How we evaluate Life Insurance


What is The PPH Exam

At AXA we elvaute life insurance based on the the PPH Exam. Its a simple and effective approach used to determine whether your life insurance should be adjusted. By reviewing the initial Purpose of the coverage, the Product features and performance, and personal Health changes  we can determine if the policy needs to be adjusted. Click the tabs below to see how a change in the policy can impact it over time , and then a sample case study.

Purpose

Product

Heallth

 

Purpose

As life changes, so do needs for life insurance that will impact the ownership and beneficiary arrangements, the amount of coverage, the type of product, and the ability to fund.

Change                                        Impact

Net worth (actual inheritance, business value, unexpected healthcare expenses, accumulated wealth)

Increase may create need for additional coverage. Decrease may impact need and ability to fund, requiring more flexibility with premium payments.

Income (better job, retirement, investments performing better or worse than expected)

Increase may create need for additional coverage for income protection. Decrease may reduce funding of existing coverage.

Taxes

Estate tax increase may create the need for additional coverage.

Gift tax exemption increase may provide efficient means to fund coverage.

Income tax increase may create desire to overfund a policy for cash accumulation.

Decrease in taxes may provide additional funds for life insurance premiums.

Inheritance

Increases taxable estate and, therefore, may increase the need for coverage.

Marital status (remarriage, divorce, separation)

Owner/beneficiary may need to change.

Purchase of house

New or increased coverage.

Career (increased income, retirement need for supplemental income, qualified plan income)

Possible increase in coverage; new cash accumulation product and riders; funding adjustments.

Family support (new child, parent, grandchild, special needs)

New income/survivor needs; owner/beneficiary may need to change.

Education (children, grandchildren college)

New or increased coverage; owner/beneficiary may need to change.

 

Case Study: Adam and Sarah

Profile: From Young Couple to Young Family

Then: Newlyweds Adam and Sarah purchased $300,000 of term insurance for mortgage protection.

Now: The couple is a young family with two children. Sarah is no longer employed, so income is reduced. Adam’s employer group term coverage dropped from $200,000 to $50,000.

PPH Exam Result: Increased term insurance by $200,000 and purchased $500,000 permanent insurance for family support and to pay for education.

 

Product

Insurance carriers develop new products, features, and options that may be desirable in your planning. Inaddition, you may find that the performance of an existing policy can be improved by adjusting funding levels.

Change                                        Impact

Interest crediting rates lower or higher than anticipated (universal life insurance)

Lower crediting rates for an extended time may reduce the life of the policy. Higher crediting rates may improve performance.

Large policy loans or withdrawals

Risk of lapse because withdrawals and loans may negatively affect policy performance.

Increasing premium expense (term insurance)

Occurs as the Insured gets older. Where a permanent need is expected, consider converting expensive term policies.

Over- or underfunding

While premiums may be skipped with certain policies, a decrease in premium payments or lengthy premium skip may lead to poor performance and risk lapse.

Carrier ratings

If there is a significant drop in ratings, verify the carrier still meets your profile.

Cost of insurance charges (COIs)

COIs may increase or decrease over the life of a contract and their change may extend or reduce a policy’s duration.

Lower than expected dividend rate (whole life)

Premiums may need to be paid for more years than originally planned.

New products, riders and options

Potential for reduced cost, more options.

 

Case Study: Maya

Profile: Middle-Aged Individual

Then: Maya, age 50, purchased a 20-year term policy on her life to benefit and protect her parents if she were to die, since they relied on her for living expenses.

Now: Maya’s parents passed away. She is married, has two stepchildren and a special-needs grandchild. Maya wants her grandchild to have funds for her special needs.

PPH Exam Result: The product need has changed. Term insurance is converted to a permanent policy. Beneficiary designations are updated to benefit the stepchildren and grandchild.

 

Health

There are two aspects to health changes. First, the Insured’s health can improve, decline or change, each driving a different action. Second, insurance carrier risk assessments of certain medical conditions may change and impact the Insured’s risk classification.

Change                                       Impact

Adverse health

Where the health of the Insured got worse since issue of the initial policy, the policy owner should properly fund and retain the current coverage. For certain term policies, policy owners should review any applicable conversion privileges.

Improved health history

Improvements in personal health, including becoming a non-smoker for a minimum specified period of time, sometimes including appropriate medication, may result in qualification for a reduced rate.2

Insurance carrier underwriting

Insurance carrier philosophies change due to updates in clinical medicine and/or changes in underwriting guidelines. Many times these changes may result in qualification for a reduced rate.

 

Case Study: Bobby

Profile: Reformed Healthy Male

Then: Bobby was age 35 and married with two children. He weighed 320 pounds and had high blood pressure. He purchased a $500,000 universal life policy. Because of the risk factors, Bobby paid a higher annual premium of $4,300.

Now: Bobby is still married with two children, but has changed his unhealthy ways. He lost 95 pounds and no longer has high blood pressure. He hopes his improved health translates to a better risk rating.

PPH Exam Result: Bobby’s health status has improved and he is now a Standard Plus risk. He is able to acquire a new policy with a reduced premium of $3,500. Bobby will now save $800 annually on a new policy.

There are a number of factors that may change from the time a life insurance policy is issued. Reviewing the purpose, product, and health aspects that determine the success of your life insurance policy in meeting your needs is critical.

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