Some commentators have suggested that family offices should mimic institutions and adopt a disciplined and process-oriented institutional approach when managing their investment portfolios. It would allow them to be more effective and produce more efficient long-term results.

But family offices, including advisors to ultra-high-net-worth families, should also consider this approach when managing family assets such as life insurance. That means that selecting a life insurance specialist, someone who can align the family’s specific needs with the proper insurance, is of the utmost importance. Such advisors can objectively assess existing life insurance portfolios and recommend targeted, efficient solutions to accomplish family objectives.

The process involves a number of steps:

1. The first is information gathering and analysis. A family’s advisors (including its attorneys and CPAs) should collaborate and thoroughly assess its situation and needs. This includes quantifying the family’s financial needs in order to determine which strategies or financial products they need. The life insurance advisor should have the proper consent to work collaboratively with other key advisors to the family to develop these strategies. It is imperative that family advisors and insurance advisors work together to analyze the financial consequences of each alternative, always keeping in mind the family’s overall planning goals and objectives.

2. The next step is product selection. The family’s advisors and the insurance advisor should evaluate various alternatives to determine the most competitive products and planning strategies.

To choose and design the right products, advisors must review the confidential client data used during the underwriting process. Both medical and financial information can have a direct impact on the final recommendation. An advisor must consider the clients’ risk tolerance (how sensitive they are to market and interest rate risks and carrier financial ratings and how much they want a guarantee instead of flexibility). The advisor must also weigh the use of sophisticated estate and corporate setups (grantor retained annuity trusts, for instance, or family limited partnerships, charitable lead trusts, etc.). The insurance advisor should provide an executive summary with a complete analysis of suitable products along with a summary of overarching planning and financial implications.

Ultra-high-net-worth families should also explore institutional products. Because affluent individuals typically have better access to health care (and live longer), keep their life insurance policies in force longer and buy policies significantly larger than average, they can access products with lower premiums and policy expenses than the general public can with available retail products. An insurance advisor who can properly analyze and use these products can be an effective advocate for the family.

3. Then it is time to select the insurance carrier. The right insurance advisor will be able to identify the company whose products best meet a particular buyer’s needs. But there are important questions to ask:

• Is the advisor captive to a particular carrier or does he or she function independently with access to a variety of carriers?
• Does the advisor understand that carriers often specialize in particular product lines, which can affect their product prices and commitment to policyholders?
• Does the advisor have access to custom products priced for the institutional market?
• Has the advisor worked with senior level management at the insurance companies to come up with new product designs?
• Does the advisor understand the impact of reinsurance on product pricing?

4. In the underwriting step, the insurance carriers assess a client’s insurability; this is also where pricing is determined. To begin, the client’s medical records must be gathered, which can take about four to six weeks. An experienced insurance advisor will review the records for accuracy and consistency and point out discrepancies where they exist. Often, such discrepancies can be resolved before a formal submission.

Family offices can “informally” send medical records to various carriers, which allows the insurance advisor to obtain preliminary feedback about likely underwriting classifications, giving the family a general sense of the life insurance policy’s ultimate pricing. The informal process also allows the family to consider whether to retain current life insurance holdings or make changes. Many families appreciate having this insight before they have to take any medical exams. Again, it will help to have an insurance advisor who is experienced with ultra-high-net-worth families and their advisors, somebody who can make sure the process is followed.

If a family decides to make a change, it’s critical to have an underwriting advocate. The insurance advisor must have a deep understanding of all facets of the process, including the carrier negotiations, how best to present a family’s case and an ability to manage a carrier’s capacity limits for larger placements. It’s important to note that the first price offers from the carrier are not always final. It can help in these negotiations if the advisor has history and credibility with the carriers. It also depends on the amount of insurance and the type of business, and, with some ultra-high-net-worth life insurance advisors, their ability to participate in the risk.

5. Then there is the delivery of the policy, when the plan is implemented. It is important that the insurance advisor and family advisors verify the ownership and insured information, along with underwriting classes and product types, beneficiary designations and premium amounts (if any).

6. After that, there should be periodic reviews—evaluations of in-force policy performance conducted at selected intervals. The insurance advisor should continue to work with the family’s advisors to compile a detailed list of all policies—keeping up to date on death benefits, cumulative premiums, cash values and any outstanding policy loans—and assist in analyzing policy performance. Actual policy performance should be benchmarked against the original design, as well as the marketplace. Discrepancies should be researched and explained, and then corrective steps taken if necessary.

7. After that, the insurance advisor must provide ongoing service and administration, collaborating with the family’s advisors. The insurance advisor should be able to understand and report on fiscal year-end values, reportable income related to split-dollar arrangements and information required under the Internal Revenue Code, Section 101(j). The life insurance advisor should continue to work closely with the family’s advisors when coordinating planned annual funding, any potentially taxable gifts, trust beneficiary withdrawal rights and cash-flow planning. In-force pricing improvements, if any, should be tracked and communicated as well.

Finally, a life insurance claim is the culmination of the entire approach. The insurance advisor should proactively oversee the claims process to ensure there is a timely and accurate payment of policy benefits. This is often a difficult process for many families, and the life insurance advisor should endeavor to make it as seamless as possible.

Conclusion
By taking a more disciplined, process-oriented approach, families have a tremendous opportunity to improve results and drive greater efficiency and effectiveness into the management of their life insurance portfolios. When families follow these guidelines and select an insurance advisor who adheres to these principles, they can have a closer, more institutional relationship, something far different from the retail, transactional model that permeates the life insurance industry today. 

Peter Fleming is vice president of business development at Atlanta-based insurance advisor Nease, Lagana, Eden & Culley, where he works closely with
single-family and multifamily offices.