One trend our team sees with Trust Owned Life Insurance (TOLI) is that life insurance is getting harder to manage. While servicing over 25,000 TOLI life insurance policies for corporate trustees and law firms, we have noticed a considerable decline in servicing departments within life insurance companies. Not only are we periodically receiving incorrect information from insurance companies and their representatives, but we are also identifying situations where life insurance companies mismanage policies according to the original contract’s terms. Managing a TOLI portfolio – today more than ever – requires an experienced and independent team of life insurance experts who can assess if the information provided by life insurance companies is accurate and in line with the policy contract. Recently, an insurance company sent an incorrect notice to our team for one of our Managed Solution clients stating that a significant premium payment would be required to extend the policy death benefit beyond maturity of the contract, which was insured age 100. We took action and resolved the issue for our Corporate Trustee client.
A TOLI death benefit of $3 million was scheduled to expire as the insured was turning 100. ITM successfully got the maturity extension provision applied to the policy with no further premium, carrying the full death benefit to insured age 120.
Background
A corporate trustee retained ITM’s tolimonitor managed solution for back-office administration and remediation for their ILIT portfolio. The corporate trustee wanted to provide their ILIT clients with this value-added service because they knew they lacked the seasoned in-house TOLI expertise and understood the significant liability presented if a policy unintentionally lapsed. The insurance company sent a letter to us, the third-party administrators, stating that one of the client’s policies would be approaching maturity (the insured was turning age 100) and that the death benefit will be dropped to the cash value of $0. The grantor had paid $1,955,510 in premiums over the life of the policy, and the death benefit was $3,000,000. The policy was a Guaranteed Universal Life operating off the secondary guarantee – therefore, the cash value was $0. The letter stated that the policy needed a positive cash value for the maturity extension provision to be applied. The funding required to bring the cash value into positive territory was significant.
Solution
As TOLI experts, our team is very familiar with the maturity extension provision attached to the policy and had properly recorded the maturity extension rider to extend it to age 120 with the full death benefit. Because the policy had the maturity extension provision rider, all the maturity language in the original contract was void and replaced with the language in the maturity extension provision rider section. Under the rider, it did not state anywhere that the policy needed to have a positive cash value but that the policy just needed to be in force at the maturity date. Our team sent a letter to the insurance company that pointed to specific language in the contract and demanded that the maturity extension provision be applied to the policy with the full death benefit carrying to insured age 120 (maturity extension provision expiration date) with no further funding. The carrier responded to our letter (after multiple follow-ups) with an apology and notified us that they applied the policy’s maturity extension rider. Additionally, they provided an illustration showing the full death benefit carrying to insured age 120.
ITM is the only company in the nation that provides a complete solution for trustees managing life insurance trusts. From policy reviews to gift and Crummey notices to solving complex policy issues, our professionals service your life insurance trusts. Our team of insurance specialists, underwriters, actuaries, and trust professionals provide the expertise needed to help trustees avoid liability and grantors and beneficiaries achieve optimal results. Learn how to reduce legal and regulatory risk, save money, and help clients by working with our team. Contact us for more information.
