Life Insurance
Writing the Large Life Insurance Policy:
How To Increase Your Chances Of Landing The Big Case!

by Dave Donchey, CLU

Writing a large life insurance policy is a lot like fishing. When you finally hook the big one, you still have to land it. But, since catch and release practices don’t apply to selling life insurance, you may not get another chance to land that jackpot case if it’s not managed properly.

Getting an insurance carrier to make a competitive offer on a large life insurance policy application is not something you can figure out as you go along. These cases have unique characteristics and they require a comprehensive understanding of how to navigate a case from beginning to end. However, when executed properly, the rewards are well worth it.

Large life insurance policies can easily exceed $30 million of face amount and reach $100 million or more in some cases. But, in this article, we will define a large case as $25,000 or more of annual premium or $5 million or more of face amount.

Most insurance agents don’t have many opportunities to write a large life insurance policy. When the opportunity comes up, they may be out of their comfort zone or they may not be familiar with the ground rules to make it happen after the client says, “Let’s get started.” Mistakes become even more noticeable and significant as the size of the case increases. When a case is mishandled, problems may be difficult or impossible to unwind, or worse, valuable relationships are lost. Whether you are new to this area or you have experience writing large cases, being up-to-date is essential because this industry segment has seen many changes over the past several years.

When an agent has an opportunity to write a large life insurance policy, often, the first impulse is to spreadsheet premiums from multiple carriers and get the client’s signature on formal applications, based primarily on price. But, that may not be the best approach, particularly as the size of the case increases. The key to writing large cases effectively is to understand how life insurance carriers (and their reinsurers) view and underwrite requests for large amounts of coverage. This is especially true when the proposed insured is considered high profile, such as the ultra-wealthy, celebrities, athletes, and other prominent people. The rules change along with the increasing size of the case and prominence of the person. In other words, some cases may have inherent risks that various carriers and reinsurers will underwrite differently.

Large life insurance sales are usually the result of strong relationships between the insurance agent and the clients or others who are well connected to the client, such as a business manager or key advisor. Handling a large case improperly can ruin a relationship that has taken years to develop. Most agents agree that second chances are rare.

On the other hand, a well-orchestrated large case with a positive outcome often leads to substantial residual benefits (besides handsome compensation), such as additional insurance sales, other planning opportunities, and referrals.

A number of discussion topics can open doors to writing large life insurance policies, such as in-force policy reviews, legacy planning concepts for people with large estates, premium financing strategies, and business insurance arrangements.

Many large cases occur as a result of important relationships that have been developed with primary centers of influence, such as CPAs, business managers, attorneys, or key financial advisors. Agents often assume that someone else is handling these large transactions even when no one has discussed these concepts with the client or key advisor.

An effective strategy and strong back-office support can make large cases easier to place. Once a client or key advisor shows an interest in purchasing a large life insurance policy, a number of preliminary steps will increase the chances that a carrier will make a favorable offer of coverage. When navigating the large case, the old adage says it best, “It’s better to measure twice and cut once.”

Pre-Sale Considerations

Many insurance agents start by comparing carriers’ products and premiums to get a rough idea of the premium that’s required to purchase a given face amount. But, it is still too soon to commit to a carrier because premium comparisons don’t address critical issues with large cases. The least expensive carrier may not have the capacity, ability, or desire to underwrite a large face amount even though you can easily use the carrier’s software to illustrate a large face amount. In addition, some insurance carriers need support from reinsurance companies before they can make an initial commitment to coverage. If you overlook these potential obstacles, the insurance carrier you selected can quickly become a dead-end option, wasting of time and energy for you and your client.
An important early step is for the agent to ascertain how much in force and pending (or “applied for”) life insurance coverage the client has. This amount will factor in to how much additional coverage can be written because of individual, carrier, and industry limits. It will also affect which carrier or carriers are eventually selected to write the coverage. There is a process that must be followed in order to maximize the amount needed in lieu of the limits that are set. For example, simply submitting a very large application to a carrier may violate the carrier’s jumbo limit, taking underwriting authority and control away from the carrier and sending the case directly to the reinsurance market.

An effective approach is to first take advantage of a carrier’s automatic binding limit. (An automatic binding limit is a published amount of coverage carriers have the authority to automatically offer, up to certain limits, based on previously agreed-upon reinsurance agreements.)
For the very largest cases, this strategy will reserve carriers that have large retention for back-end capacity. (Retention is an amount of risk a carrier is willing to assume 100% responsibility for without any reinsurance involvement.) Be careful to avoid compromising a carrier’s automatic binding limit, especially when there is existing life insurance coverage or pending applications. These combined amounts of coverage may exceed a carrier’s authority to offer coverage automatically without reinsurance support. If this occurs and the amount exceeds the automatic binding limit, the risk must be submitted to reinsurance for review.

Matching the client to the most suitable insurance carrier is an important step for any life insurance case, especially for the large case. For the largest of the large cases, it may be necessary to look to several insurance carriers to place the total risk because an individual carrier’s Retention plus their automatic binding limit, referred to as an automatic issue limit, may still fall short of the total amount of coverage being sought. In some cases, it may be more effective to initially avoid reinsurance support, which will reserve the opportunity for negotiation at the insurance carrier level. Once individual carrier Retention limits and automatic binding limits have been exhausted, it will be necessary to look to reinsurance support for high-end capacity.
There are many excellent life insurance carriers. But some are more suitable for specific large cases, especially for cases with a face amount above $50 million. Early fact-finding conversations with the client or key advisor should reveal additional risks commonly associated with clients who purchase large amounts of life insurance. Factors such as avocation, aviation, foreign travel, citizenship issues, or other pertinent high-profile risks affect underwriting. Because most large cases involve high profile people, it’s important to consider these issues before proceeding and certainly before leading a client to believe that they will be able to get coverage with the company that offered the lowest premium in the comparison. Measure twice, cut once!

Assessments

The client will eventually have to submit to an insurance examination for coverage, but there may be appropriate reasons to delay this requirement until other preliminary steps have been taken. Depending on the size of the case and the client’s age, another consideration is to determine the viability of the case early on. You do this by conducting a preliminary assessment before submitting the case to specific insurance carriers. You can do this by getting copies of medical records after obtaining the client’s authorizations on the necessary medical release forms.

Some insurance offices or agencies use in-house underwriters to assess a case. An in-house underwriter gathers, summarizes, and analyzes medical and financial information before a potential large case is ever submitted to an insurance carrier in a formal application. This helps determine whether a life insurance carrier would be willing to offer coverage and if so, at the most likely rate classification that best matches the proposed insured’s medical and financial profile.

This process makes preliminary premium comparisons more accurate although you will not know the ultimate premium until the carrier makes a formal offer of coverage. This process also reduces the likelihood that you will send an application to an insurance carrier only to find out that the carrier was not a suitable match in the first place.

This preliminary assessment helps pinpoint which carriers are most likely to be interested in the risk. It should also reveal whether a carrier would require significant premium surcharges or not offer coverage at all due to the client’s medical history. Determining this information early will save valuable time for you and the client. No client, especially an affluent one, wants to be examined unnecessarily if it’s not going to lead to something they want. Measure twice, cut once.

Large cases are subject to financial underwriting, which is a routine part of any life insurance application process. Life carriers do a lot of due diligence on large cases to make sure that there is an insurable interest for the amount of life insurance that’s being applied for. Stranger owned and investor owned life insurance strategies have led to greater scrutiny of all large life insurance applications. Life insurance carriers are more concerned than ever about material misrepresentation and fraudulent activities used to secure large life insurance policies where no insurable interest exists.

The life carrier’s underwriter is required to determine the legitimacy of the case and whether the large amount of life insurance can be justified financially. As a result, it’s important, early on, to determine whether the amount of life insurance, in question, can be justified financially and to inform the client that they will have to participate in an inspection report, which is required as part of the verification process.

It is appropriate to schedule the insurance examination after addressing premium tolerance and taking preliminary steps to determine whether the proposed insured should qualify for coverage financially and medically (barring any unforeseen problems). Insurance carriers routinely use their own medical doctors to perform insurance examinations from independent paramedical firms for large life cases. But, in some cases, they make exceptions to allow a client’s own physician to conduct the examination. Once the examination has been completed, the insurance carrier can begin to review the case including a review of the exam and lab findings.

In certain instances, an informal inquiry will be appropriate in lieu of a formal application. An informal inquiry, also known as a “trial application,” involves sending a summary of the case to the insurance carrier or carriers for review. The trial application uses medical records, the completed examination, lab results (obtained by the insurance carrier), and a detailed cover letter explaining the purpose of the proposed insurance coverage. A qualified in-house underwriter, who can communicate details of the case to the carrier, often handles this step. If the carrier can offer coverage, a tentative premium rate classification is based on the proposed insured’s health. This step does not require a formally completed application. It simply indicates whether the carrier is interested in issuing coverage. At this point, any coverage offers are considered tentative. These tentative offers are subject to any final outstanding medical or financial requirements as well as administrative requirements, such as a formal application and related paperwork.

The Formal Application

Once the carrier gives tentative approval, a formal application is submitted to the carrier. Along with the completed application, you should include a detailed cover letter that explains the background of the case. Cover letters include information, such as the purpose of the insurance, the client’s income and net worth, the amount of coverage to be placed, whether it is a replacement of existing insurance, and other pertinent information. Cover letters give underwriters valuable insight, often providing them with additional reasons to justify the need for the life insurance. To win the case, it’s important to win the underwriter.

The inspection report is another requirement for large case underwriting that you should discuss with the client or key advisor. The carrier generally orders an inspection report after receiving the formal application. An independent inspection firm usually conducts a detailed phone interview, although some carriers may choose to do an internal inspection report. Inspection reports involve verifying confidential background information including questions about the proposed insured’s health history and questions about business and financial information. These interviews are usually directed to the proposed insured or policy owner, but in some cases, the information can be obtained through third-party sources, such as a CPA or business manager.

In Summary

Finally, managing the client’s expectations is one of the most important, yet overlooked considerations in securing large life insurance policies. Clients and their advisers may have their own ideas about what is required to purchase a large life insurance policy and how long the process should take. Experience in this market segment proves that large cases can be complex and they require a detailed strategy. They generally take longer to process than smaller cases.
Knowing what the client already expects and informing them of what they should expect will reduce the likelihood that they will be disappointed. To help overcome unrealistic expectations, you need to understand and communicate the process early and often throughout the entire case history. This will help you not only meet the client’s expectations, but also exceed expectations in many cases.
Every large life insurance case has unique circumstances that call for a specific strategy and there are many important tactical steps to consider when working in this market. Just as in fishing, good fundamentals generally improve the chances of success. Deliver what the client wants by following a plan that includes a viable, proven approach. By doing so, you will significantly increase the odds of landing that large life insurance policy. =
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Dave Donchey, CLU, is the president of Leisure Werden and Terry Agency, a full-service brokerage general agency located in Pasadena and San Francisco, California. LWT represents major life insurance carriers to the insurance professional. Mr. Donchey can be reached at 800-272-2212 x240, or by email, Dave.Donchey@lwtagency.com.