because their combined life expectancy was actually 27 years—or 8 years longer than reported by the agent—and the odds of both of them dying before the policy expired were less than 10%! In fact, there was about a 15% chance one of them would live to age 100. That helped them focus on the risk management of living too long. And it prompted them to have the Fee-Only Life Insurance Advisor design a diversified life insurance program and help them manage it until their deaths.


He started by giving them the facts of life insurance: in order to maintain the death benefit of the variable policy at an investment return of 6.5%, they would need to pay annual premiums of $600,000. While the premium would be only $300,000 if they managed to earn 8%, it was still considerably more than the $40,000 suggested by their agent, which was based on his unreasonable and grossly inaccurate estimate of their life expectancies. So the advisor, with the help of an agent he directed, secured insurance offers from several companies, which resulted in the following action:

  • Retention of $10 million of insurance with the original insurer supported by a cash value of $3 million. This allowed them to retain some of the original insurance, which was underfunded but reasonably priced. They thought they could realistically earn 6.5% on the policy with diversified investments, and that would allow them to maintain the policy forever with no more premiums.
  • Acquisition of $10 million of guaranteed insurance equally divided between two new companies. The premiums for each policy were $2 million. They understood that they gave up their access to the cash values in return for guaranteed death benefits with no more premiums.
  • Another $40 million of coverage divided between two cash value policies with mutual insurers. The first was a policy offering flexible premium payments with a level death benefit and a current premium of $375,000. None of the cash value was transferred to this policy. If the Armins learned their life expectancy was impaired, they would be able to reduce or eliminate future premiums without losing any death benefit. The second was an increasing death benefit policy funded by the $3 million cash value plus an annual premium of $125,000. That policy provides an immediate death benefit of $6 million increasing to $20 million at life expectancy.


All-in-all, the Fee-Only Life Insurance Advisor helped the Armins create a well-diversified life insurance program to meet their estate needs—and save more than $100,000 a year.