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Gifting, Trustees

Life insurance – is it time for a review?

It is common for life insurance policies to be assigned to trustees.  However, less common is the establishment of any sort of frame-work for reviewing these policies.  Issues that spring to mind in no particular order include:

  • does the policy represent value for money?  This is particularly relevant as the insured ages and premiums increase.
  • if the premiums are not being met by the trustees are the premiums being gifted by the former policy owner to the trustees? If not, how are these advances being recorded?
  • what sort of return on investment does the policy represent?
  • is the insurance still required?  If say the original policy was taken out to provide for mortgage debt to be repaid, if the mortgage has since been repaid, is the insurance still required?  Could the premiums be otherwise invested?
  • have the trustees satisfied themselves that the former policy owner made adequate disclosure when the policy was first taken out?  Trustees might like to consider the extent of their liability on account of the premiums paid if the trustees did not make adequate enquiries and a subsequent claim is declined due to the failure to disclose relevant information.
  • is it time to review the level of cover, either up or down?
  • are the trustees the appropriate owners of the policy?  This requires a consideration of why the policy was taken out in the first place.  Often trustees will be the correct owners.  However, if say the policy was taken out to ensure mortgage debt could be re-paid and the debt was retained by the settlors when property was transferred to trust, it may be that it would be more appropriate for the policy of insurance to be retained by the settlors, at least until the debt retained by the settlors was re-paid.

The point of this blog is not to suggest that life insurance should not be owned by trustees.  However, perhaps too often, an assignment of a life policy occurs without the recipient trustees appreciating that the policy does reflect an on-going investment that should be monitored and managed in the same fashion as any other investment.

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