A Reflection And Three Updates


By Gary Bottoms, CLU, CHFC 

Chief Executive Officer

As an engaged to be married Georgia Tech senior, a wise mentor helped me create a vision of what I wanted in my future career. I wanted to be an entrepreneur. I wanted community roots and
independence. I think most importantly, I wanted relationships allowing me to help others with something important to them – being a part of delivering something they want.

From the beginning, determining what our clients “want” in their future and helping them get there has been a common theme with individual insurance and employee benefits. Wants and needs vary according to circumstances and philosophy; nevertheless, there are several common themes that we see regularly as we interact with our clients. For this article, I have identified three “wants” that we commonly see along with developments that may be of interest.

Our clients want to avoid surprises with term life insurance policies. Term life insurance is known as limited duration life mortality protection. You might say that this is the low-cost, efficient, and commoditized portion of the plan. It may be that the policy can be continued into the older ages, but the premium structure makes the arrangement economically painful.

The increasing premium may not be a problem if the coverage is no longer needed – the coverage can be discontinued. However, if the coverage is needed beyond the low-cost years, the conversion feature becomes important. Conversion means the policy can be transformed from a temporary policy to a different type of coverage designed to last into the older ages or possibly for a lifetime. The original underwriting class typically carries forward even though the insured may be uninsurable for new coverage. Most term policies have an embedded conversion arrangement so we can check the box that the feature exists, but the details matter.

The conversion feature protects insurability going forward and it is a valuable right. The ability to convert to any product the insurance company is offering at the time of conversion is rapidly disappearing. Increasingly, companies are restricting conversion to a special conversion only policy or reducing or eliminating the ability to convert to a competitive policy. The conversion only policies are expensive because significant health conditions are assumed to be present. A long window of opportunity to convert to any “street product” the company is offering at the time based upon the original health status is a valuable feature.

Cash accumulation within a life insurance policy is a priority for some of our clients. Within a properly structured life insurance policy, the accumulated cash grows on a tax-deferred basis, and policy withdrawals and loans can be made on a tax favored basis. To qualify for these advantages there must be a certain amount of death protection included given the amount of premium being paid. The U.S. Tax Code defines what the government deems to be a legitimate life insurance contract for tax purposes.

In early 2021, the tax code changed the portion of the formula for designing life insurance policies that had been unchanged since 1985. The change was a result of the continuing low interest-rate environment. The change affects some types of coverage more than others and it is designed to float over time to generally reflect the prevailing interest-rate environment.

The bottom-line effect of the change is that the amount of death protection included in the pricing formula for the policy can be decreased which allows more of the premium paid to be oriented toward cash accumulation.

It may be that a continued rising interest rate environment will eventually cause a change in the formula to be enacted which will move the numbers back towards the original formula. In the meantime, clients that wish to accumulate cash within life insurance policies should consider taking advantage of formulas in place presently.

When long duration death protection is needed, our clients want meaningful guarantees. Since 1981, we’ve been in a persistently declining interest-rate environment – longer and lower than most anyone envisioned. Several years ago, when interest rates were higher than they are presently, some major life insurance companies introduced guaranteed death benefit universal life. This type of coverage was refreshing because the death benefit would remain in place even if the cash value declines to zero as long as the initial required premiums were paid according to schedule.

As the low interest-rate environment continues, insurance companies have become more conservative in offering long-term death benefit guarantees on new policies. So, the recent rise in interest rates is helpful to the concept of offering strong guarantees. Returns on some types of coverage are based upon the portfolio rate which means that the present higher turns will be somewhat slow to appear because the “new” money will be mixed in with the “old” money with lower returns.

Several major insurance companies are now offering a guaranteed death benefit on variable universal life. As long as the required premium is paid on schedule, the death benefit remains in place even if the underlying assets fall to zero. This relatively new twist to life insurance can be designed to offer various funds, a fixed account, and indexed accounts all in one flexible chassis.

Please reach out and we will be happy to help in any way.

Our corporate calling of helping others, along with our embedded employee benefit and life insurance specialties, intersects with our client’s desire for ongoing financial security and protection.

Gary Bottoms, CLU, CHFC

Chief Executive Officer


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