Case study: Annual review reveals the need to strengthen protection 

Issue 4, November 2023 I PCS Vision

Annual reviews are one of the most important things you can do to protect your family. Read on to find out how a young family thought they had adequate protection against unforeseen circumstances, but a recent policy review exposed a potential and significant shortfall. 

PCS by Mercer client is a 46-year-old male entrepreneur and private investor in Southeast Asia.   He recently sold his business to a public company, and he was given US listed shares as part of the agreement. 

The client is married with two young children. Even though he is in excellent health, our client is the sole breadwinner for the family, and always most concerned about his homemaker spouse, and two young kids, especially if something unforeseen should happen to him. 

Our client held an existing Universal Life (UL) policy, which he incepted nine years ago. He has been preoccupied with business and postponed a number of annual reviews. Given the dynamic changes in global economic conditions, we were concerned on his behalf and proactively partnered with his private banker to urge initiate a policy review. After some persistence, our client found time. 

At the review, our client recognised the potential of early policy lapse as the crediting rate over recent years have not met expectations (his policy was incepted under very different interest rate conditions). The lapse would mean his family would not be protected to his satisfaction, and so our client was then highly motivated to restructure. 

He was especially keen to make sure there are resources to meet any substantial future tax obligations. He is also beginning to plan for an early retirement.

In the restructure, the client wanted the flexibility to turn any new solution into a retirement plan or even surrender his policy once it has grown in cash value. He wanted to plan for any potential sale of his US listed shares and/or a future instance in which he no longer requires such high coverage. 

The client stipulated a Guaranteed Death Benefit to cater to tax obligations, and act as income replacement if required, but he did not want to make additional cash outlays. He also had a strong preference for the sum assured to be equal to that of his original policy.

Our client believes that using offshore insurance is a good way to manage risk and provide predictable benefits for his family in the future.

To cater for the client’s busy schedule, we conducted non-face-to-face meetings to understand his specific situation and needs. We also discussed the pros and cons of using a combination of solutions, including UL, Indexed Universal Life (IUL), and Whole of Life (WOL) policies. 

After reviewing the various options, the client incepted a solution using our non-face-to-face processes. The new solution combines an IUL and a WOL plan.  

By using his existing policy’s cash surrender value (CVS), the client does not need to make any additional cash outlays. And the new total death benefit assured is approximately US $700,000 higher than it was on the previous single UL policy. The client’s superb health condition and relatively young age were taken into account when we negotiated his new policies. 

Premium: Approximately USD 1.3M (using existing policy’s CSV, no additional cash outlay required). 

Sum assured: New total sum assured USD 7M 

• Global conditions change, as do needs.  To ensure your family is fully protected, it is key to undertake regular reviews to make sure your protection remains appropriate and adequate.
  
  
• A solution combining of two or more different types of plans can be cost effective while achieving better coverage. A combined solution can also better cater to different needs and create more flexibility for future adjustments as required.
  
  
• Plan as early as possible: Incepting plans at younger ages – when better health tends to be the norm – can help to reduce premiums while achieving higher coverage.