Even with a basic understanding of these terms, it can be difficult to accurately compare policies because insurers are far from consistent with how they define fees. But there is good news: because case design is improving every day, there really isn’t a “bad” insurance product on the market. However, not every product is right for every client.
This makes it more important than ever to dive into the detailed cost and fee structure for each policy and perform a comprehensive analysis of product suitability for the individual policyholder.
Products have different strengths and weaknesses. While one product is designed to provide cash-value growth, another is built to offer the lowest possible premium.
Some products provide a balance of lower cost and strong cash-value growth. Cash-Value-Based products tend to be sensitive to both upside and downside changes in crediting rates (or, for variable products, earned rates), while low-cost products tend to be less sensitive to these changes.
Detailed analysis—rather than a basic running of illustrations—of different premium funding patterns and interest-rate scenarios can help quantify product strengths and weaknesses in order to determine the most suitable product based on each client’s objectives and risk/reward appetite.
Whether advisors have a case design specialist in house or leverage outside guidance, understanding how these policy fees can impact long-term performance—and clearly communicating the cost/benefit to clients—can not only improve product suitability, but can also help protect benefits and deliver greater value for every client.
Jeffrey D. Dattolo, CFP, CLU, ChFC, CLTC is a Partner and Director of Advanced Design at Atlas Advisory Group LLC, an independent planning firm based in Cranford, NJ. A Member Firm of M Financial Group, Atlas Advisory Group LLC specializes in investment tax planning and wealth transfer for executives. Independently owned and operated, Atlas Advisory Group LLC is registered with M Holdings Securities, a Registered Broker/Dealer and investment advisor (RIA). Member FINRA/SIPC.