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’s up with internal replacement of old policies?

The Poke:

We are beginning to see some carriers are sanctioning and paying commission on internal replacement…  which of course leads us to speculate that something must be going on here.

Internal replacement simply means replacing an old policy with a new one from the same carrier. Advisors lean towards replacement as they tend to believe newer policies are better policies and it is in the owner’s best interest to replace old ones… if the carrier allows.

The most common line of reasoning currently presented by brokers to policy owners is the old policy is only projected to last until you reach a certain age, whereas this new policy is guaranteed to last to that same age or longer.  So, they are inclined to ask, why would you risk your death benefit on a projection when you can receive a guarantee?

They get you to focus on the guarantee as if it were the only life insurance property right that matters and others like cash value and premium payment flexibility are down played, if they are mentioned at all.

The Poke Exposed:

A specific provision, such as death benefit guarantee, doesn’t necessarily make a new policy a better policy.

In fact, many older policies have some tremendous property rights that far and away out strip the value a new policy can offer. A look back helps explain how and why this has happened.

Older policies were designed when higher interest rates created more room for carrier profits. Additionally, carriers were relatively inexperienced and unsophisticated when it came to policy design.Through the pain of experience they have been consistently “tightening up” policies by reducing or eliminating many of the more generous property rights. (e.g.: minimum guaranteed crediting rates of 4 – 5% versus newer products with 2 – 3%)

Many of the new policies also have high internal expenses that create new profit very quickly. In the old days, the longer the carrier held a block of policies the more profitable they became. These days, some of the new policies offered are designed to maximize carrier profit within 8 – 12 years shorter. Some policies begin generating profit for the companies within the first year or two when a larger 1035 exchange occurs. This compares to the older policies that did not  begin to show any profit until the carrier held them for 10 – 12 years. And, for some policies that are 20 or more years old, those profits never occurred because of the decline in interest rates leaving only a big block of liability on the carrier’s books.

So, it would appear some companies are flushing out the expensive old products for the less expensive new products. It is as if they regret the generosity of the old policies and are trying to reduce their liability by flushing out mistakes. 

But, it is these “mistakes” that provide extremely valuable property rights to the consumer, if you know what they are and how to use them.

Think about it, most companies never used to pay new commission on “internal” replacement of products. Now, some companies, on certain blocks of old business, are saying it is OK, even offering commission as an incentive and, the new policies are generating immediate profits. That new profit has to come from someplace…

Pace’s Poke Remedy:

Sometimes replacing makes sense.  But, further analysis always needs to be done in order to optimize the return on your investment in life insurance property.

Here are five questions you should ask if you are advised to replace an old policy:

  1. What happens to my cash value?
  2. What happens to my death benefit?
  3. What are my premium payment options?
  4. What happens if I miss a premium?
  5. What happens if I am late paying a premium?


Giving up payment options and cash value could be very harmful if your health unexpectedly declines. Many new policies are very rigid in these areas and offer very few options for change while imposing many new penalties for non-compliance. So, before you make a significant change from old to new, ask a qualified advisor capable of a high level of actuarial analytics to thoroughly compare what you are buying with what you are giving up.

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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