Two Major Reasons There are two major reasons why projected values may appear exaggerated. A lapse-supported policy has a lower cash surrender value than its asset share for an extended period of time, usually around ten years. Therefore, if an asset share pricing test is done while the policy s surrender value is below its asset share, the projected increases in surrender values will appear to be too great. By withholding asset share from policy owners who cancel their policies, the insurance company can re ward policy owners who persist. The other cause for policy values appearing exaggerated are pricing assumptions that are overly optimistic.
Recommendations Exaggerating policy performance can be severe.
If you suspect an insurance company is exaggerating the projected performance of an existing policy thereby leading a policy owner to believe the projected necessary premiums are much lower than they may actually be this has to be dealt with. Alternative planning should be established for this contingency. If the client has the resources, he or she should begin a side fund in anticipation of spiking premiums. If paying much higher potential premiums in the future isn t an option, then the client may need to adjust his expectation regarding the amount of life insurance the client can support long term. I also would consider contacting the insurance company, on behalf of the client, requesting an explanation of their pricing and asking them to specify what future conditions would cause a significant deterioration in projected policy values.