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By
John McFarland
In the world of financial planning and wealth management, life insurance too often receives the “set it and forget it” treatment. A lot of time and energy may go into the work of researching and evaluating coverage options, but once a policy is purchased, it can easily disappear into a file cabinet or digital folder until the day that a beneficiary needs to file a claim.
This passive approach represents a significant missed opportunity for both financial advisors and their clients — one that could be costing your clients tens of thousands of dollars while leaving substantial value on the table that could be redeployed for other investment opportunities or freed up to fund retirement life experiences.
The good news for financial professionals is that the emergence of advanced insurtech tools now makes comprehensive policy reviews faster, more automated, more accurate and more actionable than ever before.
Factors Creating Erosion of Value
It is well-established that the vast majority of life insurance policies never pay out a death benefit, with The American College of Financial Services reporting that more than 97% of term life policies end up not paying on a claim. These policies either lapse, are surrendered or simply fade into irrelevance as life circumstances change.
This represents billions of dollars in potential death benefits that are forfeited each year because policies were not carefully reviewed and monitored, or because the insureds did not perceive value in the product they purchased. That is a noteworthy problem on its own, but there are also structural factors that contribute to the erosion of value in life insurance policies as well.
- Shifting pricing models
The life insurance industry has undergone profound changes over the past two decades with the algorithms and tables that are used to set premiums. For example, you might have a client who purchased a $2 million policy back in 2005 when they were 45 years old. At the time, the premium seemed reasonable given the market conditions and actuarial assumptions of that era.
Fast forward to 2025 and that same client may now be paying premiums based on mortality tables that are outdated. According to actuarial research, construction of mortality tables requires extensive data collection over 10-20 years. So while mortality tables have improved significantly in recent years, policies written a decade or more ago may still be priced according to yesterday’s assumptions. Only a professional review of a policy can reveal areas where a pricing model has become outdated.
- Premium inefficiency
Clients with policies written a decade or two ago may be paying as much as 30-50% more than they really need to in order to keep the policy in-force. This is due to a variety of factors, such as the emergence of new carriers entering the market, the refinement of risk models by longstanding carriers, and improved algorithmic tools that can be used to optimize premiums paid by insureds.
Those excess premium dollars, compounded over years, represents a significant opportunity cost that could have been deployed toward retirement savings, college funding or other investment vehicles that you could introduce to those clients. But without a policy review, those premium optimization opportunities remain invisible to both advisor and client.
- Coverage misalignment
This can be the trickiest one for an advisor to ascertain but is also the factor that has the greatest potential ramification for the erosion of value in a life insurance policy. Many clients’ life insurance needs have evolved substantially since their original policy research, evaluation and purchase.
For example, children who needed protection are now financial independent. Mortgages have been paid down or refinanced. Business interests have changed hands. In many cases, clients are now over-insured for their current needs and the life insurance policy they purchased 20 years ago no longer serves its original purpose. If this is the case for one of your clients, a precision review of the policy can reveal opportunities for realizing value from that asset in the other ways, such as selling the policy on the secondary market through a life settlement.
The Advisor’s Fiduciary Responsibility
For financial advisors and wealth managers, “set it and forget it” is also a risky default strategy because the failure to regularly review life insurance policies raises important questions about fiduciary responsibility.
Life insurance clearly represents a crucial component of comprehensive financial planning; after all, clients trust their advisors to optimize their entire financial picture, not just their investment portfolios. But the ongoing monitoring and evaluation of the value created by a life insurance policy should not be neglected.
Discovering that their family as been disadvantaged by shifting industry pricing models, an inefficient premium schedule or the misalignment of their coverage based on their changing needs can severely damage the client relationship … and potentially even expose the advisor to liability. Conversely, pro-actively identifying cost savings opportunities or even liquidity options for exiting the policy can strengthen client loyalty and demonstrate value that extends beyond traditional asset management.
The Tech-Enabled Solution
Traditional life insurance policy reviews conducted by financial professionals were time-consuming, requiring advisors to manually request in-force illustrations from carriers, compare complex policy structures and attempt to evaluate the value of the policy based on limited data.
Modern insurtech platforms are revolutionizing this process. These tools can ingest existing policy data, compare current premiums against market alternatives, factor in updated health information and model various optimization scenarios — all within a matter of minutes.
NsurTech Solutions revolutionizes life insurance management with a software platform that was developed with cutting-edge technology and industry-leading security. It transforms life insurance planning by empowering financial advisors with data-driven insights to help mitigate risks, identify opportunities to maximize policy value, and explore liquidity options with their clients. Our platform was designed from the ground up with state-of-the-art data encryption standards, access controls and authentication, and infrastructure security. For more information, visit www.nsurtech.com.