Life Insurance Requires Active Ongoing Management
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April 15, 2002
Physician's Money Digest
By Donald T. Cohen, CPA
Newman + Cohen Financial Management
 After
the tragic events of last September, life insurance has regained its status
as one of the most important components of estate and financial plans. With
all of the renewed interest, it is important to remember that life insurance
requires active monitoring by the policyholder just like any other component
of an investment portfolio.
For physicians in states where annuities and life insurance policies are creditor
protected, investments in the right type of life insurance make a great deal
of sense. However, too often the physicians and their advisors neglect to review
and update the annuities and policies after they are acquired.
Many policies carry risks that require them to be evaluated as to their performance
and outlook on a regular basis. Take, for example, the universal life policies
written in the 1990s that did not contain guarantees as to premiums and death
benefits. Now that fixed-income rates have dropped dramatically, the long-term
expected cash values of these policies have fallen to the point where the policies
are in jeopardy. Furthermore, carriers' increases in the costs of insurance
can severely impact the performance of these policies and may cause lapses.
Universal life policyholders and their advisors should review the performance
of these policies to determine the toll that today's market conditions have
taken. It is often possible for individuals whose states of health have not
significantly changed since purchasing their policies to switch to ones that
are fully guaranteed and carry lower premiums for the same amount of death
benefit.
The combination whole-life and term policies also face similar dilemmas if
they are not properly managed. The whole-life portions of these policies offer
guaranteed premiums and death benefits, but the term portions are not guaranteed.
Insurance companies have dramatically reduced their dividend scales for the
whole-life portions during the last few years, and they have not grown enough
to offset the burden on the term portions. Many policyholders who have not
properly managed their insurance contracts now need to add to the premiums
to maintain the original death benefits.
Variable-life contracts require the most management because they can lose
money due to investments in an under-performing stock market and the cost of
the insurance can also increase. In today's bear market, many variable-life
policies that have not been properly managed have been devastated, and policyholders
have either lost their investments by letting them lapse, which may cause significant
tax consequences, or have added premium to maintain them.
Physicians should rely on their trusted financial advisors for much more than
the initial guidance in determining what types and amounts of life insurance
make the most sense given their age and their insurance and estate-planning
needs. As an important component of an investment portfolio, life insurance
must be assessed and managed on an ongoing basis to ensure that it is as financially
rewarding as possible.
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Donald T. Cohen is a founder and director of Newman + Cohen Financial Management
(www.newman-cohen.com). He has more than 20 years of experience in certified
public accounting, advanced financial strategies and business management with
physicians and high-net-worth individuals. He welcomes questions or comments
at (800) 966-9306 or via e-mail at donald.cohen@newman-cohen.com
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