The world of trust-owned life insurance (TOLI) has always demanded careful oversight, but new data from ITM’s portfolio of over 9,500 trusts highlights a dramatic rise in policy risk that should concern every trust manager.
As policies age and market conditions fluctuate, many previously “stable” life insurance policies are no longer performing as expected. The implications are serious: lapsing coverage, unexpected tax consequences, and increased fiduciary liability for trustees.
Here are some of the key findings from ITM’s latest portfolio analysis—and what they mean for trust departments in banks and financial institutions:
Alarming Shifts in Policy Performance
46.5% of all policies are now projected to lapse prior to maturity.
That number is up significantly from just 27.7% in 2022. Policies once deemed well-structured are proving vulnerable to market volatility, aging insureds, and overlooked premium obligations. This means nearly half of the policies under trustee oversight could fail to deliver their intended benefit.
32.5% of policies are projected to lapse before the insured’s life expectancy.
In 2022, this number was 11%. This sharp increase shows how quickly policy health can deteriorate, especially in trusts without regular performance monitoring. A lapse before life expectancy can have catastrophic consequences for beneficiaries—and major implications for fiduciaries.
49.1% of no-lapse guarantee (NLG) provisions have been compromised.
NLGs are often viewed as the most reliable aspect of a life insurance policy. But the reality is that they are only as strong as the conditions they depend on. Missed premiums, incorrect timing, or rider changes can void the guarantee. The rise from 30% in 2022 to nearly 50% now shows just how fragile these provisions are in the real world.
The Surge in Loan-Related Risks
Loan issues have surged by 60%, with 11.2% of whole life policies now at risk of triggering a taxable event.
Many whole life policies use policy loans to manage premium payments or access cash value. But unmanaged loans, particularly in older policies, can snowball into significant tax liabilities. If a policy lapses with an outstanding loan, the gain becomes taxable—putting trustees and beneficiaries in a risky financial position.
These figures are not just abstract statistics—they represent real people, real trusts, and real liabilities.
What This Means for Trust Managers
Bank and trust department professionals are already navigating a complex regulatory environment, and these TOLI trends add another layer of difficulty. When policies underperform, it often falls to the trustee to explain what went wrong—and in many cases, the trustee is held accountable for inaction.
The risks to trust managers include:
- Breach of fiduciary duty claims
- Tax consequences to beneficiaries
- Reputational damage to the institution
- Increased administrative costs
- Legal exposure if policy issues go unaddressed
Even well-meaning trustees can struggle to keep up with the technical demands of TOLI administration. And with nearly half of all policies in need of remediation, most in-house teams simply don’t have the resources or expertise to address every issue.
The Need for Proactive Management and Expert Oversight
Nearly half of all policies in ITM’s portfolio—approximately 48%—require some form of remediation. This statistic underscores the importance of active, ongoing oversight. Common remediation issues include:
- Overfunded or underfunded policies, which can result in lapses or unnecessary premium payments
- Incorrect ownership structures, often leading to tax or compliance concerns
- Missed carrier communications, which can jeopardize no-lapse guarantees or cause premium billing errors
These are not one-off occurrences—they are systemic issues that, if left unaddressed, can result in significant financial and legal consequences. Trust departments must be prepared to identify and resolve these issues promptly.
Read More: The 5 Biggest Mistakes TOLI Trustees Make and How to Fix Them
The statistics reinforce a fundamental truth: TOLI cannot be a “set it and forget it” asset class. These policies require ongoing management, expert evaluation, and timely action.
At ITM, we’ve seen firsthand how proactive administration can protect both beneficiaries and trustees. Through our tolimonitor solution, we provide trust departments with:
- Regular policy performance reviews
- Early detection of premium shortfalls or missed carrier communications
- Identification of compromised NLGs
- Comprehensive remediation services
- Clear documentation and reporting for compliance audits
In one recent case, ITM’s team uncovered a $400,000 premium overpayment due to a carrier error. We worked with the carrier and the trustee to recover the funds for the grantor. Without our oversight, that money would likely have been lost.
Read More: How ITM’s Remediation Team Helped Recover $400,000 in Excess Premium
The Bottom Line: It’s Time to Reevaluate TOLI Oversight
The latest statistics don’t just show a trend—they signal a turning point. Trustees can no longer rely on assumptions that policies will perform as expected. With half of all policies now requiring attention, trust managers must take a more active role in TOLI oversight—or consider strategic partnerships to manage the risk.
Trust departments must ensure they have a system in place to manage these increasing complexities—whether that means building and maintaining a robust in-house team of TOLI experts, or outsourcing to a specialized provider with the tools and expertise to handle the evolving demands of life insurance trust administration.
Download our latest TOLI statistics for more findings based off our portfolio of managed trusts.
