About Mark Pace

T. Mark Pace

When there is an immediate need for cash at the time of someone’s death, it has been my experience that life insurance, when properly acquired and managed, is one of the best tools ever invented for the creation and transfer of wealth. However, life insurance is rarely acquired properly and, because it is mistakenly assumed to be a "buy and hold" asset, it is never managed. The resulting financial disasters are far too frequent and completely avoidable.

If you would like to learn more about any Pig-in-a-Poke blog posts or discuss any other life insurance issues, contact T. Mark Pace at Mark@objectivereview.com

 

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Pace’s Pig-in-a-Poke

About Pace’s Pig-in-a-Poke

Pace’s Pig-in-a-Poke, provides an arena for sharing the four great passions in my life. My three foundational passions are:

  1. Invest in yourself first;
  2. The genius in all of us, and;
  3. We can all live a long healthy life.

These three support my life work and my fourth passion; LIPM™ (Life Insurance Property Management).

As the blog title suggests, my focus is on debunking all of the myths, misuse, and muddled thinking that has accumulated in the life insurance industry. And, from time to time, I will go outside of the specific world of life insurance and share my views on my other three passions.

I hope you find my blog worthy of your attention, informative, and occasionally inspirational. I welcome your comments, questions and suggestions.

Mark Pace

What the home office doesn’t know can hurt you

Caution needed when changing GUL and UL payment modes

When you ask the home office to change a GUL or UL payment mode from an annual to monthly, quarterly, or semi-annual payments they will say “No problem.” All you have to do is divide the annual premium by 12 to get the monthly premium since there is no modal factor like a whole life or term policy.

What the home office does not tell you is that there is a potential hidden penalty if this transaction isn’t handled appropriately.

In both cases, GUL and UL, the compounding accumulation of both the cash value and the shadow account values is altered significantly when the payment mode is shifted from annual to monthly or quarterly or semi-annual unless the premium increases. For GUL policies, this means the guarantees will change (e.g.: from age 100 to 90). For UL policies the chances are the shortfall will destroy future cash value performance and potentially cause the occurrence of policy failure prior to death. And, in both cases you will be faced with a huge future make up payment in order to keep the policy alive the longer you wait to correct the error.

Why this is the case; why home office service people are unaware of the harm changing the payment mode causes, is unclear. What is clear is that most home offices will not proactively ask you to adjust payment amounts upwards so that policy performance remains unaffected by a payment mode change. You have to insist on getting them to give you the correct new premium in order to protect the policy's performance.

(On a recent case where the GUL annual premium payment was $239,251.  Our analysis showed we needed $65,800 x 4 = $263,200 quarterly and not to take the home office recommendation to simply divide by 4. Erring a little on the positive side – it is always good to pay a little too much than to pay even a few dollars too little – we determined we had to divide $300,000 by 10 in order to come up with a monthly payment of $30,000 in order to sustain policy performance.)

The key here is to be very meticulous when changing modes so that policy performance meets the expectations and needs of your clients.

If you need any assistance on a policy payment mode change, we would be happy to help.

About the author

Mark Pace
Mark Pace
When there is a need for immediate liquidity at the time of someone’s death, it has been my experience that life insurance, when it is properly acquired and managed, is one of the best tools ever created for the creation and transfer of wealth. However, in my 35 plus years of experience, life insurance is rarely properly acquired and never managed… thereby creating a monumental financial disaster for many individuals that should never happen.

If you would like to learn more about this Pig-in-a-Poke subject or discuss any other life insurance issues, contact T. Mark Pace at Mark@objectivereview.com

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