Life Insurance a Crucial Investment

Life Insurance is a depressing topic, but it’s a crucial investment. Maybe that's why policies, once they're purchased, tend to get tossed in a file cabinet and forgotten. Such neglect may mean a client is missing out on price reductions a few carriers have been passing along to wealthy clients, said longtime Daytona Beach insurance agent Sidney Levine. A policy that's ignored over time also may accidentally name the wrong beneficiary or end up poorly invested, added David C. Graffagnino, Levine's associate.

If the client isn't paying attention to such matters, then his agent should be, said Levine, president of the Executive Compensation Group, an 11-employee agency that specializes in life insurance, policies worth $1 million or more. "Anyone who has purchased a policy and doesn't get an annual review from their agent has overpaid for their insurance," Levine said. While many companies send out a one-page annual statement listing a policy's cash value, Levine's firm typically prepares a 100-page analysis each year and invites the client to its office for a chat about how the policy is performing.

Perhaps preoccupied with soaring property rates, not many people have noticed life insurance premiums have dropped more than 50 percent over the past decade, according to the Insurance Information Institute, a New York-based organization representing the industry. That means a healthy 30-year-old nonsmoking male now can now own a 10-year term policy worth $250,000 for less than $16 a month, said John Reeves, a specialist at the Mitchell Noel Agency in Ormond Beach. If the young man wants the coverage to continue through his riskier midlife years to age 60, the monthly rate would be about $33.

"These are people who can afford to take better care of themselves," said Levine, a member of the alliance. While insurance companies have cut their rates to recruit new customers, most require their longtime customers to pay the same rates they signed up for 10 or 20 years earlier, Levine said. However, if a customer shops around, he or she can find deals that allow them to benefit from the gains in life expectancy. For example, special policies that M Financial has arranged with John Hancock and Pacific Life have provided premium reductions totaling anywhere from 10 percent to 45 percent in recent years.

"If a company is basing its projections on an 8 percent annual return, and you see it's making only 4 percent, then you know something is wrong," Graffagnino said. Extra vigilance may be in order this year, since about 10 percent of the life insurance industry's investments are in mortgages, according to the Insurance Information Institute. "Most of those are mortgages on large commercial buildings and they're relatively OK, but some of them involve collateralized mortgage obligations that include the subprime products," Graffagnino said. "Those are absolutely toxic."