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Why You Should Evaluate the Financial Condition of Your Life Insurance Companies
Why You Should Evaluate the Financial Condition of Your Life Insurance Companies

The worst economic times since the Great Depression have had extreme negative financial consequences on all of us - - life insurance companies are no exception.

The recent U.S. government rescue of AIG should serve as a reminder of how important it is to evaluate the strength of the life insurance company(s) that issued your policy(s). Many other insurance companies have also incurred losses and have had their ratings downgraded.

There are steps you can take to make sure you do not lose your coverage or access to your cash values after years of making many premium payments.
  1. Have an objective professional evaluate the strength of each of your insurance companies based on:

    1. Their existing investment portfolio;

    2. Claims paying ability; and

    3. Administrative and mortality costs.

    A weakness in any of these criteria can create significant exposure. Is your company artificially paying too high a dividend? While some insurance companies do this in order to maintain business, doing so erodes reserves and can lessen the company’s ultimate claims paying ability. One way an insurer can pay too high a dividend without adversely impacting the company’s ultimate claims-paying ability is to over-charge for overhead costs and/or mortality. Are you being overcharged for overhead costs or mortality charges? An analysis can determine if you are overpaying.

  2. Be sure your insurance company is licensed by your state. Even if the government doesn't step in, you have a certain amount of coverage guaranteed by your state.

  3. After an analysis is complete, it may make sense to purchase new policies from companies in better financial condition and with lower costs. However, if you surrender an existing policy, you need to be careful not to trigger surrender charges and be mindful of potential income tax consequences. There are strategies available to exchange your current policies and avoid gain recognition. It is also possible to borrow against your cash value policies and safeguard the cash if the insurance company is in a difficult financial position.

In addition to the issues discussed above, you may simply have changes in your personal and professional life that impact your need for life insurance coverage. Perhaps you have too much insurance based on your current net-worth or too little if you have young children.

We can assist in helping you navigate these complicated issues. It is extremely important, however, not to cancel a policy before being approved for another. Please contact us to discuss a review of your life insurance plan as soon as possible.
Maurice R. Kassimir, Esq.
Maurice Kassimir & Associates, P.C.
(212) 790-5719


If you have any questions regarding this matter or any other estate planning techniques, please contact a Maurice Kassimir & Associates, P.C. Trusts & Estates attorney or e-mail us: mkassimir@mkpclaw.com.

(212) 944-1377

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