For nearly 30 years interest rates were on the decline, and that decline has had a significant impact on the performance of permanent life insurance policies. In addition Financial Accounting Standard Board (FASB) rules for Life Insurance companies further complicates investment results as we look forward.
Many years ago, to add a measure of financial safety to Life Insurance practices, and the policies issued, life companies were meeting reserve requirements to primarily invest in Fixed Income such as bonds and mortgages. So if you examine a Life insurance company financial statement, you would find that >80% in fixed income to meet those reserve requirements.
So not only has the investment results experienced a long slow decline in interest rates, the future for those required investments is also challenging. Fixed income in a rising interest rate environment suffers the loss of underlying value as rates increase.
Back to Permanent Life insurance policies. Whether whole life, universal life or even variable life, investment results have changed and it would be prudent to audit policies, as well as stress test them, to determine what the decline and now the rising of interest means to the original objective of the coverage. The longer the policy has been inforce, the more critical the audit becomes.
A current snapshot of permanent life policies will provide the needed details to secure a positive outcome, meeting the original plan objectives.
The time is right for an audit. Shepard Insurance can help 203-637-6655 or email Steve @ email@example.com