• Life insurance strategy analysis: This is not always necessary, because many times the life insurance is paid for directly. However, other times the insurance was purchased as part of a financial or legal strategy.
For example, if the premiums have been financed, not only do the policies need to be assessed, but also the underlying financing assumptions—the collateral requirements and so forth. In many of these cases, even slight underperformance in the policies, compared with what was presumed, can have a very dramatic impact on results. The different financing and interest payment requirements can make matters even more problematic.
• Needs and wants analysis: The most complicated aspect of the analysis is the needs/uses analysis. Here, the buyer must specify and evaluate the logic behind the original purchase of the life insurance. Remember, the insurance is just a means to an end, and it’s essential to explain just why the policies were bought. Why did the individual or family need the death benefit?
Sometimes, the use of life insurance changes as a person’s circumstances change. Consider, for instance, a start-up entrepreneur buying life insurance to create an estate so his spouse and children are taken care of. The idea is that he or she will subsequently use the insurance (possibly including the policies originally purchased) to pay estate taxes after becoming successful.
Still, no matter what the original reason for the purchase was, the major considerations are the client’s current needs and wants. So a number of questions must be answered:
• Does he or she currently need the death benefit?
• What current concerns are being addressed by the life insurance?
• Is the amount sufficient or is there too much or too little insurance?
• What current concerns can the insurance potentially address?
• How much insurance would be required to address current concerns?